Document of

THE WORLD BANK

FOR OFFICIAL USE ONLY

Report No. P-7451-MOR

REPORT AND RECOMMENDATION

OF THE PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMMENT

TO THE

EXECUTIVE BOARD OF DIRECTORS

ON A PROPOSED

INFORMATION INFRASTRUCTURE SECTOR DEVELOPMENT LOAN

IN THE AMOUNT OF US$65 MILLION

TO THE

KINGDOM OF MOROCCO

April 16,2001

Finance, Private Sector and InfiasttureMiddle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the perfbrmance oftheirofficial duties. Its contents may not otherwise be disclosed without World Bank authorizatioaL

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Curresiy and Excdawn Rakt(as of March 28,2001 )

Currency Unit = Dirham (MUAD)US$1.00 = MAD 10.9

FiSCAL YEARJuly I - June 30

ABBREVIATIONS AND ACRONYMS

AFDB African Development BankADM Societt des Autoroutes du MarocAl Alternative InfrastructuresANRT Agence Nationale de Reglementation du Secteur des TMlecommunicationsAOL Administration on lineBAJ Barnamaj al Aoulaouiyat al Ijtimaiya (Social Priority Program)BAM Barid Al-Maghrib (the postal operator)CAS Country Assistance StrategyCCP Comptes Cheques PostauxCDG Caisse de Dipot et de GestionCEN Caisse d'Epargne NationaleCMU Country Management UnitCTF Consultant Trust FundsEU European UnionFDI Foreign Direct InvestmentGIPE Gestion Integree du Personnel de I 'EtatGDP Gross Domestic ProductGMPCS Global Mobile Personal Communications SystemGOL Government on lineGOM Government of MoroccoGPCS Global Personal System for Mobile CommunicationsGSM Global System for Mobile CommunicationsIAM ItissalatAl-Maghrib (the incumbent telecommunications operator in Morocco)ICT Information and Communication TechnologiesIDA Interchange of Data between AdministrationsIDF Institutional Development FundIFC International Finance CorporationINPT Institut Nationai des Posies et TelhicommimicationsIIS Information Infrastructure SectorIISDL Information Infrastructure Sector Development LoanIMF International Monetary FundIPO Initial Public OfferingIT Information TechnologyMAD Moroccan DirhamsMSPP Ministere du Secteur Public et de la PrivatisationOED Operation Evaluation DepartmentONCF Office National des Chemins de FerONE Office National de l 'ElectriciteONPT Office National des Postes et Telecommunications

PA Public AdministrationPBAX Private Branche Automatic ExchangePHRD Policy and Human Resources DevelopmentPTO Public Telecommunications OperatorSEPTI Secretariat d'Etat Charge de la Poste et des Nouvelles Technologies de lI 'nformationTA Technical AssistanceTPI-SAL Telecommunications, Post and Information Technology Sector Adjustment LoanUNCITRAL United Nations Commission on International Trade LawUSAID United States Agency for International DevelopmentVAS Value-added ServicesVSAT Very Small Aperture TerminalWTO World Trade Organization

Vice President: Jean Louis SarbibCountry Director: Christian DelvoieSector Director: Emmanuel ForestierTask Team Leader: Clemencia Tonres

FOR OFFICIAL USE ONLY

KINGDOM OF MOROCCOINFORMATION INFRASTRUCTURE SECTOR

DEVELOPMENT LOAN

TABLE OF CONTENTS

Loan Summiary

I. INTRODUCTION 1

H. POLMCAL AND ECONOMIC CONTEXT 2

A Political Context 2B. Recent Economic Performance 2

C. Economic Outlook Fimcncing Requirements, and Risks 4

Ill. REFORM PROGRAM IN THE 1NFORMATION INFRASTRUCTURE SECTOR 5

A. Government's Strategy 5B. Poverty Impact of the Reforms in the Information Infrastructure Sector 6C. Progress to Date 6D. Reform Agenda 7E. BankStrategy 11

IV. THE PROPOSED LOAN 12

A Loan Rationale and Country Assistance Strategy 12B. Loan Objectives andActions to be taken prior to the Board 12

C. Technical Assistance 13D. Fiscal Impact of the Reforms 14E Disbursement andAuditing 14

. Cofinancing 15G. EnvironmentalAspects 15H. Social Aspects: Program Objectives and Poverty Category 15I Monitorable Indicators 15J Benefits andRisks 16

V. RECOMMENDATIONS 17

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not be otherwise disclosed withoutWorld Bank authorization.

KINDGOM OF MOROCCOINFORMATION UNFRASTRUCTURE SECTOR

DEVELOPMENT LOAN

TABLE OF CONTENTSANNEXES

Annex I Letter of Sector Development PolicyAnnex II Matrix of Policy Objectives And ActionsAnnex III Key Information Infrastructure Program Milestones (2000 - 2002)Annex IV Key Sector Data: Information Infrastructure Sector OverviewAnnex V Monitorable IndicatorsAnnex VI Fiscal Impact of the ReformsAnnex VII Timetable of Key Processing EventsAnnex VIII Status of Bank Group Operations in Morocco: Operations PortfolioAnnex IX Key Macroeconomic IndicatorsAnnex X Morocco at a GlanceAnnex XI Map of Morocco

TEXT FIGURES AND TABLES

Table ll.1. Morocco - Financing PlanTable 111.1. TPI-SAL IndicatorsTable IV. 1. Monitorable Indicators

This report is based on the work of missions to Morocco during July 1999 to March 2001. The mission teamcomprises: Clemencia Torres (Task Team Leader) (LCSFE, since October 2000); Pierre Guislain i(PSAEU),Paolo Zacchia, Karim El Aynaoui, Amine Khene (MNSED); Carlo Maria Rossotto, JUrgen Lohmeyer, IsabelleAndress, Catherine T. Doody (CITPO), Lorenzo Savorelli, Leila El-Hafi (MNSIF) and Bjorn Wellenius(consulant). Maude Jean-Baptiste (MNSIF) contributed to the editing of the document. Nicole Wautiez deBlaye translated the main document into French.

KINGDOM OF MOROCCOINFORMATION INFRASTRUCTURE SECTOR DEVELOPMENT

ADJUSTMENT LOAN

LOAN SUMMARY

Borrower: Government of the Kingdom of Morocco

Amount: US$65 million equivalent, including a standard front-end fee of I per cent, to bemade available in a single tranche upon loan effectiveness.

Terms: Fixed Spread loan in US$ with a commitment-linked schedule, and a 20 year finalmaturity, including an 8 year grace period. Disbursement is expected to take placeupon effectiveness of the loan.

Objectives: The proposed Information Infrastructure Sector Development Loan (IISDL) isdesigned to achieve three main objectives: (1) to support the Government'sprogram to deepen market liberalization, increase private participation, extendservices and strengthen the regulatory environment of the telecommunicationssector; (2) to assist the Government in the formulation and implementation of astrategy for the use and development of information technologies; and (3) toformulate a national strategy for the postal sector, including the financial servicesprovided through the postal network, which will serve as a basis for further specificreforms.

Description: The IISDL supports a wide range of actions in the telecommunications,information technology and postal sectors, outlined in section IV.B, in Annex I(Letter of Sector Development Policy) and in Annex II (matrix of policy objectivesand actions).

Benefits: The development of a modern and diversified information infrastructure will have apositive impact on private sector development and economic growth, thuscontributing to poverty reduction. Extension of communication and postalfinancial services to remote, mainly rural areas will improve the living standards ofthe rural population thereby reducing the urban/rural gap.

Risks: The main risks associated with the implementation of the Government programinclude: (a) a possible slow down in the introduction of effective competition in thetelecommunications sector (fixed line voice services); (b) weak institutionalcapacity to design and implement reforms, specially in the IT and postal sector; (c)challenges to the regulatory agency's autonomy and its capacity to performefficiently, (d) delays in the elaboration and adoption of a new legal and regulatoryframework in the postal sector; and (e) insufficient coordination among ministriesfor the development of IT-based initiatives.

Risk mitigation:. The results already achieved by the Government, notably the successfulprivatization and issuing of the second GSM license, which led to lower tariffs,increased access to telecommunications and significant capital inflows, representthe best protection against a possible po!icy setback. In addition, the Bank teamwill maintain a continuous dialogue with all parties concerned. Furthermore, theAfrican Development Bank (AFDB) two-tranche operation will provide additionalleverage to monitor the implementation of subsequent reforms in 2001-02.

Poverty Category: The loan supports a program of targeted intervention aimed at facilitating theaccess of poor peri-urban and rural areas to a modern means of information andcommunication services, as well as to basic financial services provided through thepostal network.

ii

I. INTRODUCTION

1. Morocco is at the forefront of the liberalization reforms in the telecommunications, postal andinformation technology sectors in the MENA Region. The Government's program of market-orientedpolicies and regulatory capacity building in telecommunications has transformed the sector in less thanthree years. The introduction of competition in the mobile market was an unmitigated success. In asingle year, prices dropped four times, the number of mobile customers grew by over 2 million, capitalinflow surpassed US$1.3 billion and 20,000 new jobs were created. Private participation was introducedin several market segments as the competent independent regulator, Agence Nationale de Reglementationdes T6lecommunications (ANRT) awarded several licenses to VSAT and GMPCS operators. In 1999, theBank supported this program through the Telecommunications, Post and Information Technology SectorAdjustment Loan (TPI-SAL), now fully disbursed.] Building on these achievements, Morocco recentlyintroduced a second phase of reforms aimed at bringing the benefits of the information andcommunication revolution to a larger share of its population, in particular low income groups, and atestablishing the foundation for a knowledge-based economy. This program, supported by the proposedIISDL, includes three components: (a) further liberalization of the telecommunications market and theprivatization of the incumbent operator through a transparent and competitive tender; (b) theimplementation of a strategy for broadening the use and access of information technologies; and (c) theformulation of a national strategy for the postal sector, including postal financial services.

2. The IISDL was originally designed in 1999, jointly with the AFDB, as a US$100 million two-tranche operation. Balancing the Government request for further Bank support in a sector where itsperformance has been very good with the overall fiscal triggers of the base case program being advocatedby the new CAS was a delicate question. It was decided to restructure the operation as a one-trancheloan, to reduce its size, and to present it jointly with the CAS. This decision is predicated upon (i)Morocco's substantial sector achievements underpinned by a strong policy dialogue with the Bank; (ii)the new avenue for economic development that ICT offers in terms of growth, job creation and potentialto reduce exclusion by extending access to communication services to remote areas and low-incomegroups at an affordable cost; and (iii) the quality benchmark and demonstration effect that the reformprogram in the ICT sector has had throughout the MENA region and beyond. While the operation hasbeen redesigned as a single-tranche loan, it maintains its original purpose of supporting the reformprogram of the Government in the IIS, as defined in the Sector Development Policy Letter of May 2001(Annex II). The AFDB has maintained the two tranche structure and the original amount of its loan (US$100 million equivalent), with a first set of actions and policies identical to those supported by the IISDL,and a second tranche supporting actions and policies that are fully consistent with the overall Governmentreform program agreed with the Bank. Finally, the proposed operation will enable the Bank to continue adialogue in the area of ICT applications, notably in postal modernization, and E-Government which isexpected to lead to the preparation of follow-up operations, consistent with the new CAS.

i The US$10 Imillion TPI-SAL was approved by the Board on May 12, 1999 (Reort No P-7265-MOR and SeM2000-734).The second tranche of US$50 million was released on December 20,2000.

II. POLITICAL AND ECONOMIC CONTEXT

A. Political Context

3. Morocco's political context has undergone a phase of extraordinary opening during the past threeyears, with important potential effects on development policies. In September 1997, the Hlouse ofRepresentatives was elected by universal suffrage for the first time, as called for under the newConstitution of 1996. Following the elections, late King Hassan II appointed Abderrahmane Youssoufi,the leading opposition figure and a onetime exile, as Prime Minister in February 1998. Mr. Youssoufiheads a Government backed by a seven-party center-left coalition, the Koutla, which holds 102 of thelower chamber of parliament's 325 seats. This Government marks the first time in independentMorocco's 42-year history that the historical opposition has had the opportunity to govern. Following alimited reshuffle in September 2000, which inter alia brought a new secretary of state for p)ost andinformation technologies and saw the absorption of the privatization ministry into the ministry of finance,Mr. Youssoufi's Government is generally expected to remain in office until the next legislative cilectionsin 2002.

4. Political democratization and modernization have been gaining further momentum sinceMohammed VI's accession to the throne in July 1999. The new King has strongly stressed social,poverty, governance and gender issues in his speeches, as well as the need for 'a new concept ofauthority' based on the rule of law, and on a public administration supporting development rather thanmaintaining tight control on society. These are precisely the huge challenges the Government is f-acing inits pursuit of policies aiming at strengthening economic growth and fostering social development whilemaintaining a sound macroeconomic framework. In this context, foreign investment and the opening ofMorocco to information technologies will be crucial to a successful program of economic restruicturing,liberalization and trade opening that should lend to faster growth, that would in turn reduceunemployment, social disparities, and poverty.

5. The Government's general economic and social program combines: (i) commitment to maintain astable macroeconomic framework, and current policies that ensure a satisfactory degree of short-termmacroeconomic stability, (ii) reforms to improve public sector performance and promote administrativedecentralization; (iii) economic and social reforms that have achieved clear progress on access to basicsocial services, an acceleration of rural infrastructure development, and an active partnership of theGovernment with civil society; and (iv) measures to harness the potential for private-sector-ledl growthincluding the liberalization of the financial markets, reforms in the customs and tax administration,establishment of commercial courts, adoption of competition laws, and introduction of privateparticipation in many infrastructure sectors. The liberalization and privatization of thetelecommunications sector has brought a windfall of license and privatization revenues. The way theGovernment uses these resources will, to a great extent, determine its future prospects. The servicessectors, however, such as tourism and information technologies, are emerging strengths, showing greatpotential for diversifying Morocco's economic structure in the years ahead.

B. Recent Economic Performance

6. Starting in 1983, and triggered by external financing pressures, Morocco implemented a forcefuladjustment program that implemented deep structural reforms, cut the fiscal deficit, devalued the Dirham,and liberalized trade. Growth was driven by a very good performance of agriculture, and by adiversification of the country's exports, with a strong surge in manufacturing goods. Total exportsexpanded at an impressive 15 percent per year in dollar terms over the period This performance enabled

2

Morocco to make encouraging progress towards poverty reduction, with the poverty incidence decreasingfrom 21 to 13 percent of total population between 1984/85 and 1990/91.

7. But, whereas GDP grew at an annual average rate of 4.4 percent during the second half of the1980's, it dropped to well below 2% p.a. in the 1990's. This slower economic growth and the drought-induced rising volatility translated into decreasing private consumption, and in turn into an increase inpoverty, that soared to 19% of total population in 1998/99. While the slowdown in economic growth waspartly driven, directly or indirectly, by the situation in agriculture, non-agriculture GDP growth also sloweddown: the trend of non-agriculture GDP growth was roughly 3 percent in the 1990's.

8. Stabilization has remained a paramount objective of economic policy. It has been by and largesuccessful, and allowed Morocco to regain strong international credibility. As a result, in the 2nd half ofthe 1990s, Morocco has kept inflation under 3 percent p.a. and the current account deficit at around 1percent of GDP, and further reduced central Government external debt below 40 percent of GDP by theend of 2000. However, despite the pursuit of a prudent fiscal policy, fiscal management remains moreconstrained than suggested by the deficit figures that, until recently, remained in the range of about 3percent of GDP.2 Consequently, the underlying fiscal problems have started to surface, and havetranslated into much higher deficits in the 2000 and 2001 budget laws. In 2000 (annualized), the budgetdeficit is estimated to have reached a record level of 6.4 percent of GDP. Due to the delay in theprivatization of IAM Telecom, the debt creating deficit increased from less than 1 percent of GDP in1999/00 to 6.4 percent in 2000.

9. Structural reforms have continued to be implemented but with less momentum than in the late1980s. Private participation in infrastructure has been promoted much more forcefully and recently,privatization picked up remarkably with the partial sale of IAM. However, a recent private sector surveysuggests that administrative procedures remain the main constraint impeding business development. Theunfinished agenda of structural reforms remains in any case substantial. There remains an importantportfolio of public participation in 700-odd enterprises, and very large public groups or conglomerates.Trade liberalization has clearly lost pace since the turn of the 1990s, with protection typically remainingat 30-35% for one-third of non-agricultural imports. It was recently revived through the AssociationAgreement with the EU, now in force, and the conclusion of several international trade treaties with otherArab countries.

10. In the balance of payments, the current account deficit improved to 0.4 percent of GDP in 1998(from 1.7 percent in 1996), reflecting faster growth in phosphate and re-exports, and slower growth inimports. Despite slow exports growth and an acceleration of imports, the current account deficitremained well below 1 percent of GDP in 1999. Morocco's external position has remained sound in 2000,despite a significant deterioration in the trade balance mainly driven by unfavorable terms of tradedevelopments resulting from rising oil prices, subdued export performance, and the growing structuraleffect on imports of the tariff reduction under the partnership agreement with the EU. As a result, anddespite substantial tourism receipts and migrant transfers, the current account deficit is estimated to havegrown to 2.5% of GDP in 2000. In the meantime, external financing needs were eased by lower long-term debt amortization and the use of external reserves, which remain however at a conformable levelafter an all time high in 1999.

2The last two budgets relied heavily on one-time measures, such as exceptional 'dividends' imposed on public enterprises; lump sums paid byprivate enterprises as part of a tax amnesty scheme; and the sale of State assets. The INF has estimated the 'structural' deficit at 4.8 percent ofGDP for FYOO, and 5.5 per:ent for the curent fiscal year.

3

C. Economic Outlook, Financing Requirements, and Risks

11. Following the two consecutive years of drought, characterized by almost no grov,th, theMoroccan economy is expected to expand by 8 percent in 2001, mainly reflecting a rebound in agricultureproduction, a slight increase in non-agriculture GDP and strong recovery in key services sectors, such astourism. Non agricultural GDP is foreseen to increase moderately from 3.5 percent in 1999, to 3.9percent, mainly reflecting the impact of the fiscal impulse and the 5 percent adjustment of the exchangerate. At the sector level, the expansion rebound in the tourism, communication, and construction sectorsis expected to continue. The current account deficit, fuelled to 1.6 percent of GDP in 2000 by the (irought,higher oil prices, and subdued export performance, would remain at this level in 2001, mainly clue to ahigher fiscal deficit.

12. The 2001 budget law plans a deficit of 8.4 percent of GDP. However, thanks to the privatizationof IAM, for an amount of DH23.3 billions, or 5.4% of GDP, non-debt creating deficit should be set at 3percent. While the debt-creating fiscal deficit remains manageable, and despite a track record of strictbudgetary execution in the last three years, the new budget confirmed the serious deterioration- in thestructure of public expenditures started in 2000: it results in a very low level of government savings thatcould, in the medium-term, represent a threat to fiscal sustainability.

13. In the medium term, it is projected that, barring any significant modification of the macroframework, trend GDP growth would not increase much, and average around 3.5 percent from 2002 tom2004. A detailed account of medium-term prospects is provided in the 2001 CAS document.

