Gender Perspective on Formalizing the Informal Economy in Morocco

FORMALIZING THE INFORMAL ECONOMY: A GENDER PERSPECTIVE Cherkaoui Mouna April 2017 MOROCCO

INTRODUCTION During the last two decades the Kingdom of Morocco undertook important institutional and economic reforms aiming at economic and trade liberalization. The policies that have been undertaken in Morocco include macroeconomic stabilization policies, investment and trade policies, competition policies, sectoral policies, labor policies and social policies. Institutional reforms: the new constitution of 2011, reform of the family code in 2004, government plan for gender equality 2012 (ICRAM) Globally the result were positive: improvement in the economic situation, positive economic growth, reduction of poverty, improvement in availability of infrastructures, improvement in education access. However: despite low and decreasing labor force participation, important share of informal employment in total employment. very limited employment creation, high and persistent unemployment

INTRODUCTION Increase in the risks of further decline in growth employment creation capabilities linked to digitalization, increased competition from other emerging economies, possible increase in protectionism in the developed world in general and in European countries in particular. Need to better understand the process of formalization of employment. Data Sources: High Commission of Planning: Enqu te Nationale sur le secteur informel 2007 et 2013-2014 Rapports de Synth se Minist re du travail et de l insertion professionnelle. Direction de l Observatoire National du March du Travail. Le March du Travail en 2017

MAIN POINTS Increasing growth did not reduce informal employment: Growth was not pro-job. Capital intensive industries such as aeronautics and automotive industries replaced labor intensive industries such as textile. The former employs relatively more men than women. Digitalization can facilitate formalization but can also make being informal easier and more attractive Policies of firms formalization and employment formalization reinforce each other Policies of employment formalization are conducted at the same time as social protection and poverty reduction that is not necessarily job related. Social protection (health, children education and nutrition, income security for persons in active age or old) reinforce formalization. The formalization of employment in agriculture and in the other sectors is linked to the development policies of the sector. Laws and regulation are positive steps, but alone are not enough to trigger formalization of employment. Case of law on domestic employment and Law of self-entrepreneurs.

INCREASING GROWTH DID NOT REDUCE INFORMAL OF EMPLOYMENT In 2007, the volume of employment in the informal sector was 2,216 million jobs In 2014, the volume of employment in the informal sector was 2,373 million jobs.

EVOLUTION OF THE VOLUME OF EMPLOYMENT IN THE INFORMAL SECTOR BY SECTOR OF ACTIVITY Almost half of informal sector employment is concentrated in the commerce sector (47%), the rest of employment is distributed among services (24.1%), industry (20.1%) and construction (8.8%). In 2014, the contribution of informal sector employment to overall non-agricultural employment was 36.2%. Share of employment in informal sector in total non agricultural employment (%) Volume of employment in informal sector Volume of employment in informal sector (%) Sector 142936 6.4 17 Public works 2 0 0 7 1128852 50.9 81.1 Trade 475451 21.5 34.5 Industry 468877 21.2 18.6 Services 2216116 100 37.3 Total 209447 8.8 21.4 Public works 2 0 1 4 1114772 47 68.5 Trade 476629 20.1 37.2 Industry 572091 24.1 21.5 Services 2372294 100 36.3 Total

DEMOGRAPHIC CHARACTERISTICS OF EMPLOYED PERSONS IN PERMANENT EMPLOYMENT IN THE NON AGRICULTURAL INFORMAL SECTOR BY PLACE OF RESIDENCE 2014 Urban 1696391 Rural 631671 Total 2328062 Number Sex Men 89.1 90.5 89.5 Women 10.9 9.4 10.5 Total Age Group 100 100 100 Les than 35 36.9 41.9 38.2 35 - 59 55.5 50 54 60 + 7.6 8.1 7.7 Total 100 100 100