14. Risks. The reliance on exceptional revenues (exceptional tax amnesty in 1998/99, GSM licensereceipts in 1999/2000, privatization of IAM in 2001) to finance increased deficits is not sustainable in themedium term. On the macroeconomic side, the situation should remain manageable in 2001. However,with this fiscal policy, the country's exposition to exogenous shocks, such as further increases in oilprices, a surge in international interest rates, is higher. In the medium term, a pursuit of the current policycould lead to instability by stimulating inflation, eroding further the external competitiveness and lead toan increased current account deficit.

15. Major exogenous risks on Morocco's growth performance and external position include: (i)vulnerability to consecutive severe droughts and related volatility of output; (ii) contingent liabilities; and(iii) external shocks, such as a hike in international interest rates, fast deterioration of terms of trade, andan important dependency on EU economic performances. Also, the fact that the Hassan II Fund is nowentitled to receive half of all privatization receipts constitutes an important reduction in the margin ofmaneuver of the fiscal policy, and a potential source of higher expenditures with weak Parliament control.On the whole, the Government has the capacity to ensure base line fiscal sustainability but it would bedamageable if the adjustment is again realized by cutting drastically public investment.

16. Financing requirements and Bank support. The current account deficit is predicted to improveslightly from its projected 2001 level, -1.5 percent of GDP, to around -1 percent in the medium term.Tourism receipts would be sustained and workers remittances would grow moderately. The currentaccount deficit would remain manageable thanks to substantial net foreign capital inflows - around 2percent of GDP p.a. - resulting from privatization operations and foreign direct investment. In addition,important concessional funding from the EU is expected as the MEDA program is projected to improveits disbursement ratios. Morocco's financing needs would also be driven by external debt repaymentsincreasing from around US$2 billion to US$2.8 billion between 2000 and 2003, especially as rescheduledLondon Club private debt comes on stream in the next few years. Total external debt outstanding wouldas a result decrease further by 2003 to reach 46 percent of GDP. In the context of the CAS, the

4

Government and the Bank have drafted a medium term financing plan which projects IBRD commitmentsof the order of 250m US$ per year in the base case.

Table 11.1: Morocco - Financing Plan (Mln US$)

:~ ~~~~~~~~~ _

Financing Requirement 2263 2763 2152 3766 2552 4937 2866 3129 3284

Current Account (excl. grants) 35 -87 -144 -156 -548 -537 418 -409 432Debt Servicea 3352 3190 2782 3047 3534 3614 3496 3656 3344Amortization 2006 2123 1761 1971 2413 2541 2480 2706 2440Interest 1346 1068 1021 1076 1121 1073 1016 949 905

Reserve Build_Upb 292 553 247 1638 -409 1858 -32 13 413

Financing Sources 2263 2763 2152 3766 2552 4937 2866 3129 3284

FDI and Portfolio Capital 469 1108 337 846 113 2647 1000 1000 1000Medium and Long Term Loans 1757 1313 1586 2541 2290 2199 1766 2057 2178a. Multilateral 797 568 641 781 594 776 717 738 789b. Bilateral 532 283 214 243 575 558 497 552 493c. Private Guaranteed 337 187 393 432 892 595 437 547 501d. Private Non-Guaranteed 91 275 338 1085 230 270 115 220 395

Official Capital Grants 0 0 0 0 50 0 0 0 0Other Capitalc 38 342 228 380 99 91 100 73 106

a. Includes IMF interest paymentsb. Includes IMF credit purchases and repurchasesc. Mostly net short term capital, changes in assets holdings of commercial banks and private citizens

III. REFORM PROGRAM IN THE INFORMATION INFRASTRUCTURE SECTOR

A. Government's Strategy

17. Developing a high-performance information infrastructure sector (IIS) is a centerpiece of theGovernment's economic and social agenda. A modern IIS will make a major contribution to acceleratingeconomic growth and reducing social disparities. It will enhance the competitiveness of Moroccanenterprises, bring them closer to international markets, and facilitate the integration of the country in aglobal information-based economy. A modern and extended IIS will also bring additional benefits to thesociety as a whole through a more efficient provision of social services like education and health andthrough the modernization of the public administration. Additionally, the modernization of the postalsector will lead to a more efficient provision of some basic financial services, taking advantage of anextended postal network that reaches many marginal and remote areas without access to other forms ofbanking services.

18. The Government has adopted an integrated approach to telecommunications, postal and ITreforms. Such a comprehensive approach is necessary, as the convergence of technologies used by thethree sectors is increasingly blurring traditional boundaries among them, and businesses often demandintegrated solutions to their communication, information and delivery needs. As detailed below, the sharp

5

decline in the cost of these technologies represents not only an opportunity for accelerated growth and jobcreation but also for reaching out to lower income populations in remote areas and extendingcommunication services at an affordable cost. In sum, in terms of creating opportunities, reducing thecost of exclusion borne by the poor and improving access to government and public services, ICT offers awhole new avenue for economic development with particular relevance to the poor.

B. Poverty Impact of the Reforms in the Information Infrastructure Sector

19. Growth and job creation. IIS reforms are expected to foster growth and employment creation, akey contribution to poverty reduction. As an example, with the introduction of competition in the m-nobilemarket, the total of IAM's GSM subscribers jump from 116,600 in 1998 to over 2.4 million by endDecember 2000. There has been around 6,200 new direct and indirect jobs created since 2000 in thetelecommunications sector.3

20. Development of sustainable business opportwities in remote areas, through increased access tocommunication, information and delivery services. IIS reforms facilitate the extension of telecommun.icationand postal services to the poor, especially in rural areas. The liberalization of all segments of thetelecommunications market can also lower the cost of doing business in remote areas. This, in turnfacilitates information and retail opportunities for farmers and artisans in more remote areas. The VirtualSouk, launched in 1998 as a collaborative effort between the World Bank Institute and local commnunityassociations in various MENA countries, is an example of the potential that the internet offers to smallbusinesses and micro entrepreneurs from isolated areas. 4

21. Contribution to other sectors of the economy. The Government intends to promote the sectoralapplications of ICT. Expanding the use of computers in schools through a country wide program is apriority outlined in the Government's strategy for the development of the IT sector. The Government willpromote the provision of basic financial services to populations without access to any other b;mkingservices, taking advantage of an extended postal network that reaches many poor urban and ruraml areasthroughout the country.

C. Progress to Date

22. Telecommunications, information technologies and postal activities are emerging as a modernand vibrant sector of the Moroccan economy. A description of the sectors' performance and of the mostrecent developments is presented in Annex IV. In 1999-2000, the Government implemented an ambitiousreform program supported by the Bank with the TPI-SAL. This program focused on (i) fosteringcompetition in the telecommunication sector; (ii) establishing the legal and regulatory foundation ofcompetitive telecommunication markets; and (iii) laying groundwork for development of the informationtechnology (IT) and postal sectors. As shown below in Table 111. 1, most of the indicators agreed at thetime of TPI-SAL have been met. The Government, and in particular ANRT, have been widely praised forthe openness and transparency of the bidding process for the second GSM license. These were importantfactors in explaining the success of introducing competition in wireless as shown by the price of the

3 Medi Telecom, the operator of the second GSM license began operations on March 29, 2000 employing 2:30 andgenerating indirect employment for about 2000 people. Atento, a subsidiary of Telefonica de Espana, has openedtheir first call center in Casablanca which is expected to generate over 4000 direct and indirect jobs by the end of theyear 2001.

4 This intemet site gives poor artisans, often illiterate women, of Morocco, Tunisia, Lebanon and Egypt, the oppornity to showand sell their handicrafts on the Web ( http://www.elsouk.comi/elsouk.htm).

6

license - US$ 1.1 billion and by the unprecedented subscriber growth that followed competition.5 As aresult of the Government' sound performance, the second tranche of TPI-SAL was disbursed inDecember, 2000.

Table 111.1 TPI-SAL Indicators

Indicator Measure 1998 1999 2000Actual Planned Actual Planned Actual

Market share of Revenue Share (%/o) 0 10 0 22 30the new operator inthe cellular marketNumber of fixed Number of lines 690 747 860 804 906lines outside 2 (000)main cities _ _

Fault Rate No. of faults per 100 lines 42 35 37 30 24.5per year

Suppliers of No. of suppliers of leased I At least 3 1 At least 4 4Leased Lines lines

D. Reform Agenda

23. In a second phase of its reform program, which the proposed IISD loan supports, the Governmentintends to: (i) deepen the pro-competitive reforms, including privatization, in the telecommunicationssector; (ii) bring the benefits of the information and communications revolution to lower income groups,in particular in rural areas, by redefining its universal service policies in both the telecommunications andpostal sectors; and (iii) establish the legal foundation of an information society. The Government hasspelled out its reform agenda with respect to telecommunications, post and IT in its Letter of SectorDevelopment Policy (Annex I). The main components of this program are detailed below.

1. Telecommunications

24. Privatization of Itissalat Al Maghrib (Maroc Telecom) As part of its overall sectorliberalization program, the Government decided to transfer 35 per cent of the capital, as well as a majorityon the management board (directoire), of historical operator Itissalat Al Maghrib (IAM) to a strategicprivate investor, following an international competitive bidding process. The arrival of the strategicpartner in February 2001 provides IAM with the financial and managerial resources needed to faceincreasing competition in its domestic market and to expand in other markets. 6 IAM's regional ambitionshave been expressed through its recent acquisition of a majority stake in Mauritel, the Mauritanianincumbent operator.

5 See Wellenius B. and Rossotto C-M.: "Introducing Telecommunications Competition through a Wireless License: Lessonsfrom Morocco" ViewPoint N. 199, November 1999. The World Bank Group, Wasing D.C.

6 After an expression of interest phase lastng about 6 months, the formal tender was launched in October 2000 with a biddingdeadline of December 20, 2000. The Govemment had set a minimum price of 20 billion DH . Vivendi Universal, the buyer,paid 15% above this price, or US$2.1 billion. Financial closure took place on February 20, 2001. The strategic partner controlsthe management board, and the government the supervisory board All major decisions require agreement of both.

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25. Following the strategic sale, the Government will continue to lower its ownership in IAM. Inconsultation with the strategic investor, it will offer shares to IAM's employees and retirees. In addition,to favor wider spread ownership and to attract additional capital, the Government intends to sell anadditional 15% to 20% of IAM's capital through an initial public offering (IPO). The IPO will probablybe launched in 2002, depending on market conditions, on the Casablanca stock market and on aninternational exchange.

26. Deepening competition in telecommunications infrastructure and services. The Governmenthas adopted a timetable to grant new licenses for networks and services to accelerate liberalization. Thenew licenses will include fixed telephony licenses (local access licenses especially in large metropolitanareas, as well as a second national license) to be launched in 2001. In a first phase (up to end-2002), thenew fixed license-holders would not be allowed to provide public telephony services (i.e. public voice toend customers), but would provide data, Internet, leased lines, private network and other services. Thelicensees will be required to deploy broadband networks enabling fast Internet access and multimediaapplications, which should set the stage for a major growth in the use and application of these newtechnologies. From January 2003 on, the prohibition of these new operators to provide voice serv ices toend-users would terminate and they would thus become full-fledged competitors to L&M in theirrespective market segments. Additionally, starting January 1, 2002, the second GSM operator will launchan international services for its own customers, introducing competition in this segment for the first time.This trend will be reinforced with the award of additional international licenses in 2002.

27. To promote the introduction of competition, the Government is taking measures (includinglegislative) to facilitate the use of "alternative infrastructures": other utility and transport companies (suchas the power, water, railways or highways companies and authorities) will in this way be encouraged tomake their networks and rights of way available to new telecommunications operators, hence reducing thecost and lead time needed for infrastructure roll-out.

28. Extending access to telecommunication services in poor and rural areas: The Governmenthas set objectives to increase rural teledensity from 0.6% in 2000 to 7% in 2012, and to have at least onepayphone per 250 inhabitants by 2005. Additionally, the Government will present to Parliament a draftlaw to expand the definition of universal service to include telecommunications and information servicesin general, rather than telephony only. The Government considers that telecommunications liberalizationis the most effective tool to achieve increased access to services. The award of the second GSM licensedemonstrates the effectiveness of this approach. In two years, due to rapid expansion of the GSMnetwork, the percentage of the population without access to telephone service has decreased from; about25% to 10%.

29. The Government expects that competition among private operators will achieve most of itsuniversal access objectives. Nonetheless, some gaps will remain and to address these GOM has taken thefollowing steps. First, prior to privatization, IAM's license conditions were modified to includeobligations to maintain existing services in all covered areas and to extend services to 700 additional ruralvillages. In return, IAM is temporarily exempted from the levy on turnover which other licensedoperators have to pay. From 2003, IAM may also seek authorization from ANRT to end rural pavphoneservices and subject these to the prevailing rules for universal service support. Second, a decree is beingdrafted defining a new universal service regime, under which operators will contribute initially 4% ofturnover to a universal service fund. This percentage is set to decline over time, as access to servicesreaches Government targets. This fund will be used to provide limited investment subsidies to com panies(including IAM if interested) bidding for universal service licenses.

30. Strengthening the telecommunications legal and regulatory environment. ANRT has been apioneer in Morocco (and the region) in making extensive use of the Internet and meetings to consult with

8

industry and other parties and to disclose its policies and decisions. ANRT is committed to expand thisconsultation process and adopt more systematic procedures for public consultations and records onimportant decisions of the Agency. New staff rules were adopted by ANRT in 2000, strengthening theability of the agency to hire and retain qualified staff and providing a code of ethics. Parliament is in theprocess of approving a proposed amendment to the telecommunications law (Law 24-96) that wouldremove the a priori financial controls on ANRT and replace them with a posteriori controls. Moreover,the Government intends to submit to Parliament additional amendments in order to strengthen ANRT'spowers and effectiveness in dealing with operators. Under the proposed amendments, ANRT would beable to impose a wide range of sanctions (including financial penalties) for non-compliance, in addition tosuspension of the license.

31. To strengthen the financial autonomy and accountability of ANRT, the Government intends toreview by March 2002 the sources of funding of the agency and adjust regulatory fees to bring them morein line with the cost of regulation. The financial review of ANRT will be preceded by an evaluation ofthe economic value of the spectrum, as well as an assessment of the appropriate mechanism for spectrumallocation, the level of spectrum fees and the distribution of revenues between spectrum management andregulation fees accruing to ANRT, and spectrum scarcity fees accruing to the Treasury.

2. Information Technology

32. The Government's Program in Information Technology development is focused on three mainareas: (1) development of an enabling environment for information and communications based industries,including electronic commerce; (2) establishment of inter-administration networks; and (3) promotion ofICT applications.

33. Development of an enabling environment for information and communication basedindustries, including electronic commerce. The Government program of reforms in this area addressestwo critical factors of a dynamic IT sector: an adequate legal and regulatory framework for e-commerce,and a low cost and modern broadband information and communications network. To this end, an inter-agency commission7, created in June 1999 has prepared a draft Law on data transmission, whichaddresses various issues, including the recognition of electronic signature, and incorporates the principlesof the UNCITRAL Model Law in the areas of electronic commerce. Further activities in this area includethe elaboration of other draft laws addressing, inter alia, certification of electronic transactions,cryptography, privacy, technology neutrality, and consumer protection in the field of electronic media.These additional legal initiatives will complement and integrate the draft Law on data transmission andconstitute a coherent and reliable legal framework for electronic commerce in Morocco.

34. Establish inter-administration networks. A second key area of the IT Strategy for Morocco, isthe introduction of IT to reform and modernize the Moroccan public administration. The importance ofimproving the performance of the Public Administration is reflected in the National Strategy for the ITsector, which includes the implementation of the administration on line initiative (AoL) as one of thepriority areas for policy actions in the sector. The AoL initiative aims to gradually develop a government-wide information system, connect different ministries at central and local level, and establish commoninteroperable procedures. This is expected to streamline administrative procedures, reduce the cost of thepublic administration and benefit citizens and enterprises. In addition, this infrastructure will allow the

7 This iter-agency commisson, involves SEPTJ, ANRT, Mnistner du Comierce et de l'hndustrie, Minist6re des Finances (inparticular, Customs), MNnistere de la Justice, Ministre des Transjrts, BAM and private banks.

9

development of e-government applications and improve services to the public. In terms of implem,ntationof the AoL initiative, the Government has: (a) started to identify key administrative procedures wh ich willmost benefit from the implementation of the AoL initiative; and (b) developed a legal framework for theofficial recognition of administrative documents in electronic fornat. The next step of the iritiative,expected in November-December 2001, will be the launching of a pilot project focused on the IntegratedManagement of the Government's Human Resources (Gestion Integee du Personnel de l'Etat - GIl'E).

35. Promote the development of ICT-related applications through public-private partnerships.As a first step in developing high-end ICT applications, the Government has created a cyber park nearCasablanca and is planning a second park in Bouznika. The parks will host incubators for new ICTenterprises and SMEs. An info)Dex grant is funding a feasibility analysis for the creation of theseincubators. Second, the Government has also signed a contract with two enterprises to dev-.lop e-commerce portals for the benefit of economic co-operatives (groups of local artisans, craftsman, ilrmers,etc.). These electronic portals are ready, certified and in operation as of April 2001. To promote their useamong cooperatives, the Government has launched a program of ICT-education for cooperative managersand a communications campaign to increase awareness, amongst cooperatives, of the benefits of using e-commerce. Additionally, as part as its long term development strategy for the ICT sector, the Governmentalso intends to promote the developmnent of community-based telecenters, including the provision ofinternet access.

3. Postal Sector

36. Elaboration of a development strategy. The objectives of the Government are fourfold: (I) toprovide a postal universal service in line with international standards; (2) to gradually open the postalservice to competition and increased private participation; (3) to strengthen the historical postal operator,notably through its corporatization, as a credible competitor in a liberalized environment; and (4) toincrease rural savings mobilization and to allow greater management autonomy of the postal financialservices. As in telecommunicationis, a central goal of the strategy is to ensure the provision of adequateand affordable postal and financial services provided through the postal network, in poor urban and ruralareas. SEPTI has several studies underway which will provide the basis for the design of a nationalstrategy for the development of the postal sector, including proposals on universal service and marketliberalization.

37. Modernizing the main postal operator. To remain competitive in a market-orientedenvironment which includes universal service obligations, the postal operator has completed, mxith theassistance of external consultants, an action plan for business development and internal restructuring.Increased use of telecommunication services and IT applications play a critical role in this plan toenhance the internal efficiency ( infor.m-ation systems) and to improve the quality of postal services (value-added services).

38. Developing the financial services provided through the postal network. The Ministry ofFinance will launch a study, in collaboration with BAM and SEPTI, to identify actions aimed at (1)ensuring the access to financial instruments for a broader range of consumers, without undue distortionsto fair competition with the banking and financial system; (2) allowing the historical postal operator todiversify its revenue sources ir, a context of postal sector liberalization, and (3) increasing savingsmobilization and improving the allocation of resources towards productive activities.

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E. Bank Group Strategy

39. Current Involvement. The Bank has been involved in Morocco's telecommunications sectorsince the 1980s, initially through two investment projects, which focussed on the development of thenetwork and the strengthening of the historical operator. Both operations were implemented successfully.The first was rated satisfactory by OED and the second highly satisfactory. 8

40. From 1993 to 1998, the Bank focussed on assisting the Government in developing a soundinstitutional and legal framework for opening the telecommunications sector to broad competition. Themain instruments used included: (a) the implementation of the 1993 Telecommunications SectorRestructuring Project; (b) several pieces of economic and sector work presentation;9 (c) the award of anIDF grant for the preparation of telecommunications privatization; and (d) the implementation of the 1999TPI-SAL. Since 1999, the Bank has supported the implementation of the Government program ofreforms in the sector through the TPI-SAL (paragraph 22) and the IISDL (paragraph 23).

41. In 2000, the IFC played a critical role helping MediTelecom, the winning consortium for thesecond GSM license, put together a long term financing package, given the limited availability in thecapital markets of sufficient financing with the necessary terms and long term tenor and withoutmultilateral involvement. The total cost of the project was Euro $ 1.1 billion, and the value of the IFCpackage was Euro $450 million, of which 75 million in Loans A, 25 million in Loans C and 350 millionin Loans B. As in the case of the second GSM, the use of IFC's instruments to support operatorsinterested in bidding for the new licenses could also contribute to foster private participation in the sector.The same is true for the development of IT-related industries, or in joint private-public ventures in thepostal sector, where IFC could consider contributing to the funding of the investments.

42. Future involvement. The Government has identified the following priorities for the IT sector:(i) enhance the business and competitive environment for firms in the ICT sector; (ii) develop technologyparks; and (iii) implement the "Administration on Line initiative". Building on past achievements, someof these initiatives could be supported by the Bank Group.

43. In the postal sector, the SEPTI expressed interest in continuing collaboration with the Bank toimplement the strategy to be agreed following the completion of the on-going study. BAM has as wellexpressed interest in an investment project focused on IT development and universal access. Moreprecisely, BAM intends to develop an e-commerce platform including: on-line tariffs, secured payments,third party certification, an efficient logistical network through which parcels would be delivered andinvestments in the rural areas.

44. Coordination with development partners. The Bank prepared the IISDL jointly with theAfrican Development Bank, continuing the collaboration initiated with the TPI-SAL. The AFDBoperation, which was approved on April 4, 2001, includes a second tranche which will provide additionalleverage to monitor the impact of the reforms supported by the one-tranche IISDL and theimplementation of additional reforms in 2001-02. Special efforts have been made to coordinate thepreparation of the proposed loan with the European Commission, as there are strong complementaritiesbetween the EC's ongoing technical assistance to ANRT and several of the policy actions supported in the

See OED Evaluative Memrandum L2798-MOR (1995) and OED Evaluation Summary L3557-MOR (1998).9 Kingdom of Morocco, Preparinfor the 21st Cenzey - S&egtlinZgthe Private Sector in Morocco, Report 11894-MOR, World Bank June1994; Royawne du Maroc, Participation d secteur prive dans les infrastructures, Eh4cks &conomiques & la Banque mondiale sur le MoyenOrient et I'Afrique du Nord World Bang 1997; Kingdom of Morocco, Private Sector Assessment Update, Fudflling the Promise of PrivateSector-led Growh Report 17950-MOR, World Bank, December 1999.

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proposed loan to strengthen the regulatory environment in the telecommunication sector (See sectionIVC). The Japanese authorities approved a PHRD grant which was used for preparation of the operation.Finally, the proposed IISDL also converges with the program that USAID has launched in Morocco forthe development of e-commerce.

IV. THE PROPOSED LOAN

A. Loan Rationale and Country Assistance Strategy

45. The present one-tranche operation is at the juncture of the 1997 and 2001 CAS. The suistaineddialogue during the preparation of the operation supported the complex process that led to the recentprivatization of the main operator, and related reforms. This is fully part of the 1997 CAS (R97-2 Boarddiscussion date January 30, 1997) that sought enhanced private sector participation in infrastructure, andbroader private sector development. On the other hand, by setting the stage for downstream and retaildevelopment of IT-based services, the reforms set forth in the operation will provide the necessaryunderpinning to the 2001 CAS objectives of supporting a decentralized and participatory approach tofight poverty and exclusion. In particular, this operation would lead towards improving the livingstandards of rural populations by expanding access to a broad range of information infrastructure services.Although concerns over fiscal management have led to link Bank policy based lending to,) strictmacroeconomic triggers under the 2001 CAS, the present operation is justified by the strong track recordand excellent dialogue in the sector, and by the possibility of Bank Group follow-up investmentoperations. Morocco's macro economic framework also remains stable and financing requirementsremain important (paragraph 46). The 2001 CAS recognizes the development of IT based-services as oneof the main business lines of Bank support over the next three years, and both the Bank and IFC plan tosupport investment operations in the sector, which can have an important cross-sectoral impact fordecentralized economic opportunities, diffusion of basic services, employment and growth.

46. The macroeconomic rationale for a quick disbursing loan operation follows from the overallfinancing plan of Morocco's balance of payments as presented in section II.C. With limited access tointernational capital markets, Morocco relies on both bilateral and multilateral donors to ensure a stablefinancing of its external requirements. This is important, as Morocco's external position is still vulnerableto shocks originating from changes in oil and phosphates prices, and from changes in market conditionsfor emerging countries. In this respect, allowing Morocco's international reserves to remain above 5months of imports, while continuing to reduce external debt, is a positive trend that the loan wouldsupport.

B. Loan Objectives and Actions to be taken prior to the Board

47. The overall objective of this proposed single-tranche US$65 million IISDL is to support theGovernment's new phase of reforms in the IIS. As detailed in Part III, this program has three maincomponents: (i) deepen market liberalization, increase private participation, extend services andstrengthen the regulatory environment of the telecommunications sector; (ii) formulate and implement anambitious strategy for the development of IT; and (iii) formulate a national strategy for the postal sector.The Government is showing a strong public commitment to this reform program and has agreed to widelydisseminate its reform program for the development of the Information Infrastructure Sector.

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48. Prior to the Board, the Govermnent has carried out a series of actions summarized below andpresented in further detail in Annex I.

In the telecommunications sector:* Transfer of 35% of IAM's capital to a strategic partner, including signature of: the decree

containing IAM's license (Cahier des charges de l'operateur), reflecting the Government'ssector strategy; the shareholders' agreement, ensuring transfer of IAM's management control toa strategic partner; and the decree transferring 35% of IAM's capital to a strategic partner.

* Definition of universal service obligations included in IAM's license (Cahier des Charges)* Adoption by the Conseil dA'dministration de l'ANRT of the Agency's plan to award licenses

in different segments of the telecommunications market during 2000-2002* Award of a GMPCS license, including voice services, through a competitive bidding process.* Preparation by ANRT of a draft decree defining the new regime for the provision of universal

services.* Adoption by ANRT's Board and effective implementation of a new Statute of Personnel,

including a professional ethics code.* Adoption by the Council of Government of an amendment to Law 24-96, replacing a priori by a

posteriori financial control of ANRT.

In the information technology sector:* Elaboration by the Inter-ministerial Committee on Electronic Commerce of a draft Law on data

transmission, including principles on recognition of electronic signature and its certification.

In the Postal Sector:* Preparation by SEPTI of a national strategy for the development of the postal sector in

consultation with the Bank.a Finalization of the terms of reference by an inter-agency committee (headed by the Treasury in

collaboration with BAM and SEPTI) for a study to present several scenarios for thedevelopment of postal financial services.

49. Prior to the effectiveness of the loan, the Government will have undertaken the following action:

Adoption by the Council of Government of several amendments to the TelecommunicationsLaw to, inter alia: (a) broaden the definition of universal service; (b) authorize ANRT toimpose financial and administrative sanctions proportionate to the violations; and (c)facilitate the availability of alternative infrastructures to potential suppliers of theseinfrastructures and to telecommunications operators.

C. Technical Assistance

50. Various technical assistance initiatives are currently underway or will be launched shortly tofacilitate the implementation of the above reforms and ensure their sustainability. They include:

* Assistance of an external consultant to ANRT to define a position on competition policy that has beenreflected in LAM's license. (funded by ANRT).

* Launching oftwo studies on international experience regarding the impact of accelerated liberalization onthe fiscal flows to the Treasury and on the progress towards universal service. (Funded by PPLAF)

* Long-term (2001-2004) assistance to ANRT by the EU, to be launched in September 2001.* Study on new universal service regime for ANRT on own fnancing, completed in Febraty 2001.* Assistance to ANRT on design and launch of new licenses, started in February 2001 on own financing.

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* Assistance of an external legal expert to the inter-ministerial commission led by SEPTI, to draft the Lawon data transmission (funded by Belgian and Danish CTFs).

* Assistance to the SEPTI to develop an action plan for implementation of its national strategy on theinformation society (funded by PHRD grant).

* Assistance to the SEPTI for the elaboration of a postal sector strategy, including postal financial sevices.

D. Fiscal Impact of the Reforms

51. The net fiscal impact of the reforms is expected to be largely positive, as the revenues :rrom apartial sale of IAM are substantial, and additional tax revenues will be paid by new competitors erteringthe liberalized market. (See Annex VI). A fiscal cost can be expected in the short run due to: (i) phasingout of the monopoly tax for telecommunications services; (ii) transaction costs of privatizing IAM, and(iii) investment needed for the establishment of inter-administration networks (Administration on lineinitiative). These costs will be more than compensated by the privatization proceeds of IAM, and in themedium term by: (i) higher tax revenues, both from IAM and from new operators, due to overall mnarketenlargement; (ii) contribution from all licensed telecommunication operators of 5 percent of re,enues(decreasing over time) to fund universal service and R&D; and (iii) additional license proceeds fronm data,VSAT and GMPCS providers and new network operators.

E. Disbursement and Auditing

52. Disbursement arrangements will follow the simplified procedures approved by the Board onFebruary 1, 1996. The Borrower will open an account in the Central Bank of Morocco. Uponeffectiveness, proceeds will be deposited by the Bank in this account at the request of the Borrower. Ifthe proceeds of the loan are used for ineligible purposes (i.e., to finance items imported from non-membercountries, or goods or services in the standard negative list), the Bank will require the Borrower to either(i) return that amount to the account to use for eligible purposes, or (ii) refund the amount directly to theBank, in which case the Bank will cancel an equivalent undisbursed amount of the loan. Although aroutine audit of the deposit account is not automatically required, the World Bank reserves the right torequire it. The closing date for the IISDL is December 31, 2001.

53. During negotiations, discussions with the borrower took place about specific measures that willhelp IBRD to track the flow of funds from the Central Bank of Morocco to the borrower's budgetaryaccounts, so as to ensure that these funds are used for legitimate purposes and that withdrawals madefrom the account are used for purposes acceptable to the Bank. To achieve this objective, the followingprocedures will be established:

a) the borrower will open and maintain a dedicated Deposit Account in the Central Banlk ofMorocco to receive the proceeds of the adjustment credit;

b) the borrower will report the exact sum received into the Deposit account;c) the borrower will indicate to the Bank details of the Government Bank account to which the

local currency equivalent of the loan proceeds will be credited. This account will be subject tobudget control;

d) the borrower will ensure that all withdrawals from the deposit account are for budgetedexpenditures, and not for purposes such as military expenditures or for other items cn theBank's negative list;

e) the borrower will report to the Bank the equivalent in the local currency of the US$ amountwithdrawn from the Deposit Account producing evidence that the local currency sum was paidinto a treasury account used to fund budgetary expenditures;

14

f) the borrower will submit regular reports on receipts and disbursements from the dedicatedDeposit Account to enable the Bank to review the consistency of these withdrawals with theLoan agreement and the objectives of the adjustment operation;

g) the borrower will provide the Bank with information regarding the Terms of Reference forcarrying out and timing of regular audits, and will provide auditors with access to thenecessary officials and staff for carrying out this audit.

F. Cofinancing

54. The African Development Bank (AFDB) is cofinancing the IISDL with a US$100 million twotranche loan which was approved on April 4, 2001. Disbursement of the first tranche is predicated uponthe adoption of the same measures as the single tranche IISDL. AFDB participated jointly with the Bankin the preparation and evaluation missions of the project.

G. Environmental Aspects

55. The IISDL is an environmental category C, which does not require an environmental assessment.The proposed policy reforms will not have a negative impact on the environment and the proposed projectwill not finance any investments derived from these policy reforms.

H. Social Aspects: Program Objectives and Poverty Category

56. The proposed loan contributes to the overall development objectives of the Government forsustainable growth, employment generation and reduced social disparities in several ways. First, thereforms will enhance the competitiveness of private firms, and actively promote growth and new jobopportunities in the IIS sector and in the economy in general. Second, they will facilitate the extension oftelecommunication, postal and basic financial services to the poor, especially in the rural areas. This, inturn, can contribute to a reduction in rural-urban disparities, because it facilitates the development ofsustainable business opportunities in remote areas. Third, the policy and actions supported by the IISDLshould provide the foundations for using new means of communication and information in sectors with astrong social and economic impact such as health and education. The actual realization of this potential,however, extends beyond the time horizon of the IISDL, and could be further supported in the context offuture Bank Group operations. (See CAS and section III.E.). Finally, no significant lays-off are to beexpected as a result of IAM's privatization, because the company was a relatively well run companyalready under public ownership and did not suffer significant over-staffing problems. Adequate severancepackages will be provided in the case of eventual lays-off, which will mainly target early retirees. In sum,as a sector reform loan, the proposed IISDL project does not entail any direct or indirect complianceissues with respect to the social safeguard policies of the Bank.

I. Monitorable Indicators

57. To monitor the impact of the reform program and agree, if needed, on corrective measures, a setof indicators have been identified by the Bank team and agreed upon with the Government during thenegotiations of the loan. These indicators will be jointly monitored by the Government and the Bank.They are designed to help monitor the evolution over the next three years of the structure of thetelecommunications, IT and postal sectors, the efficiency of new investments in the sector, as well as thequality, price, and coverage of services. The set of proposed monitorable indicators are summarized inTable IV. 1 below, and detailed in Annex V.

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Table IV.1: Monitorable Indicators

Indicator Measure 1999 2000 2001 2002 2003Internet Users Number of dial up and 80,000 200,000 400,000 700,000 1,000,000

dedicated lines customersPercentage of the Percentage of the population 75% 90% 92% 94% 96%population with living in a locality with accessaccess to a phone to a phone(fixed, cellular,payphones)Price in US$ ofinternational Price of a 2 M/month 32,000 25,000 8,000 4,000 2,000leased lines (2Mbps* month) toLondonVolume of Revenue of domestically NA 5 20 0electronic generated and processed e-transactions commerce transactions (US $

millionsLetter mail % delivered on day 2 (from end 53 53 65 70 80

to end))Access to postal Number of postal counters perand financial 10,000 inhabitants:services -- in urban areas 0.89 0.89 0.91 0.95 1.00

-- in rural areas 0.84 0.84 0.87 0.89 0.92

J. Benefits and Risks

58. Benefits. Competitiveness and Growth. The development of a modern and competitiveinformation infrastructure network will provide a wider range of communication, information anddelivery services of higher quality and at more competitive prices. It will also provide Moroccan firmswith a greater exposure to international markets. The program of reforms supported by the proposedoperation will also bring additional flows of domestic and foreign direct investment associated with theprivatization of IAM and the issuing of new licenses for a wide range of services and the developrient ofinfrastructures. The presence of new cellular, VSAT, and VAS operators, as well as new developments inthe IT sector, should stimulate the service industry, which accounts for an increasingly important share ofGDP in rapidly developing economies.

59. Additional fiscal revenues. The Treasury will gain substantial fiscal revenues fromimplementation of the reforms, stemming mainly from higher taxes, caused by a competition-inducedenlargement of the telecommunications, IT and postal markets, from the fees obtained with the issuing ofnew licenses, and from the proceeds of the IAM's privatization (Annex VI).

60. Access. Poor residents of rural and outlying urban areas will gain greater access tocommunications services as more intense competition and reliance on market mechanisms in the sectorspur network development and improve quality of service in remote areas. Higher penetration oftelecommunications, as well as postal and IT services, will strengthen the informational and economiclinks between these areas and the rest of the country, thus facilitating the development of local businessesand improving the management capacity of local governments. Improved access to communications willalso enable the more effective provision of social services such as health and education, which are c riticalfor reducing social disparities and stemming the flow of migrants to cities.

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61. More efficient Public Administration and reduction of transaction costforfirms and citizens. Thebenefits related to the establishment of inter-administration networks are essentially three-fold.'0 First,significant cost savings for the Public Administration (PA) from the elimination of unnecessaryduplication in information gathering and maintenance. Second, higher efficiency of PA, which facilitatesthe streamlining of administrative procedures. Third, competitive gains for business and better servicesfor citizens, thanks to more efficient procedures, on-line forms and the recognition of electronic signature.

62. Risks. The main risks associated with the implementation of the Government program include:(a) a possible slow down in the introduction of effective competition in the telecommunications sector(fixed line voice services); (b) weak institutional capacity to design and implement reforms, specially inthe IT and postal sector; (c) challenges to the regulatory agency's autonomy and its capacity to performefficiently, (d) delays in the elaboration and adoption of a new legal and regulatory framework in thepostal sector; and (e) insufficient coordination among ministries for the development of IT-basedinitiatives.

63. Risk mitigation. The success and results already achieved by the Government, notably thesuccessful privatization and issuing of the second GSM license, which led to lower tariffs, increasedaccess to telecommunications and significant capital inflows, represent the best protection against apossible policy setback. In addition, the Bank team will maintain a continuous dialogue with all partiesconcerned, and the AFDB two-tranche operation will provide additional leverage to monitor the impact ofthe reforms supported by the one-tranche IISDL and the implementation of additional reforms in 2001-02.The strong interest manifested by the Moroccan authorities and the postal operator to pursue thecollaboration with the Bank in the postal and IT sectors through follow up operations shows acommitment to continue the implementation of reforms in these two sectors, including the strengtheningof inter-agency coordination and securing of necessary financial resources.

V. RECOMMENDATIONS

64. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank,and recommend that the Executive Directors approve it.

James D. WolfensohnPresident

by

Shengman Zhang

Washington, D.C.April 16, 2001

10These benefits have been evaluated by European Countries (e.g. France, Italy) and are the core of the European UnionProgramme 'nterchange of Data between Administrations" (1DA).

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Annex 1Page 1 of 16

ANNEX I

KINGDOM OF MOROCCO

INFORMATION INFRASTRUCTURE DEVELOPMENT PROGRAM

SECTOR POLICY LETTER

Mr. President:

Morocco is committed to an open trade policy and integration in the global economy as themeans of ensuring sustained economic growth and an improved standard of living for the lessfortunate. In this context, information infrastructure becomes a key element in the success of theGovernment's development strategy. It is expected to increase the competitiveness of Moroccanbusinesses by lowering their production costs and putting them in closer contact with bothdomestic and international clients. It is also expected to facilitate the modernization ofgovernment services and lessen the burden weighing on the private sector, to secure Morocco'splace in the information society, and to lower the cost of delivering social and infrastructureservices to the segments of the population that are marginalized today, particularly in the mostremote rural areas.

Given the new challenges created by the liberalization process set in motion by theenactment of Law 24-96, the Government has adopted a clear strategy and plan of action toenergize the telecommunications, postal and information technology sector, the key objectives forwhich were set out in the Sector Policy Letter of February 24, 1999.

This present Policy Letter updates and expands both the Governments major objectives inthis field and the measures that have already been introduced. In addition, it describes thestrategy the Government proposes to put into effect to achieve these objectives.

I Introduction

1. General objectives

The Government believes that the telecommunications, postal and information technologysectors are key activities of the Moroccan economy, and that sound policies in these fields areessential to achievement of two of its major objectives, namely to accelerate growth and reducedisparities. The Government wishes to secure Morocco's place in the information society, fosterthe development of a competitive and dynamic telecommunications sector that will enable thecountry to meet the challenges of the 21 't century, and increase the competitiveness of its postalservices by improving management methods and bringing them into line with internationalstandards. It will also:

* Provide Moroccan enterprises with access to the telecommunications, postal and informationtechnology services they require to become more competitive. The Government believes thatdemand by the business community for such services should be met as rapidly as possible,and that the services themselves must be of high quality and competitively priced. Finally, asufficiently broad range of services should be available to meet business demands.

Annex 1Page 2 of 16

* Provide poor groups in the population and those living in remote areas with access tomodem means of communication and information. To accomplish this, it is important tocarefully define the regional development and public service obligations of thetelecommunications et postal sector, and to meet these obligations in such a way that :heneeds of operators and the country as a whole are covered satisfactorily and at a reasonal]ecost. It is equally important to put mechanisms in place which will ensure that providers oftelecommunications and postal services contribute to the sector's public service missionefficiently and in a manner in keeping with the needs of the population.

* Continue with the telecommunications sector liberalization program.

* Foster modernization and greater efficiency in the delivery of government services,including social services such as education and health care, by expanding reliance oninformation technologies and increasing capacity to utilize these technologies effectively.

* Promote the emergence of new economic activities in Morocco based on the developmentand use of information technologies.

- Improve the overall performance of the postal sector by developing all segments of t;hepostal market (new and better-quality services, sustainable upgrading of the general quality ofservice) and by achieving higher resource productivity.

Define what is meant by public postal service and specify the resulting obligations that f allon postal operators, including the historical postal operator BAM (Barid Al-Maghrib), interms of types of services, availability of access to them, and ways and means of financirigthem.

- Foster progressive opening up of the postal market, simplify the regulations in force, reviewthe present postal legislation, and offer the private sector opportunities for greaf erparticipation.

* Convert the historical postal operator, BAM into a modern, dynamic enterprise, by vesting itwith greater financial and commercial autonomy and providing it with a legal status suited toa commercial and increasingly competitive environment.

* Foster the development of postal financial services so as to provide a larger proportion of tliepopulation, particularly in the country's most remote rural areas, with access to financialservices (savings, loans, and insurance products), and to improve the mobilization of savingsand their use in the vitalization of private investment and the development of financialmarkets.

* Generate revenues for the Treasury in the field of telecommunications and informationtechnology, primarily in the form of taxes levied on the activities of operators, in the sarmethey are levied on other economic activities.

2. Results already achieved

Considerable efforts have already gone into achieving the objectives listed above. Forexample, the number of telephone lines in service rose from 266,000 at the end of 1987 to1,500,000 in 2000. Average connection time dropped from 80 months to 1.4 months (rural areas

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included). Network transmission capacity increased from nearly 4,000 circuits to 466,000,mainly through the use of fiber-optic technology. The use of fiber-optic technology and thedigitalization of virtually all transmission and switching systems has greatly improved networkreliability and made it possible to expand the range of services offered, including videotex, ISDN,the Internet, and broadband connections. The number of rural municipal districts with automatednetworks has risen from 65 to 1,298, in other words, all rural municipalities. The number of rurallocalities with automated systems has risen from 69 to 1923, or 6.3% of all 32,000 rural localities.In addition, expansion of the public telephone network increased the number of public phonebooths from 484 at the end of 1987 to 46,000 at the end of 2000, 83% of these booths beingmanaged by private promoters.

At the end of 2000, NMT-450 and GSM-900 mobile cellular radiotelephone networkshad over three million subscribers. These networks cover the major highways and all urbancenters serving as the administrative seats of prefectures and provinces. Thanks to the virtuallycomplete digitalization of transmission and switching systems and the establishment of newnetworks, the quality and reliability of the services available have improved significantly. Use ofthe Internet, access to which became available in November 1995, is developing at a sustainedpace, with a current group of 1,200 Internet service providers (ISPs) attending to approximately200,000 users.

Since 1991, computer use has increased notably, as a result partly of the drop in hardwareand software prices and partly of the lowering of import duties from 42.5% to 17.5% as ofJanuary 1, 1996. Current estimates put the total number of personal computers in Morocco at200,000 units, representing an incidence rate of 0.7%, with annual sales of between 40,000 and50,000 units. More than 800 information technology companies are estimated to be active in thesector, with an estimated 4,000 persons on their payrolls and roughly DH 2.8 billion in sales.

Initiatives are also in progress to upgrade the management of the country's postalservices. The creation of BAM (Barid Al-Maghrib) in 1998 provided a platform from which tointroduce sustainable improvements focused on greater effectiveness of the services offered. Inthis context, BAM developed business plan and investment strategy for the years 2000 to 2004.A study currently under way will serve as a basis for recommendations for organizational unitsand business systems through which strategic options can be put into effect efficiently.

New products have been launched and new partnerships have been formed so that abroader range of better-quality financial services can be offered to the public. The expandednetwork of 2,500 retail outlets provides partners (banks, insurance companies) with an attractiveopportunity to link up with new regions and new clients that currently have no access to theseservices.

The administration of postal banking business and the Caisse d'epargne nationale hasbeen computerized, making it possible to offer customers a steadily improving range of services.For instance, new ways of transferring funds, which rely on information technology, have beenintroduced: electronic transfer of funds and use of the EUROGIRO network for external trade.

In the postal services field, new domestic express courier services have been introduced(Poste rapide nationale, Rapid J, and Rapid H). E-mail access facilities have been installed inpost offices and on university campuses. International courier express business is the subject of ajoint venture between Barid Al-Maghrib and Chronopost S.A. The new corporation is set upunder Moroccan private law and named EMS Chronopost International Maroc, with BAMholding a 66% share of its capital and Chronopost a 34% share.

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In financial terms, BAM earned significant net profits totaling DH 92.7 rnillion in 1999compared to DH 55 million in 1998. Its accounting statements for the year 2000 indicate a profitin the vicinity of DH 130 million.

However, it is in the legislative and institutional frameworks of the telecommunicationsand postal activities that the most far-reaching reforms have been introduced. These measuresinclude the following:

* Signature by Morocco of the WTO Agreement on Basic Telecommunications Services.

* Promulgation of Law 24-96 in August 1997. Its enactment opened up all segments of thetelecommunications market to competition and called for privatization of the historicaloperator. It separated posts and telecommunications by creating a public agency withresponsibility for postal services, Barid AI-Maghrib (BAM), and a stock corporation - inwhich the State currently holds 65% of the shares - for telecommunications, Itissalat.41-Maghrib (TAM). In addition, it created a telecommunications sector regulatory agency(ANRT), attached to the Office of the Prime Minister.

e Promulgation of 15 decrees and orders enacted in implementation of Law 24-96. One ofthese implementing decrees lays down the general principles governing interconnection,establishes a mechanism for the settlement of disputes, specifies the essential elements ofinterconnection contracts, and prescribes the general technical and cost principlesgoverning the supply of interconnection services. Other implementing decrees regulateleased lines and introduce the list of value-added services that may be provided on thebasis of a simple declaration to the regulatory authorities.

* Adoption and publication of the "2000-2004 Information Technologies DevelopmentPlan."

* The " Administration on Line" Initiative, which calls for all ministries and their personnelto be linked electronically to one another, was announced by the Council of Governmenton October 28, 1999 and is projected to be fully operational by the end of 2004.

* The enactment in February 2000, of law 2-00 on Intellectual Property, including aspecific component on Information Technology

In addition, major progress had already been made following liberalization of the postsand telecommunications sectors and their opening up to the private sector. For example:

* The granting, to MEDITEL, in August 1999 of a second license to provide GSM mobiletelephone services. The transparent nature of the international competitive biddingprocess which led to award of this license, plus the existence of a full regulatoryframework, clear commercial terms and conditions, and the attractive features of thelicense, captured the interest of operators of worldwide importance, generated feerevenue totaling DH 11 billion, and served as an incentive to the historical operator toimprove its services, expand them rapidly, and lower its prices significantly.

• The award in September 1999 of a first license to provide global mobile personalcommunications by satellite (GMPCS), limited to data transmission service. A secondGMPCS license, including voice services, was subsequently awarded in March 2000.

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* The granting in October 2000 of three licenses for satellite telecommunications servicesof the VSAT type.

* In the posts sector, five private companies received authorization to provide internationalexpress services. This measure, which allowed coverage of part of the market demand forquick, reliable international deliveries of documents and packages, also opened the floorfor the debate on the role of the private sector in the provision of postal services.

II. DEVELOPMENT STRATEGY

The Government's Information Infrastructure Development Program implements the2000-2004 Economic and Social Development Plan. It covers the telecommunications, postal andinformation technology sectors.

1. Telecommunications

The Government is convinced that accomplishment of its objectives in thetelecommunications sector hinges on the continuation of the liberalization process andstrengthening of the role of the private sector. This requires an ongoing effort to ensure that theregulations governing the sector remain appropriate.

Since telecommunications are a key to and a driving force in the growth of the Moroccaneconomy, the Government is committed to fostering the development of a competitive anddynamic telecommunications sector and ensuring that the country possesses the type of high-quality telecommunications infrastructure that will rapidly secure it a place in the informationsociety.

To these ends, the Government intends to:

Promote development of the telecommunications infrastructure facilities required for thenew multimedia applications;

* Make access to telecommunications services widely available to all strata of thepopulation and throughout the country;

* Expand the telecommunications market;

* Promote competition in all segments of the telecommunications market;

* Review the regulatory framework for telecommunications to allow the use of alternativeinfrastructure facilities and strengthening competition, to foster an accelerateddevelopment of the telecommunications market;

* Assure businesses of the availability of, and access to, the types of services that are likelyto increase their competitiveness;

* Ensure a prominent role for Morocco as a regional telecommunications platform.

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With these goals in mind, the following actions will be undertaken:

1.1 Extension of thefixedpublic telecommunications network

Despite its significant spatial distribution and coverage of urban centers and theadrministrative seats of rural municipal districts, the fixed public telecommunications network stillrequires a sustained effort if telephone density, especially in rural and peri-urban areas, is to heincreased.

The Government's minimum goals here are to increase telephone density from the year2000 figure of 5.4% to at least 10% in 2005 and 15% in 2012. The number of public telephonriswill be increased from 1.5 per 1,000 inhabitants in 2000 to 2 2005 and to 4 in 2012.

As regards quality of service, measured by the fault report rate per subscriber per year,which was 24.8% in 2000, the goals are to achieve a 20% rate in 2005 and 10% in 2012.

To this effect, the Government's liberalization program provides for the grant of newlicenses and for new universal service mechanisms that will extend access to telephone serviccusbeyond what operators are currently able to make available under satisfactory commercialconditions.

1.2 Extension of the mobile cellular network

Mobile wireless telephony is the segment of the telecommunications sector with thLehighest growth rate and the highest value added. Given the growing demand for cellulartelephone services, the focus will be on building up network density, diversifying services, andimproving quality. In the case of network densification, the objective is to promote fuller,country-wide coverage. In that of service quality, it is to improve coverage of peri-urban districtsand the interiors of buildings in urban centers.

To accomplish these objectives, the Government intends to encourage existing operatorsto expand by allocating new frequencies and streamlining the grant of new mobile and GMPC'Slicenses (including voice services).

Furthermore, the spectacular expansion in mobile telecommunications and demand f:)rbroadband multimedia services makes it essential to accelerate provision of access to third-generation mobile cellular networks (IMT-2000). The government goal here is to guarantee theavailability of frequencies for these networks and to develop a system for the allocation oflicenses.

1.3 Strengthening of national high-speed telecommunications infrastructure

In order to ensure the availability of telecommunications infrastructure facilities capableof handling the throughput rates required for high-speed Internet access, videoconferencing,sound and television broadcast signals, and applications such as medical imaging, theGovernment is committed to the following medium- and long-range objectives:

* Continued installation of high-speed transmnission and switching infrastructure.

* Acceleration of the move from fixed public telecommunications networks to a structurebased on the Internet protocol.

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* Utilization of alternative infrastructure.

* Realization of a feasibility study for a national multi-service satellite system.

The Government has taken the decision to issue new high-speed licenses to allowcoverage of the demand for services that transfer at least 2 MB per second.

Finally, the Government has also decided to elaborate a framework law in order toliberalize the audiovisual sector.

1.4 Universal service and access to basic telecommunications services

Telecommunications infrastructure development in the rural world constitutes an effectivemeans of stabilizing the rural population, providing access to basic services, improvingagricultural production, and encouraging the emergence of non-agricultural activities.

In this context, the goal is to increase telephone density in rural areas from the year 2000figure of 0.6% to 3.5% in 2005 and 7% in 2012, and to install at least one public telephone callbox in every community with over 250 inhabitants by 2005 and one call box per 100 inhabitantsby 2012. These goals will be achieved mainly through the establishment of the universal servicemechanism and to the award of licenses to provide universal service, scheduled to be launched in2002.

In order to improve conditions for the provision of universal service, the Government isdrafting legislation which (a) specifies the objectives of universal service, (b) gauges how muchof the cost of accomplishing these objectives goes beyond what operators themselves areprepared to invest commercially, (c) defines a mechanism to impose the universal service chargesauthorized by Law 24-96 and allocate the resulting proceeds, and (d) define the principles andmechanisms that will govern the allocation of these funds, preferably through market-orientedprocedures, in such a way as to ensure that such services are provided in an efficient, cost-effective, and competition-neutral manner.

The new LAM's license defines this operator's universal service obligations not onlyduring the period when it is the sole provided of such services but also for the longer term. Thus,LAM is to bring service to over 600 additional rural localities by 2002. The maximumcontributions IAM can be expected to make to the financing of these social goals are alsospecified.

1.5 Membership in worldwide systems

Membership in worldwide cable and satellite systems will provide Morocco with asupplementary infrastructure which is secure and diversified in terms of services (voice, data, andimage) and provides global connectivity. This in turn will reinforce its role as the foremostregional telecommunications platform. With this in mind, the Government intends to put intoeffect a policy designed to facilitate participation by Moroccan operators in these systems.

1.6 Opening of lAM to private sector interests

In February 2001, the Government concluded the first phase of opening the capital ofItissalat Al-Maghrib (IAM), the principal government-owned telecommunications corporation, to

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private investors. The Government believed that attracting private capital was necessary to allowIAM to position itself appropriately on the domestic and global telecommunications markets,both of them in a dynamic state of flux. An international competitive bidding process, launchedin October 2000, led to the selection of the Vivendi Universal Group as IAM's strategic partner,holding 35% of its capital. This transaction, which brought the Government DH 23.3 billion inrevenue, was to be followed 12-18 months later by public offer of sale of LAM shares on worldcapital markets. This public offer should not only generate significant revenue for the MoroccanTreasury but also give IAM access to international capital markets.

1.7 Acceleration of the liberalization process

The Government intends to accelerate the process of liberalizing the telecommunicationssector, after having adopted various transparent rules designed to ensure equitable treatment ofboth existing and new operators. It believes that greater competition will be reflected in morerapid growth for the telecommunications sector as a whole and in performance improvemerts.These outcomes will enhance the value of LAM and simultaneously benefit the Morocc aneconomy in general. The following is a partial list of specific actions that will be taken to furtherliberalize the telecommunications sector:

* The range of services that may be provided on the basis of simple declaration to theauthorities will be broadened.

* Additional requests for GMPCS licenses will be processed upon request.

* Telecommunications licenses will be issued in 2001 and 2002 for the development ofservices other than voice services throughout the country: a license for high-speed inter-citty(backbone) infrastructure; local licenses; a license for a second national operator; andlicenses for network systems of radio communications with shared resources(3 RP). Voicetelephony services will become available at the end of 2002.

* Universal service licenses and an international telecommunications license for all serviceswill be offered in 2002.

* Under the terms of its license, the second GSM operator has the option of providing itsclients with international service as of January 1, 2002, using its own facilities.

1.8 Improvement of the regulations promoting liberalization

The quality and credibility of Morocco's telecommunications regulations weredemonstrated clearly in connection with the successful award of the second GSM license and theprivatization of LAM. Nevertheless, the Government proposes to take the following further stepsto strengthen this regulatory framework:

* Propose an amendment to Law 24-96 to replace ex ante controls by ANRT with ex postcontrols. This amendment, now going through the Parliamentary ratification process,will enable the Board of Directors of ANRT, as a last resort, to approve modifications tothe agency's Staff Rules.

• Propose an amendment to Law 24-96 to (a) broaden the definition of universal service,(b) enable ANRT to propose sanctions geared in severity to the seriousness of infractions

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committed against the regulations in force, and (c) make it simpler for license-holders totake advantage of alternative telecommunications infrastructure facilities.

* Separate the National Institute of Post and Telecommunications from ANRT.

* Ensure that IAM submits to ANRT a revised list of interconnections commensurate withbest international practices, and in line with the prices in effect on competitive markets.

* Ensure that ANRT implements procedures to undertake consultations with the public andthe publication of decisions taken with their rationale, in order to increase thetransparency of the regulation.

* Review ANRT's financial projections by March 2002 and adjust the fees and otherrecurrent charges imposed by this agency in order to ensure that they generate enoughrevenue to cover the agency's operating costs without resort to Treasury funds. Thisexercise will be repeated approximately every three years to take into account the state ofthe market and any other possible changes. On this occasion, an reassessment will alsobe made of the current economic value of the frequency spectrum, the adequacy of therelated tariffs, and allocation of the revenue they generate.

1.9 Development of a regional telecommunications platform in Morocco

The World Trade Organization Agreement on Telecommunications, in effect sinceFebruary 1998, has created a global market where barriers to investment in and operation oftelecommunications services have been significantly reduced. Morocco, which became asignatory to this important agreement after having taken an active part in its negotiation, is fullyaware of its repercussions where the future of Moroccan telecommunications is concerned.

Having already experienced the advantages of bringing the institutional structures of itsown telecommunications sector into line with international developments, Morocco has thelegitimate ambition to capture a share of the foreign market through the privatization of ItissalatAl-Maghrib and the liberalization of telecommunications services.

It is in this context that the strategic partnership between IAM and Vivendi Universal isexpected to afford possibilities of investment in and provision of services in the European,Mediterranean, and African spheres. The recent acquisition by IAM of 54% of the capital ofSocigti' mauritanienne des telecommunications (Mauritel) is a good illustration of the reality ofthis ambition.

Morocco's strategic geographic position at the crossroads of major global infrastructureconstituted by submarine cables linking four continents, combined with the presence of aMoroccan community abroad, can only reinforce this position.

In addition, the fact that the next Plenipotentiary Conference of the InternationalTelecommunications Union is to be held in Morocco in 2002 - the first occasion that policymakers, regulators, operators of telecommunications services, and major sector entrepreneursfrom all over the world meet in an Arab country - should reinforce the country's potential as aregional telecommunications platform.

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2. Postal services

In the postal sector, one objective of the Economic and Social Development Plan is toprovide Morocco's population throughout the country with high-quality, and affordable postalservices. To this end, the Government has launched a far-reaching reform of the sector in or(derto improve the competitiveness and efficiency of BAM, refine the definition of universal service,gradually liberalize the sector in the light of studies now in progress, and enable postal financ.alservices to mobilize small savings more effectively.

2.1 Sector strategy

In order to maximize the potential of postal sector activities, the Government is focusi rIgits objectives on the following strategic areas:

* Placing the Moroccan postal service on a par with other services worldwide that have be nopened up to competition;

* Enabling the postal sector to effectively accompany the economic development process;

* Clearly defining the obligations inherent in providing universal postal service, along withother obligations of general interest in the sector, in order to better understand their scope,cost, and implementation and financing arrangements;

* Establishing the institutional framework that will regulate the postal sector; and

* Identifying short- and medium-term measures needed to enable BAM to adapt its legal sta:.usso that it will be poised to perform efficiently in a competitive environment.

To this end, studies now nearing completion will facilitate the overhaul of the legal anridregulatory structure of the postal sector and the adaptation of Barid Al-Maghrib's legal statuis,particularly via through the adoption of a new law governing the postal sector.

A new approach to providing universal service would help to ensure that poor rural areasreceive more efficient and high-quality service. With this objective in view, various options ..rebeing considered, including franchising.

Finally, a number of measures are deemed essential for improving mail delivery to postaladdresses, including municipal works (requiring naming of roads and streets and numbering ofdwellings) and installation of mailboxes at building entries.

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2.2. Postal service business strategy

BAM, the main postal operator, is implementing its plans to modernize services andimprove operational performance. It has already developed a comprehensive forward-lookingstrategy and must now devise a commercial strategy and an investment plan to transform itstraditional administrative structures into a modern commercial enterprise based on reliablesystems (planning, accounting, auditing, a management information system [MIS], andinformation technology).

The BAM restructuring study, which began in November 2000, is currently at thediagnostic stage. This phase is expected to end in April and to produce recommendations thatwill be implemented over a period of 12 months.

Once the new structures and systems are in place, BAM should be ready to implement itsaction plan and improve its modus operandi so that it will be able to meet the demands it will facein an increasingly more competitive business environment.

In addition, a performance contract currently being finalized between the Governmentand BAM calls for reforming the postal operator's institutional structure to make it sufficientlyflexible to meet exacting performance requirements in a competitive environment. The contractalso requires the two parties to develop a program to liberalize the various postal products offeredand calls for the adoption of a regulatory framework redefining the scope of BAM' s activities.

The market potential for top-quality postal services is enormous. Direct marketing -which, while not yet highly developed in Morocco, has begun to make inroads - will dependheavily on a reliable postal system covering the entire country and accessible to all its inhabitants.Mail derived from this activity is the fastest-growing segment of the postal industry in mostcountries. The same is true for parcel delivery. Indeed, the development of electronic commercegoes in step with an increase in mail orders, thus opening up vast opportunities for parcel deliveryservices. The Government will take the necessary measures to invigorate these markets.

2.3 The postalfinancial services strategy

The development of postal financial services should meet three basic goals:

* Ensure the efficient operation of the postal network in order to provide access to its financialservices (such as electronic money orders and savings, credit, and insurance services) to alarger portion of the population, particularly inhabitants of rural and under-served areas;

* Enable the postal operator to diversify its revenue stream in an environment characterized bythe liberalization of the sector, the reduction of the Government's monopoly over theprovision of postal services, and the transformation of the legal status of the postal operator;and

* Mobilize more savings that can be used for a wide range of investments, in order to spurprivate investment and develop a financial market.

In light of these objectives, the BAM restructuring study currently under way will besupplemented starting in 2001 with a study led by the Treasury and External Finance Division onthe Caisse d'e'pargne nationale (CEN) and postal checking accounts (CCP).

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This study, which is intended to cover all issues relating to postal financial services, w ill:

* Evaluate the potential demand for new postal financial services, the level of potential savings,the degree of BAM's penetration in the country, the structural limits to this penetration, Andthe range of financial products which BAM could market through the postal network; and

* Present a strategic analysis taking into account both international experience and the situat ionwithin Morocco, ultimately identifying possible modifications to the institutional framexV Drkand to the way postal financial services should be developed based on various possibleoptions (for example, the postal operator as manager of financial services, a "postal bank' asa statutory public entity, or a "postal bank" partly owned by a private commercial bank).

3. Information technologies

Because information technologies play such a key role in society nowadays, the IT se(. torshould be considered a strategic sector with a major impact on economic and social developm,. nt.Accordingly, the Economic and Social Development Plan, which has assigned priority tostrengthening the country's information society, calls for:

* Promoting the modernization and efficiency of the Government and public entities throa.ghimplementation of the Administration on Line program;

* Fostering the emergence of a knowledge- and innovation-based economy;

* Strengthen and complete the legal and regulatory framework that should enable thedevelopment of new information technologies;

* Promoting electronic commerce;

* Accelerating the use of the Internet;

* Using information technologies to promote decentralization and regional development(amenagement du territoire); and

* Strengthening the institutional framework for coordinating the development of informal iontechnologies.

To achieve these objectives, the actions described below will be undertaken.

3.1 Adoption of a legal and regulatory framework

For an information society to flourish - a key objective of any telecommunications po icy- a legal and regulatory environment is needed to instill confidence, create a framework for theuse of information technologies, and adapt to the speed of technological change. 'i'heGovernment's program of action in this regard calls for improving and adapting instrumentsfocusing on:

* The evidential value of data transmission, electronic signatures, and its certification accord ingto international standards. The relevant bill - which was finalized by an expert commi teeappointed by the Prime Minister - will be adopted by the Council of Government in 2001;

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* Privacy protection through the introduction of declaration or authorization procedures for theestablishment and use of lists of names. including the right of citizens to gain access to andcorrect inforrnation about themselves.

* Confidentiality and security of electronic communications and transactions;

* Consumer protection; and

* Adaptation of the tax system and customs code to electronic comrmerce.

3.2 Development of the Internet

Given the Internet's increasing importance as the standard medium for exchanging alltypes of economic, commercial, and cultural information, the Cm,nernment plans to promote itsmore extensive use.

In addition to building additional telecommunications infrastructure, the specific actionsto be undertaken to promote Internet use mainly include:

- Improved access to and interconnection with public telecommunications networks forInternet service providers, for example, by issuing new telecommiinunications licenses;

. Extension of the Morocco Wide Area Network (MARWAN). a high-speed informationsystem to promote research and training already in place in 16 university towns.

* Development of national Internet content, through: (i) computerization of schools by 2008under "one computer for every school" program byv 2008; (ii) implementation of theAdministration on line program by 2004; (iii) establishment - in partnership with localcommunities and BAM - of telecenters with public Internet access facilities; (iv) use ofinformation technologies as a regional development tool through the development of digitaltown projects; and (v) development of national portals for electronic commerce.

3.3 Data Standardization

In order to develop efficient data exchange systems and link databases and informationsystems, attention must be focused on standardizing data and protocols so that they will conformto international standards.

Indeed, the availability of technical standards and standardized data will allow businessesand government agencies to better organize and improve their information systems and databasesand promote the implementation of electronic data exchange mechanisms.

To launch this standardization work, the Government is cunently financing a study whichwill lead to the establishment of a standardization system or institution. This institution will beresponsible for pursuing standardization efforts (through the adoption of norms and standards),coordinating the data standardization efforts of government agencies and professional groups,developing standardized databases for public or sector data. and establishing code and formats forelectronic data interchange.

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3.4 Administration on Line

Information technology will be used as a tool to modernize the Moroccan Governr,-Mnt.The objective is to promote access to and the exchange of data for the benefit of governmentagencies, the population, and businesses, particularly through the introduction of paperlesstransactions.

This effort will make it possible to:

* integrate common services and applications;* achieve economies of scale;* adopt standardized exchange procedures;* ensure that data remains secure;* bring the Public Administration closer to the population; and* outsource some functions.

To this end, a world-renowned consulting firm was hired to prepare a study on thesubject. This study, now completed should lead to the development of an implementationstrategy for the development of an inter-agency network, including governance arrangements 'Indfinancing sources and mechanisms for this network, and to the implementation of a pilot projectfor the Integrated Management of Government Human Resources (GIPE).

In addition, the Administration on Line initiative has been included in the 2000-2004Five-Year Plan. The subsequent phases of implementation include a pilot inter-ministerialnetwork to connect the ministries already advanced in IT use and equipment, creation of acct sspoints for citizens within pilot sites, connection of all ministerial departments to this netwc,rk,including their services to citizens, and widespread diffusion of access points.

3.5 Promotion of electronic commerce

The Government will develop the legal and regulatory framework required to inatillconfidence in, and establish the conditions for promoting, electronic commerce. These conditionswill facilitate online commercial transactions among businesses as well as between businessesand consumers.

The Government is especially interested in encouraging - in partnership with chambersof commerce -- the development of virtual trade shows offering products and services of, forexample, the tourism, handicrafts, and agricultural sectors.

To this end, in August 2000 the Government selected two business-to-consumer (B2C)electronic commerce platforms meeting current international standards. The two platforms areoperational since April 2001, and their establishment is being supplemented by a one-yeartraining program for managers of cooperatives in the use of information technologies and acampaign to educate cooperatives about the benefits of participating in electronic commerce.

Efforts are also under way to find investors within the framework of public-priN atepartnerships for the purpose of establishing at least one certification authority and a Moroc,canelectronic business-to-business (B2B) marketplace.

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3.6 Use of information technologies for regional development

Information technologies are unquestionably a valuable tool for the integration andstrengthening of regional development policy, deconcentration, and decentralization.

The main objective in this area is to improve the distribution of communications andinformation infrastructure and ensure that equitable technical arrangements and rate schedulesgovern access to this infrastructure.

With this objective in view, the Government has implemented a strategy focusing on thefollowing priority areas:

* Establishment of community telecenters providing all population groups with access tocommunications and information services, including the Internet, on favorable economicterms - a step that will relieve the isolation of rural areas. The Government wants everycommunity to have such a telecenter.

* Given the vast potential for online activities in terms of job creation and generation of addedvalue, the Government will focus on creating an environment conducive to the developmentof teleservices, including tele-education, teleinformatics, telemedicine, and teleservices forinformation and mediation.

* Establishment of partnerships with local communities to promote the use of town portals forthe purpose of: (i) publicizing local economic, cultural, and tourism-related opportunities;(ii) facilitating local access to and the exchange of information; (iii) fostering thedevelopment of teleservices; and (iv) developing virtual commercial storefronts to displaylocal products. In this context, under an agreement with the Hassan II Fund, the Governmenthas undertaken a strategic study (to be completed in June 2001) with a view to establishingtown portals.

3.7 Use of information technologies to maximize the potential of Morocco's cultural heritage

The trend towards an information society affords Morocco the opportunity to strengthenits cultural identity through the creation of digitized records of its heritage and dissemination ofthis data online, thus maximizing the multiplier effect of information technologies. Thisdigitalization process will meet the following objectives: (i) establishment of electronic archivingsystems within government agencies; (ii) promotion of public access; (iii) digitalization of theheritage holdings of the Bibliotheque Generale et Archives, and (iv) creation of multimediacultural spaces and development of Moroccan Internet sites.

3.8 Promotion of a national information technology industry

The Government is determined to promote the emergence of a national informationtechnology industry and therefore plans to:

* Mobilize resources in support of strategic and dynamic information technology andtelecommunications projects;

* Establish a regulatory framework governing venture capital for the benefit of innovativeenterprises;

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* Encourage research and development by: (i) establishing a network (in the form of apartnership) to coordinate research and development bringing together businesses,universities, and training institutions; and (ii) promoting partnerships between Moroccan andforeign businesses; and

* Maximize the country's human resource potential by: (i) developing basic instructionalmaterials on information technology for use in basic, secondary, and higher education; 'ii)incorporating new information technologies (such as computers, the Internet, andmultimedia) in training curricula; and (iii) organizing information technology skill trainingprograms for self-employed persons in the workforce.

In pursuit of these goals, by royal decision a 30,000-square-meter ultramoderntechnopark was dedicated in October 2000 in Casablanca to the development of informationtechnology companies, particularly start-ups. The technopark, which should be operational inJuly 2001, will be managed by a public-private company that is in the process of beingestablished. In addition, the Hassan II Fund has budgeted DH 90 million for the development: ofthe Bouznika technopark.

4. Conclusions

In sum, the objective of the Government is to ensure a coherent development of the post,telecommunications and information technology sector in order to reinforce the contribution ofthis sector to Morocco's economic growth, to increase the competitiveness of national finns,while at the same time ensuring improved access to ICT services.

Annex IIPage 1 of 3

ANNEX II

INFORMATION INFRASTRUCTURE DEVELOPMENT PROJECTDRAFT MATRIX OF POLICY OBJECTIVES AND ACTIONS

OBJECTIVES MEASURES REQUIRED FOR BOARD PRESENTATION1. TELECOMMUNICATIONS

Privatization of LAM 1.1. Transfer of 35% of IAM's (Maroc Telecom) capital to a strategic partner, including signature of:

(a) the decree containing LAM's license (Cahier des charges de l'operateur), in agreement with the Government's sectorstrategy.

(b) the shareholders' agreement, ensuring transfer of IAM' s management control to a strategic partner;(c) the decree transferring 35% of LAM's capital to the strategic partner.

Reinforce 1.2. Adoption by the Conseil d'Administration de 1'ANRT of the Agency's plan to award licenses in different segments of thecompetition in telecommunications market during 2000-2002telecommnunicationsservices and 1.3. Award of a GMPCS license, including voice services, through a competitive bidding process.infrastructure

1.4. Launching by ANRT of the call for expressions of interest for the award of the following telecommunications licenses:a. One or more Local Licenses (local loop)b. One license for inter-urban (backbone) services;OTc. A license for a second national operator;

Expand the access to 1.5. Definition of universal service obligations in LAM' s license (Cahier des Charges)services atreasonable prices for 1.6 Definition of a regime for the provision of universal service, in particular:all segments of thepopulation Preparation by ANRT of draft regulatory text(s) defining the new regime for the provision of universal services, including the

scope of services, procedures for determining tariffs, responsibility of provision, sources of funds, and a market mechanism todetermine and allocate any necessary subsidies.

Annex IIPage 2 of 3

OBJECTIVES MEASURES REQUIRED FOR BOARD PRESENTATION

Reinforce the 1.7. Adoption by ANRT's Board and implementation of a new Statute of Personnel, including a professional ethics code.regulatory 1.8 Adoption by the Council of Government of an amendment to Law 24-96, replacing a priori by a posteriori financial controlframework of 1 f ANRTdtelecommunications o

1.9 Preparation by ANRT of the Terms of Reference for a study on economic pricing for the use of the radio-electric spectrum,and confirmation of budget allocated for this study.

2. INFORMATION SOCIETY

Develop a legal an 2.1 Elaboration by the inter-ministerial Committee of a draft law on data transmission, including principles on recognition ofadequate legal and electronic signature and certification.regulatoryframework forInformationTechnolgoy

Develop inter- 2.2 (a) Submission to the Bank by SEPTI of the consultant's final report on the government strategy for the "Administration onadevelpinister-n Line" (AOL) initiative.administrationnetworks (b) Identification of AOL pilot project, focussed on the Integrated Management of Government's Human Resources (Gestion

Inte'gee du Personnel de V 'Etat - GIPE), including allocation of roles and responsibilities and identification of fundingsources.

2.3 Allocation of funding for subsequent phases of the AOL study.

Promote the 2.4 Promote development of centers for information technology-related activities, in particular through the creation of technologydevelopment of parks in Casablanca and Bouznika through public-private financing.electronic commerce

Integrate certain 2.5 Signature of contracts with two private firms to develop, with their own financing resources, electronic portals that willtraditional sectors in benefit economic cooperatives.world commerce

Annex IIPage 3 of 3

3. POSTAL SECTOR

Design a national 3.1 Adoption in the national five-year plan (Plan quinquennal) of a program of measures for the development and modernizationstrategy for the of the postal sector.modernization of thesector 3.2 Submission to the Bank by SEPTI of provisional final report on studies providing the basis for the design of a national

strategy for the development of the postal sector, including universal service and opening of the sector to competition.

Modernize the 3.3 Submission to the Bank by BAM of preliminary report of study regarding BAM's strategic plan and internal restructuring topostal operator enhance the firm's efficiency in a competitive environment.BAM

3.4 Finalization of performance contract between the State and BAM, including commitments to soften a priori controls on theoperator, and giving BAM more flexibility to adapt to a more competitive environment and to prepare for sectorliberalization.

Extend the provisionof financial services 3.4 Finalization of Terms of Reference for study, which will serve as a basis to: (a) present one or several options to develop thethrough the postal savings products and financial services of CEN and the CCP, without introducing undue distortions to fair competition in thenetwork banking and financial system; and (b) formulate a plan for developing the necessary in house expertise and skills mix needed

to deliver such new products and a plan to eventually spin off such services in a separate institution.

Objectives Measures required for Loan EffectivenessReinforce the 4.1 Adoption by the Council of Government of several amendments to the Telecommunications Law to, inter alia: (a) expand theregulatory definition of universal service; (b) authorize ANRT to impose financial and admninistrative sanctions proportionate to theframework for violations; and (c) facilitate the availability of alternative infrastructures by potential suppliers of these infrastructures to licensedtelecommunications telecommunications operators.

Annex IIIPage 1 of 2

ANNEX IIIKey Information Infrastructure Program Milestones (2000 - 2002)

Sector and Recent Achievements Planned MeasuresTopic (to 04/01) (05/01 to 12/02, target dates)

Telecommunications35% of LAM sold to strategic Share sale to employees (2001)

Privatization investor (02/01) IPO planned on Casablanca and internationalexchanges (2002); IPO calendar *

Launch of services of second Second cellular operator starts internationalLiberalization cellular operator (04/00) service (01/02)

Award of 3 VSAT licenses (10/00)Expressions of interest requested Launch of tender for new licenses, includin,g voicefor new fixed licenses (03/01) as of 2003 (Q3/01) *

Award of new fixed licenses (2001-2002)Award of new international licenses (2002)

Universal License conditions of IAM includeService specific US obligations (10/00)

Amendment to telecom law drafted Amendment approved by government (09/01) andexpanding US definition (02/01) national assembly (Q1/02)Decree establishing new US regime Decree approved by council of government

___ __ drafted (03/01) (06/01) * and council of ministers (Q4/01)

Legal/ Amendment to telecom law drafted Amendment, approved by government (06/01) andRegulatory inter alia to strengthen ANRT's national assembly (Q1/02), enters into forceFramework enforcement powers (02/01) (Q2/02) ; substantial progress *

Parliament approves bill relaxing Bill enters into force (Q3/01) *

financial controls on ANRT (04/01)New interconnection offer approved by ANRT(06/01)

TOR and funding for study on Adjustment of spectrum fees to cost of spectrumtarification of spectrum rights management and regulation (03/02) *(04/01)

Information SocietyLegislation Bill on electronic signature and Bill approved by council of government (Q4f01)*,

certification drafted (08/00) council of ministers (Q1/02) and parliament(Q3/02)

Selection of Pilot Project for Effective launch of pilot project *

Administration-on-Line (03/01)

Establishment of cyberparks Effective launch of activities in the Casablancacyberpark *

Signature of agreements to foster At least 15 cooperatives have started using e-use by cooperatives of e-commerce commerce *

Annex IIIPage 2 of 2

Postal SectorLegal/Regulatory Completion of study on the Validation of study by SEPTI *Framework postal sector (04/01) Draft postal law covering: universal service,

reserved service, liberalization schedule,regulatory body, reform of BAM legal status(Q4/01)

Operator/owner 2000-2004 Program contract Signature of program contract (Q2/01) *relationship agreed between BAM and the

State providing greatertransparency in their relationship(08/00)

BAM Completion of first phase of Validation of study by BAM management *Restructuring BAM restructuring study (04/01) Thorough re-organization, including, possibly,

subsidiaries for the main activities.

Signing of the performance contract between theState and BAM.

Financial TOR for major study on Launching of the study by the Treasury (2001) *Services development of postal financial

_________=______ services (05/00) _

Dates in the right hand column are World Bank estimates. Where date is in bold italics, it figures in thegovernment's letter of sector policy.* indicates this is also a second tranche condition of the AfDB loan.

Annex IVPage I of 9

ANNEX IV

KEY SECTOR DATAINFORMATION INFRASTRUCTURE OVERVIEW

This Annex describes progress realized in the three areas of the Information Infrastructure (II) inMorocco (telecommunications, information technologies and post) over the 1993-2000 period. The firstsection considers fundamental sector indicators, providing international benchmarks. The second onesummarizes the policy reforms implemented by the Government during that period and supported by theTPI-SAL loan, and the lessons learned.

A. Evolution of the II during the 1993-2000 period

Telecommunications. The telecomrnmunications network was significantly expanded and modernizedduring the '90s. The share of telecornmunications revenues in GDP remained stable between 1993 and1997 at about 1.8-2.0%, a value close to the average of industrialized countries, but lower than dynamicemerging economies, where revenues can exceed 4% of GDP (Malaysia, Chile). In the years 1998-2000,thanks to mobile telephony growth, the percentage is estimated to have increased to 2.5-2.8%. The fixednetwork grew at an average annual rate of 13.6%. As a result, the number of customers increased from827,000 in 1993 to about 1,515,000 nowadays, bringing overall penetration rate (no. of fixed telephonycustomers per 100 inhabitants) to about 5.5%. But it is in mobile telephony where recent growth wasconcentrated. Overall GSM market size grew from 364,000 in December 1999 to 1,401,000 by end June2000, to reach over 3,000,000 in January 2001 (mobile penetration higher than 10%). This exceptionalgrowth is due to intense competition between Maroc Telecom and Medi Telecom, and to quick pre-paidcards diffusion. Expansion of the basic network cancelled the waiting list, that still in 1993 consisted of107,000 unmet requests. In terms of quality, the fixed line network is modem and efficient: digitalizationis close to 100% and IT is present in network maintenance, operation and management. As a result, laborproductivity increased by about 50% between 1993 and 1997 and the fault rate was progressivelyreduced, increasing the "mean time between faults" (MTBF) from 1.5 to 2.7 years. This is still below bestpractice (MTBF of 20-25 years). Rural access remains low, although progress took place, as mobilecoverage reaches now 90% of the Moroccan population (this means that 90% of the Moroccans leave in alocality covered by the GSM signal). However, the access gap between urban and rural areas re.mainshigh, with fixed and mobile penetration in Casablanca about 3 to 4 times higher than in the rest of thecountry.

;Moroemco Ru r Tleconimuncailons lndicators 1995 1996 1997 1998 19990 ;QO

TeIeicm revenues as a % of GDP 1.90% 1.90% 1.92% 2.00% 2.1% 2.5%Malnfoiepiot lwins operation 1,158,000 1,251,000 1,375,000 1,450,000 1,471,479 1,500,000

F0ixed lt; lis per 100 InhabitAts4.34 4.60 4.72 5.03 5.26 5.58Mob.lesubscrlbers erl100nhabitants 0.11 0.16 0.27 0.4 2.1 10.7TotalOenslty(fixed+wirelesscustmers) 0 1,188,800 1,296,000 1,450,600 1,562,000 2,060,000 4,500,000Mo|e%ixed penetration 2.55% 3.44% 5.42% 7.45% 25% 200%Waltingis*nsa%fconnected subscrlbers 8.1% 3.8% 2.1% NA NA NA

XOetof,focicalIinus ent0slm;in 1.36 1.36 2.98 2.98 2.45 2.45

Coetotenk~temationaIcaUteF:*ce inUS$'min 1.26 1.26 0.73 0.52 0.52 0.47

MortiNy subscription charge - re. 0(US$/monthj 5.52 5.52 5.52 6.84 6.84 6.84%o0tdlglta ines 95% 98% 99% 99% 100% 100%Fauts per 100 lines per year 049 55 46 37 30 24.8

Sources: ITU (1994,1999); (S) Siemens (1997). Maroc telecom; ANRT

Annex IVPage 2 of 9

Comparing Morocco with international benchmarks, we note that overall fixed telephonyindicators are broadly in line with values observed elsewhere in the region. Penetration and networkdigitalization are high by international standards and the number of faults per 100 lines is lower inMorocco than in most of the countries of the sample. Morocco radically improved its mobile telephonyperformance. The recent sector developments boosted penetration, now higher than regional comparators,and is growing quickly. Morocco is on its way to approach levels of mobile development comparable tothose of advanced emerging markets. In terms of Internet development, Morocco is within regionalbenchmarks, but the whole MENA region lags behind other regions. Therefore, in this area Morocco hasbroad room for growth.

Fixed lines per 100 No, of fixed lnes % of digital ltnes Mobile subsribos lnterrnt Hosts per 10,000infibatants per employee (FF) 199) p0*100 Inhabit"s inhabhants

i^ ~ __1(2 0 00p) (1)9) {SJuIyro0 (July 2000Moroco 5&58 104 100 4,72 0,33

Tunisia 9.61 129 100 1.31 0.10

Egypt 808 84 86 2.01 0.93

Turkey 28.70 249 84 14.61 17.23

Chie 23.54 233 100 19.27 34.02

Malaysia 21 07 174 100 19.3 28.22

Portugal 43.91 215 100 54.94 117.37

Mobae subsibers; Global Mobile November 8, 20GO. interret Hosts per 10,000 inhabftns Network Wizards (July 2000 Surveyi. Allother figures are provided by the International Telecommnunications Union.

The analysis of tariffs for different services shows that in areas where competition wasintroduced, Morocco is ahead regional benchmarks, and consumers reaped considerable benefits. In otherareas, like Internet, wholesale and international communications, where monopoly is still protected orwhere effective competition is limited, Morocco lags behind. In mobile communications, competitionbrought tariffs in the range of major international cellular providers in competitive markets. Thefollowing table, in particular, shows that Maroc Telecom, in response to the competitive threat ofMediTelecom, reduced tariffs three times, bringing the price of 360 minutes of airtime to slightly over 60USD, down from 140 US$ at end 1998. Tariff offers were modified during 2000, following effectivecompetition, and tailored to consumer needs.

10 obWle: Convn6nicatlonsr *Voto 00mnte.WUI140

120

U 80

__J_ ~~~~~~~~~~~~~~~-77 -' ; ' A ;4 U@#¢S ,..,,.,r

S$ 60,

40

20~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2

0MrcoMorocco Morocco Morocco Morocco Tunisia Egypt Turkey France Italy Finland Lebanon USA Hungary

3098) 1099) 3Q99) 4Q99) (2000)

Operator

Tariff rebalancing for fixed lines services showed some progress, but is far from complete. Inparticular, the basket of international tariffs selected below (3 miinutes calls to international destinations),shows that Morocco is still 2 to 4 times more expensive than European benchmarks. On the other hand,

Annex IVPage 3 of 9

the monthly fee is still low (7-9 US$ per month), for international best practice. Per minute charge(2.66c/minute), seems, on the other hand, quite in line with many international cases. As a result, MarocTelecom still needs to reduce charges for international services, if it wants to compete. It is expected that,with the privatization of Maroc Telecom, and the introduction of competition, tariffs for internationalservices could be lowered as much as 50%.

~N 2.1 2.1 1.05 2.1 1.840.011 1i l4 71 0.71 0.92 0.71 0.76

0.69 ~0.21 1.01 0.22 0.530.50 0.50 0.50 0.50 0.50X bS WW m 0.94 1.09 0.94 0.94 0.98

Sources: Morocco: IAM; France: France Telecom; The Netherlands: KPN, Italy: Infostrada; Spain: Telefonica.

Tariffs in the segment of leased lines deserve specific attention, as they are the single mostimportant constraint/enabler to market development for Internet and advanced services, through theirimpact on the input prices of Internet Service Providers and telecommunications-intensive services (e.g.call centres).

Lease lines prices in Morocco are expensive, although some reduction was recently experienced.In general, while the price of 64kbps connections are in line with European benchmarks, it is the price of2Mbps that shows Morocco's delay, as shown by the following table.

Information Technology. The IT sector is growing quickly in Morocco but remains under-developedwith respect to its potential. Value-added in IT manufacturing increased from 0.35 percent of GDP in1995 to 0.44 percent in 1998. Internet penetration remains very low with only about 35 hosts per 1million inhabitants, due to the high price of leased lines. 1 Reportedly, there are about 60 Web Sitesoffering Moroccan products and services on line. E-commerce sites are hosted either in Morocco oroutside the country, but the payments are still exclusively processed abroad. The total turnover of thesefirms is estimated at about US$5-10 million..

In the years 1994-1995, Morocco produced about 0.2% of GDP in IT, of which 0.12% inhardware. Software and services are therefore not more than 0.08%-0.1% of GDP. This is low comparedto Southern European countries (0.76% in Greece, 1.11% in Portugal), and emerging economies(Malaysia, India and Brazil). IT in Morocco has been estimated by local industry associations to be lowerthan 300 M USD per year (end 1999). Of this we can assume that at least 50% is equipment related andno more than 140-150 M USD is software and services. Morocco remains a net importer of IT equipment,

1 A recent WB study in Morocco, "Souces of Growth" (WB2000), confirms the strong potential for thedevelopment of advanced information services in Morocco , but also highlight the limits of the current legal andregulatory regime and the need for policy actions in the sector. The limited availability of choice of networkproviders constitutes a serious bottleneck for IT growth, because there are no competitive pressures on the historicaloperator to provide prompt service or offer lower prices in this segment of the telecommunications market.

Annex IVPage 4 of 9

as IT imports over the period exceeded US$100 million per year. Employment figures have remainedrelatively stable over the period: the sector is absorbing between 7,000 and 7,500 people, whichrepresents about 1.6% of total employees in industrial sectors.

PCs per 10,000 inhabitants are estimated to have increased from 17 in 1995 to about 107 in19992. As concerns services, the IT sector shows ample room for improvement. For example, the numberof internet hosts and subscribers remain low (only 2,030 hosts, and 160 internet subscribers per millioninhabitants).

(')ITU; ("*) Ministry of industry and Comnmerce; Banque Marocaine du Commerce ExtieSure; (}) SEPTI.

Morocco's performance in the IT sector is behind main regional and global competitors, as far asthe main measures of performance are concerned (PC and Internet diffusion, training in ICT), and showsa dramatic need for improvement. On a positive note, the private sector might be reactive toimprovements in Internet connectivity and human resources upgrades. This is witnessed by the emergenceof highly dynamic and innovative Small and Medium Enterprises in the ICT sector, in particular, in thesectors of software development, provision of IT services and digital content creation. The turnover ofthese firms is not such to influence, yet, the performance of the ICT sector as a percentage of GDP.HIowever, the expected benefits from telecommunications liberalization on the performance of thesehighly innovative SMEs might produce considerable results in the medium term.

lI l. ll iill Nurbr of K; Edimu$e Mbr of hst ;SW4nsi h bd,b"~~~~e lO le lw pe po " Wfa n

l!~~~~iaJat l~ pe W0|bC kihbitnt C)¢O' _cec s per 1OOOtX

035% 036 044Y NA 0.180.72

9 56.4 i 4 S 2111.53 NA

715.0 74 2 743 N NA

2 These figures probably underestimate the growth rate as they do not reflect the fact that many PCs are introducedin the countries through "tax free" ports, and excluded by of ficial statistics.

Annex IVPage 5 of 9

Postal Sector.

Sector: The postal sector in Morocco has been steadily growing over the past four years (1995-1999).The share of postal revenues, however, in relation to the country's GDP has only risen from less than0.2% in 1993 to 0.3% in 1999, remaining far below international benchmarks which show that the postalsector generally represents more than 1% of GDP. While overall employment in the sector has inc:reasedby 14 % during this period, it is largely due to the emergence of other actors in the postal market (DHL,UPS, FedEx) as BAM has actually decreased its staff to 8,832 employees at the end of 1999, representinga 3% decrease since 1995. The absolute growth in revenues is much higher than the growth in traffic(letter mail, parcels) which has been more modest (about 10 % growth for all products since 1994). Theaverage number of letter mail items per inhabitant is still less than 8 and has stagnated over the last years.The number of permanent post offices was 1,498 in 1999, an increase of 7 % since 1995, and while all ofthese offices accept financial transactions, only 654 or 44% actually offer the full range of postal seirvices.

Moroccdo Sas ; Pstal Indicators ;1995V: 1996 S1997 001998 1fiuf::19I999tO7

Total postal revenues i( S millIon) t82.5 73.8 88 87.1 100.8Postal CotP:000000 revenues as a%0000 of0000000X0000;000000 GOP .25% .20% .26% .29% .29%

Total opertinganad; Invostment expenditures (US$ miion) 109.5 99.7 92.5 83.9 99.4Proitis or losses (revenues less expenditures) (US$ millin) -27 -25.9 *4.4 3.2 1.4Total numbe3r ofpostal staff 9,075 8,699 9,064 9,787 8.832No. finitantsprpostli e o 2,987 3,175 2,978 2,838 3,170Number of e ofc 1,401 1,425 1,454 1,469 1.498Av;gaW ce apemann toffice (km2D 319 313 307 304 298Averagenumt,erofinhabItatseer0edbype:rmh: ottoff t 19,350 19,382 18,782 18,910 18,851Number of letter boxes (mallboxes) D:3,080 3,234 3,397 3,564 3,737A0:veagenofdeliv rIeser 4ayinuraarxas 0 0002 2 2 1 1

kveragno.ofdvetiesperweekItt ruralarea:5 5 5 5 5% of population havinge mall deliveredat home 80% 66% 64% 65% 65%%pta wht aldelvery 4% 6% 6% 15% 15%

v nibeof ltr-post I dpe inhabitant 7.57 7.53 7.76 7.72 7,91Endof yeara&stInpostalsavngs acoounrt (USsl0lI 396.6 477.9 512.8 582.5 592.9End Of eair"ais In post ia ch gccounts tllon) 518.1 489.6 461.1 480.1 575.9Source: UPU, BAM

Public operator: The current public operator, Barid Al Maghrib (BAM) created in 1998 with the '4-96law, operates a comprehensive transportation, delivery and retail outlet network, as well as basic financialservices through the Caisse d'Epargne Nationale (CEN), the Comptes-Cheques Postaux (CCP) andmoney transfers services. Besides traditional mail services, BAM has recently developed hybrid offersintegrating telecommunications and IT solutions.

Mail activities: Concerning the mail services, the monopoly is defined by a 1924 law and includes lIttersand parcels up to lkg. Private participation in postal business covers the rest of the market. Only recentlyhave the international couriers and express services been opened to competition (24-96 law of 1997). Thepotential for expanding the range of available services to more customers is enormous, especially forbusiness. At this time though, BAM holds an extremely weak position on the parcel sector and is focusingmost of its efforts in trying to prepare for the e-commerce era.

Postal financial activities: The postal financial services account for approximately 30% of total postalrevenues and include checking and saving accounts, wire transfers. BAM is the only financial networkthat provide basic financial services to rural populations. Recently, BAM has develop partnerships withprivate entities such as Wafabank and Wafassurance to distribute in its network more diversified products

Annex IVPage 6 of 9

like pension insurance, personal insurance, consumption credit... It has also started a partnership withWestern Union for electronic international money wire transfers which is a great success.

Postal network and rural presence: Postal services are offered through a network of 1500 outlets thatcovers the entire country. According to its management, BAM offers access to services to the entirepopulation, but the definition of "access" needs to be addressed since it doesn't mean necessarily a daily,door-to-door collection and delivery. In comparison with other countries, the density of the Moroccannetwork appears weak. However, BAM explores ways of delegating the provision of postal services inrural areas to private agents in order to improve postal accessibility.

No. of Average area Average no, No. of Average no. Average no. % of pop. Averpg. no.Inhab. per covered by a of inhab. letter of deliveries of deiveres wthout of leteir-post

postal permanent Served by boxes per day In per week in postal Items postedemployee office (Wn2) perm. office urban areas rural areas delivery per inhab.

Morocco 2,838 304 18,910 3,564 1 5 15% 7.7TunisiaW 1,104 173 9,736 2,900 1 6 0% NA

Egypt 1,692 134 8,811 21,412 2 6 1% 3.3Turkey NA 46 3,736 40,269 1 1 0% 16.3

Chias 2,247 1,066 20,873 1108 1 NA 0% 23.2Malaysia 790 239 7,489 4,538 1 6 0% 96Portugal 604 25 2,659 18,621 1 5 0% 117.3Ireland 428 37 1,935 5,400 1 S 0% 170.2Source: UPU 1998, *1997 data

Financial results : BAM has been profitable since its creation in 1998, with 56 MnsDH that year, 95MnsDH in 1999 and 125 MnsDH in 2000.

B. Reforms achieved under the TPI-SAL

In the last three years, GOM has launched a program of sector policy reforms intelecommunications, post and IT, supported by the World Bank Group, first through the TPI-SAL andlater through the preparation of the proposed IISDL. The policy reforms focused on a first stage offostering competition and strengthening the regulatory framework in telecommunications, while layingthe groundwork for further developments in information technology and postal services. A new law onPost and Telecommunications was promulgated in August 1997 (hereafter Law 24-96), which completelyoverhauled previous rules and provides Morocco with a modern legal framework for the sector. Law 24-96 separates post from telecommunications, replacing the Office National des Postes etTelecommunications (ONPT) with two new entities: a joint stock company, LAM, providingtelecommunications services, and a public body, BAM, providing postal services. A decree from thePrime Minister creates the Secretariat charge de la poste et des nouvelles technologies de l'Information(SEPTI).

Telecommunications. In addition to the changes mentioned above, Law 24-96 creates an autonomousregulatory agency for telecommunications, I'Agence Nationale de Reoglementation desTelecommunications (ANRT), the first of its kind in Morocco. Law 24-96 enables competition in allsegments of the telecommunications market. Other measures have also been adopted to promote marketliberalization in the telecommunications sector. First, the Government's offer to the World TradeOrganization (WTO) on basic telecommunications services, commits to liberalizing alltelecommunications services by 2002. Second, ANRT has started to elaborate specific regulations, whichwill be crucial if effective competition is to materialize in the sector. Third, the law strengthens

Annex IVPage 7 of 9

competition in the teleconmmunications sector, even for fixed telephony, by allowing altenativeinfrastructures (Al) e.g. electricity or railways infrastructures, to be used for purposes other than -hoseoriginally intended. including the provision of telecommunications services.3 In addition to thepromotion of a competitive telecommunications sector, these measures facilitate the development of ITrelated activities, as they provide the basis for the development of a modern broadband network..

Pro-competitive policy reforms have already started to bear fruits. In August 1999, the MoroccanGovernment awarded a second license for Global System for Mobile Communications (GSM), throu gh aninternational competitive tender. All bidders in their proposals offered to commit to quality, coverag- andtariffs that would result in major service improvement and growth. The winning bidder was MediTelecom, a consortium of Telefonica Internacional of Spain, Telecom Portugal, and Moroccan inves;tors.Medi Telecom paid about US$1.1 billion for the fifteen-year license, one of the highest prices ever paidfor a mobile license relative to population size. The license was particularly appealing to investorsbecause, in addition to the usual features of a mobile license, it conferred particular embedded n ghts,which mitigated the risks posed by initial market dominance of LAM. The issuance of the license anti theprocess that led to its allocation also signaled the determination of ANRT to introduce effe ztivecompetition.

Other licenses have been issued as well. In November 1999, Orbcomm was selected as thewinner of a public tender for a Global Mobile Personal Communication System (GMPCS) license for datatransmission. The Government also launched in December 1999 international competitive biddings fortwo types of licenses: three licenses enabling operators to provide value added services through a VerySmall Aperture Terminal (VSAT) and two GMPCS licenses, covering voice as well as data transmis:,ion.As a result of these biddings, the Government granted the three VSAT licenses in May 2000 to SpaceCom S.A., Gulfsat Maghreb and Argos SA., and one GMPCS license in June 2000 to TESAM Maroc

Comparisons with international benchmarks show that the historical operator, IAM, has m adesignificant progress in realigning prices with costs, although further rebalancing is needed for Morocc:o tocompete effectively with the EU and other commercial partners. Prices of international services ilavedecreased for most destinations: over the period 1988-1998 and the price of calls to North America andEurope has been halved. Nevertheless, international comparisons (see Annex IV) show that the co;,t ofinternational calls in Morocco is still 2.2 to 4.4 higher than European benchmarks. On the other hand, theprice of local calls has progressively increased, from 0.12 DH to 0.27 DH per minute, a level that is quitein line with many other countries, although the monthly fee is still low (US$ 7-9 per month). In additionto this rebalancing of tariffs for local and long distance calls, IAM has dramatically reduced prices incellular telephony during the last months, partly as a response of the historical operator to the compet itivepressures brought about by the new entrant in the cellular market. As a result, Morocco's prices forcellular telephony are now in line with international prices.

Information Technology. The Government adopted an ambitious action plan for the development of IT,developed and presented to Parliament by SEPTI, soon after its creation in 1998. This plan included thefollowing objectives: (a) diffusion of information technologies within the Public Administration throughthe enhancement of existing If equipment and networks, the development of e-government and thetraining of skilled IT human resources among civil servants; (b) promotion of Information Technologies

3A study commissioned by ANRT in 1999 (Jeantet 1999) confirmed the viability, within the existing legalframework, of using Al for telecommunications services, while suggesting some amendments that could furtherpromote Al development. Another study by DevotechConseil (1999) found that several potential providers of U inMorocco (such as ONCF, ONE, ADM and Lydec) have available excess capacity and are interested in enterin., thewholesale telecommunications market.

Annex IVPage 8 of 9

among enterprises, in order to strengthen their competitiveness in the global markets; (c) diffusion ofinformation technologies in basic education, in the valorization of cultural heritage and in scientificresearch; (d) the development of a modem and reliable information infrastructure; (e) the development ofan adequate regulatory environment; (f) the development of Internet and electronic commerce.Implementation of this plan has started with the development of two key areas electronic commerce andinter-Administration networks, where two inter-agency commnissions were established and producedspecific recommendations on the regulatory framework.

Postal Sector: In addition to the separation of telecommunications and postal activities carried out by theLaw 24-96 and the creation of a distinct postal operator - BAM -, the 24-96 Law opened the market forinternational courier services to competition. BAM's new management has successfully started a widerange of operational improvements, laying the groundwork for further modernization and marketdevelopment. With respect to the postal financial services, the 24-96 Law mandated the reintegrationwithin the newly created BAM of the Caisse Nationale d'Epargne (CEN), -- a postal savings institutioncreated in 1959 -- and considerably limited CEN's financial autonomy. In fact this law represents areversal of a course towards increased financial independence of CEN, which had been established inlegislation approved in 1992. The law of 1992 allowed CEN greater leeway in investing its own networth and in offering financial services - including credit. However, this law was never applied and wasabrogated by the 24-96 Law. The latest legislation, however, gives BAM room to negotiate partnershipsor launch joint venture, and BAM has signed commercial agreement with private financial institutions tooffer several types of financial services (including, insurance products and consumer credit).

While the postal network is a vehicle for a wider penetration of banking services throughout thepopulation, the mobilization of these resources towards the financing of investment activities is limited.Concerning CCP, BAM must transfer all its clients deposits to the Treasury that pays in return an interestrate of 4% on the average amount of deposits. Concerning CEN activities, BAM must deposit all itsexcess cash flows, by law, at the Caisse des Dep8ts et Gestion (CDG), a national savings bank which alsocollects money from social security and invests most of it in Treasury bonds. Recently the relationshipbetween CDG and BAM/CEN has been modified, and a dedicated "internal mutual fund" (or segregatedportfolio), whose yield is indexed on a market interest rate, has been isolated in CDG for CEN.CEN/BAM has a seat on the management committee of the fund, and can more directly determineplacement choices. The authorities consider this modification as a first step towards a more completeliberalization of CEN's investment capacity.

C. Lessons Learned from implementation of the TPI-SAL

The reforms supported by the TPI-SAL have been an unmitigated success, as shown by theexceptional growth of the mobile market, the increased contribution of telecommunications to GDPgrowth and employment creation and by the high institutional credibility and reputation quickly gained byANRT. This success was mainly due to three factors: 1. the focus on enabling sector-wide competitionthrough the vehicle of a strong wireless competitor; 2. the support to the independence and capacitybuilding of the regulator; and 3. the stress on open and transparent tender procedures for the tender for thesecond GSM operator.

Some lessons arose from the implementation of the TPI-SAL project:

1. The success of the GSM transaction had a wide demonstration effect. Privatization of MarocTelecom accelerated pace; privatization and reform in other sectors accelerated as well. Mobilesector reform was initiated by other countries of the region, like Algeria and Mauritania. These

Annex IVPage 9 of 9

countries drew on the example, experience and expertise of ANRT to conduct mobile tende rs andinitiate sector reform.

2. Results were mainly achieved in the areas where the competitive threat was more present. Thisemphasizes the importance of competition, to achieve reorganization of the incumbent operatorand accelerate sector reform.

3. The design of a public policy for universal access in telecommunications, post and IT was slowerthan expected. Progress achieved in this area was mainly due to market developments, such asGSM growth, while public sector initiatives, such as the development of pilot projects fo:r ruralaccess, were not undertaken.

4. Reform in post and information technology proved to be much slower and less effective. thantelecommunications reform. The implementation of the Government's approach, to develop thethree sectors as a unique, convergent, Information Infrastructure sector, requires two changes: (a)the need to place more political will, resources and commitment in the areas of informnationtechnology and post; (b) the need to advance, where possible, convergent policies for the threesectors (a good example is the inclusion of multimedia and broadcasting as services that can beoffered over telecommunications networks).

Annex VPage 1 of 3

ANNEX V

MONITORABLE INDICATORS

To monitor the impact of the reform program and agree, if needed, on corrective measures,the following set of indicators will be jointly monitored by the Government and tie Bank.

Target Indicator Measure | 1999 | 2000 | 2001 | 2002 2003TELECOMMUNICATIONS

Innovation Internet Users Number of dial up and dedicated 80,000 200,000 400,000 700,000 1,000,000lines customers

Access Percentage of the Percentage of the population 75% 90% 92% 94% 96%population with access to a living in a locality with access tophone (fixed, cellular, a phonepayphones)

Total Number of LinesNumber of lines outside 2 860,000 905,550 940,000 975,000 1,010,000main cities/ I,I ,,,

Price Price of international calls Price of a 3 minutes phone call 1.56 1.42 1.14 0.56 0.28to Paris "Plein Tariffs"

Price in US$ of Price of a 2 M/monthinternational leased lines (2 32,000 25000 8000 4000 2000Mbps* month) to London __I

Quality Fault Rate Number of faults per 100 lines 33 24.8 20 16 12per year I_I_I

INFORMATION TECHNOLOGIESSector Volume of electronic Revenue of domestically N.A 5 10 20 50Development transactions generated and processed e-(e-commerce) commerce transactions (US $

____________ ____________________ m illionsEfficiency Percentage of the public Percentage of the employees of 0% 0% 1% 2% 10%

administration connected the Public Administrationthrough Inter- connected to Inter-Administration Networks Admninistration networks.

POSTAL SECTOR

Target Market Indicator Measure 1999 2000 2001 2002 2003L__________ Sement _

Business Letter mail, traffic volume Yearly increase 0.72% 6.04% 2 % 2 % 2 %development (domestic, letter mail per inhabitant: Usage of standard) 20%postal traffic volume Yearly increase 24% 20% 20% 20%services national expressBusiness Financial Volume of Yearly increase in 7% 7% 10% 10% 10%Developmen services savings deposits total depositst:Savingsmobilization _ _Quality of Letter mail Reliability of % delivered on 53% 53% 65% 70% 80%services delivery time day 2 (from end

to end)Access to Postal and Country wide Number of postalservices financial access of counters per

services population to 10,000services inhabitants:

-in urban areas 0.89 0.89 0.91 0.95 1.00-in rural areas 0.84 0.84 0.87 0.89 0.92

Productivity Global Value added per Annual increase NA (*) 1.390/o -1.95% 2.94% 3.41%_ employee (*__)

Investment Overall Volume of Volume of net 100,600 87,618 206,927 168,000 210,250investments Investments (***)

(Thousands ofDH)

Annex VPage 2 of 3

Notes: *Since Barid Al-Maghrib was created in February 1998, its first fiscal year counted actually 10months, making it irrelevant to compare it with 1999.**: This decrease is due to the creation of a separate subsidiary --joint venture with Chronopost S.A.-- torinternational express mail delivery (since very few BAM employees were shifted to the new subsidiary), andto the decrease in the volume of IAM's transactions handled at BAM's counters since the separation of thetwo entities, as the number of IAM offices steadily increased.***: 2001 investments actually cover: 100 067 KDH for 2001 modernization projects and 106 860 KDH borprojects started in 2000 and earlier.

Faults Ratio. Faults per line per year is the first measure of the quality and reliability of t'nenetwork. Investment and regulatory effort should be placed to progressively reduce faultsenhancing quality of service.

Traffic volume (letter mail and express mail -Poste Rapide Nationale, PRN-): Thoseindicators (fed by the "532 statistic" tool which methodology is being currently reviewed) aims atthe assessment of the postal market volume, its different segments and their growth. The mailvolume in Morocco (less than 8 letters per head per year) offers an important growth potential. Tihemain operator, BAM, can be a motor of the market growth by providing good quality of service ataffordable prices and by using marketing tools. The yearly increase of items per capita reflects agrowing usage of postal services. There is in many cases a clear correlation between econonmicgrowth and the growth of postal traffic (in the German case the relation for many years was thefollowing: if GDP increased by 1%, letter mail volumes increased by O..5%). Even in most of themature postal markets (OECD countries) where electronic substitution plays an important role,letter mail volumes still grow; in the US the letter volume of USPS grew in 1999 by 2.4%. InMorocco, the letter mail growth objective of 2% appears cautious considering the fact that thedirect marketing segment offers important potentials. The express mail (PRN) objective is moreambitious and reflects the objective pursued by the operator BAM to position itself on a segmentthat offers stronger added-value potentials.

Postal Savings: volume of savings deposits: This indicator aims at the assessment of thedevelopment of the core financial services that are offered via the postal network. The growthprojection initially very ambitious have recently been re-estimated and decreased to take intoaccount the slow actual growth of 1999 and 2000. It has been proven in other countries, however,that savings mobilization via the postal retail outlets can exceed the market trend.

Reliability of delivery: This indicator aims at the assessment of the improvement in quality 3fservice with regard to domestic letter mail. It refers rather to reliability than to speed. From thecustomers' point of view, reliability (meaning that a letter really gets delivered by the 3rd day - j-+2- after being put into the system) is even more important than speed (normally defined in terns ofnext day delivery, D+1). The measurement of speed/reliability should be directed at end-to-endrelations (de bout en bout), i.e. from the sender to the receiver of a letter. As a reference point, themodem postal systems in Europe offer up to 99% D+2, and >90% D+1. Hence, coming from amodest level of 55% D+2, significant improvements can be expected in the Moroccan postal sector.

Country wide access of population to services: This indicator is supposed to measure to whatextent postal services are provided to the whole country and to all inhabitants. The access to postalservices must not necessarily be provided by stationary retail outlets that are staffed with postalemployees; it can take different forms (postal agencies, stamps sales points with licensed agents,automatic machines...). Today, no accessibility criteria clearly exists in Morocco. Such a criteriarefers to distance and frequency that remain to be determined. The mid-term objective in themedium term should clearly be near 100%.

Annex VPage 3 of 3

Added value per employee: This indicator aims at the assessment of the productivityimprovement. With better personnel training, increase use of information technology, postalactivities diversification, the productivity should increase rapidly in the coming years.Added value = production (= sales +/- stocks variations) - intermediary consumptions.

Investments: This indicators allows to appreciate BAM's effort to prepare for competition on newservices and products, as well as to consolidate its core postal activities.

Other Indicators in preparation:

Extent of market liberalization: This indicator aims at assessing the opening of the postal marketand the actual significance of private participation. The 24-96 Law of 1997 liberalized theinternational express business and 5 licenses have been granted. Market liberalization is normallymeasured with regard to weight or price limits (for example liberalization of letter mail itemsweighting more than 200 grams or letters beyond a specific price threshold).Liberalization is onlymeaningful if it is related to market segments that are attractive for private competitors. An idealliberalization path would include steps like opening the direct mail business or the parcel market forcompetition. Complete liberalization only exists in a few countries (e.g. Finland, Sweden, NewZealand, Argentina), but many countries have liberalized the parcel and direct mail markets, auseful orientation could be the EU guideline (350 grams limit). Today, BAMs market share is 8%of the international express (volume). The indicator selected to measure the extent of thisliberalization could be the share of the private participants in the postal sector in the total revenuesgenerated by the sector. Targets will be an increase of 1% per year in this share.

Postal network accessibility: This indicator is one of the criteria of the universal service andshould be defined on the basis of different factors, like physical or temporal distances that separatethe users from a point of postal service, whatever its form is.

Annex VIPage 1 of 3

ANNEX VI

FISCAL IMPACT OF THE REFORMS

The reforms undertaken by the Government of Morocco since 1998 have an impact (fntelecommunications and IT sector structure, affecting its fiscal performance, in terms of static anddynamic fiscal gains and losses. This Annex estimates overall impact of reforms and the mainhypotheses and assumptions are presented at the end. The time period considered in this analysisis 1998-2003. Values are discounted in 1998 USD.

Discussion of main fiscal impacts

1. Award of a GSM license to MediTelecom: the award of the license brought about 1 1Bn USD to the State Budget.

2. Privatization of IAM: the privatization of LAM brought 2.1 Bn. US$ to the State Budgetin 2001, through the sale of a 35% share to a strategic investor. The model assumes thatanother 2.1 Bn. US$, through an Initial Public Offer of 25% of IAM capital in 2002.

3. Investment in the Administration on Line Initiative: the Moroccan Government needsover 200 M USD to complete the "Administration on Line" initiative. The presentedscenario assumes investment of 5 M USD in 2001 and of 100 M USD in 2002 and 2003.

4. Proceeds from other licenses: liberalization of telecommunications will bring additionalrevenues in form of proceeds from VSAT, data and alternative infrastructure licenses.These license fees are assumed to bring 10 M USD in 2001 and 50 M USD in 2002. Aft; rthat, when full liberalization will take place, the Morocco will opt for a class license orauthorization regime, at no initial fee for the license holder.

5. Dephasing of the Monopoly Tax: before liberalization, the Moroccan Government wasearning a 10% Monopoly Tax on the gross revenues of the incumbent operator. This taxis being progressively phased out, according to the following schedule.

Year 11998 1999 2000 2001 2002Monopoly Tax 8% 6% 4% 2% 0%

If applied at its original 10% rate, the monopoly tax would earn the Moroccangovernment about 80 M USD of annual fiscal revenues. The progressive dephasing of themonopoly tax will reduce this revenues in the period 1998-2003 by about 290 M US1-),or, about 241 M USD in net present value.

6. Additional Fiscal Contribution: competition enlarges the telecommunications market.Incumbent operator and new competitor increase their revenues and pay more taxes,through direct and indirect taxation. The additional fiscal contribution is calculatedestimating the difference between the expected rate of growth of the telecommunicationssector in presence of competition, with respect to the historic growth rate. The additionalfiscal contribution for the years 2000-2003 amount to about 286 M USD.

7. Universal Access Contributions: Terms of Reference of MediTelecom provided for thepayment of 4% of gross revenues for the contribution to the Universal Service Fund andfor RDT expenditures. IAM will be exempt from paying the Universal Servicecontribution till 2003. Assuming that the same obligation will be imposed on all marketplayers, this will bring up to 68 M USD in revenues in the years 2000-2003.

Annex VIPage 2 of 3

The following table and graph indicate that the cumulative fiscal impact of reforms inreal terms exceeds 3.5 Bn. USD for the period 1998-2003.

Year 1998 1999 2000 2001 2002 2003

Removal of Monopoly Tax 8% 6% 4% 2% 0% 0%

Award of GSM License to MediTelecom 1035 0Sale of IAM to Strategic Investor 2100 0IPO of [AM 1800Administration on Line Investment -50 -150 -150Proceeds from licenses 10 50 0IAM Revenues (LT) 766 858 896 955 1,013 1,078IAM GSM Revenues (LT) 92 122 147 172 193 212[AM Revenues with GSM2 and 2002 liberalization 896 1,079 1,231 1,379

Revenue enlargement effect on lAM 0 124 218 301MonopolyTaxat10% 77 86 90 95 101 108Fiscal Loss -Dephasing Monopoly Tax -17 -36 -52 -77 -108

MediTelecom Revenues 87 341 503 653Other Operators Revenues 35 70Overall Enlargement Effect 87 465 756 1,024Additional fiscal contribution 24.36 130.2 211.68 286.72Market Size with liberalization 983 1,420 1,769 2,102Universal Access Contributions 3.48 13.64 21.52 28.92Fisoal Impact 0 1,018 -8 2,152 1,856 58Fiscal Impact NPV 970 -7 1859 1527 45Cumulative fiscal impact NPV 0 970 962 2821 4348 4393Fluxes NPV -17 -8 42 6 58Cumulative Fluxes NPV 0 -17 -25 17 23 81

An alternative way to present the fiscal impact of sector reform would be to look at thefiscal fluxes only (regular annual fluxes of revenues and costs to the State budget), without thenon-annual license proceeds, a one-off revenue for the State. If we adopt this approach, short termfiscal losses arise up to the end of 1999, and are offset by fiscal gains by end 2000.

Cumulative Fiscal Impact NPV

zooo -cruah NW | mpS'':4000 I. '

3SDO 'D 3000

8 l 11 ll . t < ei. -- - Cuniulatlbescal impac:2000 ll| P

600

19 1999 200 2001 2002 2003

eYer

Annex VIPage 3 of 3

HYPOTHESES

4 Value IAM=6.0 billion USD;v Sale of 35% share of the capital of IAM to strategic investor in 2001;: IPO premium of 20% over private sale price of IAM;* 25% of IAM capital floated in [PO in 2002;4 4% revenue of all telecom operators for Universal Access Fund;+: Overall fiscal burden is 28% gross revenues (VAT+Profit tax);4 Discount rate =5%; 1998 USD;4 Universal Access Fund is considered fiscal revenue for the Government;4 Dividend policy of IAM unchanged;*: The effect of competition on overall sector profitability is assumed constant;4 Historic sector growth rate is assumed at 7.5%;: Meditelecom is assumed to be able to capture 50% of new GSM subscribers after 1 year of

operation;* Average Revenue per User (ARPU) for GSM= constant until 1999, decreasing 2 USD-month

afterwards;* ARPU FL= Linear Trend;4 GSM market size in December 2002: 5,000,000 subscribers.

L IAM additional revenues from data, Internet and leased lines are assumed zero (conservativeassumption);

* No indirect effect (e.g. stimulus to growth) arises from removal of the monopoly tax(conservative assumption);

* Positive Network Externality on FL Network: None (conservative assumption).

Annex VIIPage I of I

ANNEX VII

TIMETABLE OF KEY PROCESSING EVENTS

Time taken to prepare: 20 months(identification to negotiations)

Prepared by: Government, ANRT and World Bank staff

Identification mission departure: July 19, 1999

Regional Operation Committee: March 30, 2000

Appraisal mission departure: May 16, 2000

Negotiations: March 26-30, 2001

Board Presentation: May 31st, 2001

Planned date of Effectiveness: September 2001

Closing Date: December 31st, 2001

Annex VIIIPage 1 of 2

ANNEX VIII

Status of Bank Group Operations (Operations Portfolio)As of Date 4/1/2001

ClosedProjectsActive Prolects Difference Between

Last PSR Expected and ActualSupervision Rating b' Orloinal Amount In USS Millions Disbursements'

Project ID Project Name Development Implementation Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd

P042414 COOR/MON SOCIAL PRO S S 1996 28 0 0 0 9.4 3.9 0P005525 HEALTH MANAGEMENT S S 1999 66 0 0 0 54 36.7 0.5P005499 IRR. AREAS AGR. SERV S S 1994 25 0 0 9.9 3.7 15 2.7P005519 LAKHDAR WATERSHED MG S U 1999 4 0 0 0 3.7 1.4 0P063918 LEGAL AND JUDICIAL DEVELOPMENT S S 2000 5.3 0 0 0 5.2 0.3 0P005524 FES/MEDINAREHAB. S S 1999 14 0 0 0 11.3 7.6 0P048314 PROTECTED AREAS MANAGEMENT S U 2000 0 0 10.5 0 9.3 0 0P005489 SECONDARY ROADS S S 1995 57.6 0 0 0 14.5 21.7 3.3P005523 MUNICIPAL FINANCE II U S 1998 70 0 0 0 22.1 28 0P052247 PILOT FISHERIES DEV. U S 1999 5 0 0 0 3.9 1.6 0P038978 PSD III-VOC TRG. HU U 1997 23 0 0 0 12.3 13.6 7.1P043725 RAILWAY RESTR& PRIV S S 1997 85 0 0 0 61.8 43.5 0P040566 RURALW.S.&SANITATN S S 1998 10 0 0 0 4.5 5.3 -0.4P005503 SEW.& WATER REUSE II U U 1996 40 0 0 0 30.3 18.5 0P005501 SPF - EDUCATION S S 1996 54 0 0 0 30.6 12.8 0.7P042415 SPI - HEALTH S S 1996 68 0 0 0 14 -1.5 0P065757 SUSTAINABLE COASTAL TOURISM DEVT. S S 2000 2.2 0 0 0 2.2 0.4 0P005521 WATER RESOURCE MGMT. S S 1998 20 0 0 0 16.1 7.4 0P005435 WATER SUPPLY V S S 1994 160 0 0 71 19.1 90.7 9.3Overall Result Result 737.1 0 10.5 80.9 328.2 306.7 23.2

Active Prolects Closed Proiects TotalTotal Disbursed (IBRD and IDA) 278.2 6,647.9 6,926.1

of which has been repaid 8.05 4,363.5 4,371.6Total now held by IBRD and IDA - - 2,863.6Amount sold - 20.1 20.1

of which repaid - 20.1 20.1Total Undisbursed 319 10.9 329.8

a. Intended disbursements to dale minus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Review of Portfolio Performance (ARPP), a letter based system was introduced (HS = Highly Satisfactory, S = Satisfactory, U = Unsatisfactoy, HU = HighlyUnsatisfactory): see proposed improvements in Project and Portfolio Performance Rating Methodology ( SecM94-901), August 23, 1994

Data includes one guarantee (Jort Lasfar)

Annex VIII

Page 2 of 2

CAS Annex B8 (IFC) for Morocco

MoroccoStatement of IFC's

Held and Disbursed Portfolio(In US Dollars Millions)

As of Date 4/1/2001

Held Disbursed

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1995 Attijari 0.0 0.5 0.0 0.0 0.0 0.5 0.0 0.01990 ENNASR 0.5 0.0 0.0 0.0 0.5 0.0 0.0 0.01994/96 Mediafinance 0.0 1.2 0.0 0.0 0.0 1.2 0.0 0.01999 Settavex 0.0 9.0 0.0 0.0 0.0 9.0 0.0 0.02000 Maghreb Invest P 0.0 5.0 0.0 0.0 0.0 1.3 0.0 0.02001 Medi Telecom 66.4 0.0 22.1 310.1 66.4 0.0 22.1 310.1

Total Portfolio: 66.9 15.6 22.1 310.1 66.9 11.9 22.1 310.1

Approvals Pending Commitment

Loan Equity Quasi Partic

Annex IXPage 1 of 3

Annex IX

Morocco Key Economic Indicators

National accounts (as % of GDP)

Gross domestic product at market pricesa 100 100 100 100 100 100 100 100 L00 100 100

Agriculture 19% 15% 19% 15% 17% 15% 13% 16% 15% 15% 15%

Industry 31% 33% 31% 33% 32% 33% 33% 32% '-2% 32% 32%

Services 51% 52% 50% 52% 51% 53% 54% 52% 53% 53% 53%

Total Consumption 85 86 84 83 82 80 82 82 81 80 80Gross domestic fixed investment 20.7 21.4 19 21 22 24 24 24 25 25 25

Government investment 3.6 3.7 3 3 3 3 4 4 4 3 3Private investment 17.8 17.0 17 17 20 21 21 21 22 22 22(includes increase in stocks)

Exports (GNFS)b 25 27 26 28 28 30 31 32 33 33 34Imports (GNFS) 31 34 30 32 32 34 38 38 38 39 39

Gross domestic savings 15 14 16 17 18 20 18 18 19 20 20

Gross national savingsc 19 17 19 20 22 23 23 23 24 24 25

Memorandum itemsGross domestic product 3035232985366393341435667 34998 33481 35471 37407 39525 41843(US$ million at current prices)GNP percapita (US$, Atlas method) 1170 1120 1290 1250 1250 1190 1250 1270 1250 1280 1340

Real annual growth rates (%, calculated from 1980prices)

Gross domestic product at market prices 10.4 -6.6 12.2 -2.2 6.8 -0.7 0.8 8.0 3.4 3.6 3.8Gross Domestic Income 7.5 -3.8 12.9 -1.1 10.7 -0.5 -2.0 8.7 3.6 4.0 4.2

Real annual per capita growth rates (%, calculated from1980 prices)

Gross domestic product at market prices 8.4 -8.2 10.3 -3.9 5.0 -2.3 -0.9 6.2 1.7 1.9 2.2Total consumption 10.0 -6.7 9.5 -4.3 6.8 -3.8 -1.8 6.6 0.8 1.9 2.3Private consumption 12.6 -7.0 10.5 -5.7 7.3 -5.6 -0.9 4.8 2.5 2.9 2.9

Balance of Payments (US$ millions)

Exports (GNFS)b 7555 9044 9629 9510 9970 10648 10495 11185 12259 13200 14172Merchandise FOB 5541 6871 6886 7039 7144 7514 7297 7647 8343 8941 9561

Imports (GNFS)b 937711243108621062711425 11964 12652 13396 14378 15317 16340Merchandise FOB 7648 9353 9080 8903 9463 9956 10597 11191 12006 12782 13630

Annex IXPage 2 of 3

Resource balance -1822 -2199 -1233 -1117 -1455 -1317 -2157 -2211 -2119 -2117 -2167Net current transfers 2270 2330 2576 2205 2345 2137 2408 2474 2478 2535 2589Current account balance, incl. grants -723 -1186 35 -87 -144 -156 -498 -537 -418 -409 -432

Net private foreign direct investment .. 320 327 1071 313 839 103 2632 980 975 970Long-term loans (net) -293 -184 -68 -736 -186 -437 -111 -378 -707 -644 -251Official -430 -287 -13 -816 -455 -226 -535 162 94 174 146Private 138 103 -55 80 269 -212 425 -540 -801 -818 -398

Other capital (net, incl. errors & omrnissions) .. 67 -2 305 264 1393 97 142 113 92 126

Change in reservesd -361 982 -292 -553 -247 -1638 409 -1858 32 -13 -413

Memorandum itemsResource balance (% of GDP) -6.0 -6.7 -3.4 -3.3 -4.1 -3.8 -6.4 -6.2 -5.7 -5.4 -5.2Real annual growth rates ( YR80 prices)Merchandise exports (FOB) 4.2 13.3 -2.1 6.0 6.7 10.3 -1.9 2.7 7.0 5.5 5.7Primary 1.9 13.0 -5.0 3.7 5.3 14.9 -1.5 6.8 6.8 6.0 6.0Manufactures 7.1 15.3 2.1 9.1 7.6 4.5 -1.5 -0.6 7.2 5.2 5.3

Merchandise imports (CIF) 6.2 11.5 -4.6 3.6 16.9 4.9 -2.9 5.6 5.0 5.7 6.0

Public finance (as % of GDP at market prices)eCurrent revenues 24.2 23.9 24.5 25.5 27.4 27.1 26.2 23.8 23.9 23.9 24.0Current expenditures 23.0 23.8 23.5 24.6 25.2 26.0 26.5 25.5 23.6 22.9 22.3Current account surplus (+) or deficit (-) 1.2 0.1 1.0 0.9 2.2 1.1 -0.3 -1.7 0.3 1.1 1.7Government Investment 5.2 5.5 4.5 4.2 4.9 4.9 6.1 6.0 5.8 5.4 5.2Foreign financing -1.6 -0.7 -1.5 -1.9 -1.7 -1.1 -1.3 -0.7 -1.3 -1.5 -0.9Budget Deficit -4.0 -5.4 -3.5 -3.3 -2.7 -3.8 -6.4 -7.7 -5.5 -4.3 -3.5

Monetary indicatorsM2/GDP 64.9 69.2 65.0 71.1 69.9 77.0 81.3 81.3 81.2 81.2 81.2Growth of M2 (%) 10.4 7.5 6.5 9.0 5.8 10.2 9.1 11.2 5.9 6.2 6.4Private sector credit growth/ 58.1 61.7 80.3 68.2 112.3 202.8 36.2 63.1 40.2 59.1 49.1total credit growth (%)

Price indices( YR80 =100)Merchandise export price index 105.9 116.6 118.6 114.4 108.8 101.9 102.8 104.9 107.0 108.6 109.9Merchandise import price index 104.2 113.1 115.0 108.8 100.5 100.8 110.5 110.5 112.9 113.7 114.3Merchandise terms of trade index 101.6 103.1 103.2 105.1 108.3 101.1 93.1 95.0 94.8 95.6 96.2

Real exchangerate (US$/LCU)t 108.3 111.9 113.7 114.7 117.5 118.7 122.0 117.7 117.7 117.7 117.8

Real interest ratesConsumer price index (% change) 5.1 6.1 3.0 1.0 2.7 0.7 1.9 1.9 2.3 2.0 2.1GDP deflator (% change) 1.6 8.0 1.0 2.0 0.7 0.9 2.5 3.0 2.5 2.5 2.5

APage

01(' ~ ~ ~ 1t d~ a o 1993'2 - W W < ' 1994X 0 1995 1'9. '96' 19970' 199 1999 200 20 1 00 9 00

a. GDP at market pricesb. "GNFS" denotes "goods and nonfactor services."c. Includes net unrequited transfers excluding official capital grants.d. Includes use of IMF resources.e. Central government. Fiscal years in 1996, 1997, and 1998. Calendar years otherwisef. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. Based on Europe CPI.

Annex XiPage 1 of 2

ANNEX XCompair.tor qtoupsP MI4A . LO'

Morocco at a glance 5/4t2001

M East Lewit-POVERTY and SOCIAL & North middle r

Morocco Afrias lncom- DOvelop.n.nt dlamond1999Population. mid-yeat (millionrs 28.2 291 2.094 Life expectancyGNP per capita (Alias method, US$) 1 190 2,060 1,200GNP (Atlas method, USS billions) 33.6 599 2,513

Average flnrdul growth, 1993.99

Population I%) 1 7 2.1 t 1 GNPLabor force (%l 2.6 3.0 1.2 GNP "N Gross

per prim aryM oet recont estimlate (latet year avaIlable. 1993899) capita enrollment

Povetty (1 of population bolow natlonail poverty line) 19Urban popuietlon (% ottotalpop.allo/f) 55 58 43Life expectancy at birth (yeers) 67 6t 69Infant m ortality (pfr tfOOt live bitthS) 4S 45 32Child malnutrition (% of children ufndef 5) 15 15 Access to safe waterAccess to improved water source (% oG population) 82 71 56tiltoracy (% of population age IS+) 52 36 16Gross primary enrollment (% ofschool-age population) 86 95 114

Male 97 102 114 ...--- Lower-middle-ilncome groupFPmale 74 as 116

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1979 l9o9 199t 199S Ec o I _fo_Easnomla -tnier

GOP (USs bi/lliros) 15.9 22.8 35 7 35.0Gross domestic investmentiGOP 24.5 23.7 22.5 24.2 TradeExports of goods and services/G OP 17.0 23.6 28.0 30.1Gross domestic savings/GOP t116 f8 2 18.4 20.1Gross mstlonal savrngstGOP 15 6 20 S 21.7 23.0

Current account balance/GOP -9.6 -3 5 -0 4 '-0.5 D iInterest paymentslGOP 3.0 4.5 2 9 3.0 snvestmentTotal debt/GDP 49.6 95.7 57.5 5 45 avinsTotal debt sorvicoiexporls 26.3 30 2 22.9 2 3,9Present value of debt/GOP DPPresent value of debt/exports

Indebtedness19790-9 1959.99 1998 1999 1999-03

(average annual growth)GOP 4.Q 23 6.8 -0.7 4 Q - MoroccoG5NP per csitas 1.5 06 5.8 -2.2 2.5 -1Lower-middle-inoome groupExports of goods and services 7.2 5.4 5.9 6.7 4.2

STRUCTURE of the ECONOMY1979 1989 199S 1999 Orewth of Inneatassnt and GOP (I%)

(% of GDP) 40Agriculture 17.9 17.2 17.0 14.8 cIndustry 32.7 33.2 31.9 32.7 ts

Manufacturing 16.S 17 8 17. 17.3 73Services 49.4 49.6 51.1 52.6 0

Private consumplion 67.0 66.1 63.5 806 0 , nGeneral government consumption 21.3 15.7 18.1 19.3 300pImports of goods and services 29.9 29.1 32.0 34 2 -

1979-89 1989-99 1995 19998 rwbaspra a mat %

(average annual growth) O rowlh of xport nd Import I%)Agriculture 5.8 -0.8 24.7 -19.58 aIndustry 2.4 3.2 1 .8 25 20

Manufacturing 3.9 3.0 2,4 2.5 IsServices 4.3 2.8 5,1 3 3

Private consumptlon 4.0 2,9 9.1 -4 1 0

General government consum 0tion 1.0 3.2 8 .6 6 2 " D n 7 to CS

Gross domastic investmant 0'6 1.7 30.1 6 9 15

Imports of goods and services 1.9 6.0 21.4 4 7 - Exo -1 -ImportaGross national product 3.7 2.4 7.6 -0 6

Note 1990 data are preliminary estimates.

The diamonds show four key Indicators In the country (in bold) compared with Its income-group average If data are missing the diamond willbe incom plete.

1. Refers to 2000 figures. Includes access to treated surface water and untreated but uncontaminated water.The detinition of Imoroved water source has chanced over time.

Annex XIPage 2 of 2

lMorocco

PRICES and GOVERNMENT FINANCE

1979 1989 1998 1999 Inflation (%)Domestic prices(% change) 10Consumer prices 8.3 3.1 2.7 0.7 6

Implicit GDP deflator 7.3 4.0 0.7 0.9 6 >4

Government finance 2

(% of GDP, includes current grants) oCurrent revenue 22.2 22.6 27.4 27.1 94 95 96 97 ! 99

Current budget balance 2.8 1.4 2.2 1.1 - GDP dellator e .CDIOverall surplus/deficit -9.4 -6.0 -2.7 -3.8

TRADE

(US$ millions) 1979 1989 1998 1999 Export and Import levels (USS mill.)

Total exports (fob) 1,955 3,851 7,144 7,514 12.000

Agriculture & Food Items 641 1,016 1,627 1,590 10,000Phosphate rock 568 489 459 434 8,000

Manufactures 345 1,644 3,932 4,085 6 *

Total imports (cif) 3,673 5,842 10,274 10,804 6'_00 509

Food 550 590 1,191 1,177 40Fuel and energy 710 843 922 1,330 2,000Capital goods 844 1,458 2,567 2,830 o

93 94 95 96 97 9,s 99Export price index (1995=100) 71 85 93 87Import price index (1995=100) 78 85 89 89 m Exports mImpolsTerms of trade (1995= 100) 91 99 105 98

BALANCE of PAYMENTS

(US$ millions) 1979 1989 1998 1999 Current account balance to GDP (%)

Exports of goods and services 2,707 5,391 9,970 10,848Imports of goods and services 4,752 6,641 11,425 11,964Resource balance -2,045 -1,249 -1,455 -1,317 o 0 il 6 9

Net income -409 -1,159 -1,033 -977 .iNet current transfers 923 1,606 2,345 2,137

Current account balance -1,531 -803 -144 -156

Financing items (net) 1,499 808 391 1,795 3

Changes in net reserves 32 -5 -247 -1,638 4

Memo:Reserves including gold (US$ millions) .. 552 4,693 5,920Conversion rate (DEC, local/USS) 3.9 8.5 9.6 9.8

EXTERNAL DEBT and RESOURCE FLOWS1979 1989 1998 1999 !

(US$ millions) Composition of 1999 debt (USS mill.)Total debt outstanding and disbursed 7,886 21,874 20,491 19,060

IBRD 504 2,686 3,388 3,194 G 183IDA 38 40 29 28

Total debt service 972 2,042 2,782 3,047IBRD 65 381 493 514 F: 5,750 8 .b

IDA 0 1 2 2

Composition of net resource flowsOfficial grants 95 101 D 3 029Official creditors 331 688 -455 -226Private creditors 673 228 281 -212Foreign direct investment 39 167 313 839Portfolio equitV 0 0 E: 6,876

World Bank proqramCommitments 357 518 204 356 A - IBRD E - Bil.teralDisbursements 137 364 253 404 B - IDA D - Other multilateral F - PrivatePrincipal repayments 25 182 286 302 C - IMF G - Shi,rt-termNetflows 112 182 -34 102Interest payments 41 200 206 212Net transfers 72 -18 -240 -110

Development Economics 5/4/2001

Annex XIPage 1 of 1

MAP OF MOROCCO

AVAILABLE ON PAPER COPY

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