DEMOGRAPHIC CHARACTERISTICS OF EMPLOYED PERSONS IN PERMANENT EMPLOYMENT IN THE NON AGRICULTURAL INFORMAL SECTOR BY SECTOR OF ACTIVITY 2014 Industry Public Works Trade Services Total 460205 193141 1157325 517391 2328062 Number Gender 79.9 99.4 93.3 86.3 89.5 Men 20.1 0.6 6.7 13.7 10.5 Women 100 100 100 100 100 Total Age Group 42.7 42.6 36.6 36.3 38.2 less than 35 51.6 52.9 53.9 56.6 54 35 - 59 60 5.7 4.4 9.4 7.2 7.7 100 100 100 100 100 Total

PERMANENTLY EMPLOYED LABOR FORCE IN THE NON AGRICULTURAL INFORMAL SECTOR ACCORDING TO THE PROFESSIONAL STATUS AND PLACE OF RESIDENCY 2014 Total Urban Rural Effectif % Effectif % Effectif % Self employed 1837475 78.9 1313376 77.4 524099 83 Own account 1582902 68 1103740 65.1 479161 75.9 Employers 254573 10.9 209636 12.4 44937 7.1 Employees salaried 370256 15.9 308742 18.2 61515 9.7 Family care givers 107103 4.6 65428 3.9 41675 6.6 Apprentice 12711 0.5 8329 0.5 4382 0.7 Others 517 0 517 0 0 0 non salaried workers 120331 5.2 74224 4.4 46057 7.3 Total 2328062 100 1696391 100 631671 100

WAGE LABOR IN THE NON AGRICULTURAL INFORMAL SECTOR 2007 AND 2014 2007 2014 Public Work 33.33 23.8 Trade 9.7 11 Industry 25 30.5 Services 15.6 15.8 Total 15.8 17.2

POLICIES OF FIRMS FORMALIZATION AND EMPLOYMENT FORMALIZATION PROGRAMS REINFORCE EACH OTHER

FIRMS FORMALIZATION POLICIES Firms formalization policies The National Strategy of Very Small Enterprises In the framework of the industrial acceleration plan, Axis Three aims to support the transition of very small enterprises from the informal to the formal sector. The National Strategy for Small and Medium Enterprises Maroc PME supports SMEs in their process of modernization and improvement of their competitiveness.

EMPLOYMENT STRATEGIES The National Employment Strategy Based on a diagnostic study of the labor market situation conducted in 2014, a new National Employment Strategy for 2015-2025 was adopted in 2015. This strategy adopts a new approach for employment creation by putting the employment issue at the center of economic policy by integrating the economic, financial, budgetary and institutional dimensions into employment creation. It targets the youth, women, workers in small businesses and the informal economy. The National Employment Plan: Moum kin This plan aims to provide tools and devices for job seekers to meet the challenge of employment creation

EMPLOYMENT TARGETED PROGRAM TO PROMOTE PAID/FORMAL EMPLOYMENT Promotion of salaried employment The Idmaj program (2006) aims to facilitate the transition of youth from school to work through placements in firms. State coverage of social security (2011): It ensures social coverage for beneficiaries of training-insertion contracts by the State. If the beneficiary is recruited under a contract of indefinite duration, the State pays the employer's share for one year. The professional integration contract (2011): The professional integration contract was also introduced in 2011. It aims to promote decent employment, by allowing job seekers for more than one year who hold university degrees regardless of their training field and to the holders of a diploma encountering specific difficulties, to integrate the job market and to gain access to a first job. The Tahfiz (2015): Give incentives to firms and associations hiring job seekers under indefinite term employment contract

EMPLOYMENT TARGETED PROGRAM TO PROMOTE PAID/FORMAL EMPLOYMENT Improvement of employability The Taehil program seeks to increase employability through contractual training for employment, qualifying training or reconversion training and training in emerging sectors. Support for self employment Moukawalati program supports self-employment through the creation of microenterprises Others Istiaab program aims at encourage the integration of informal activities into the formal economy. Moubadara program seeks to reinforce employment in the social economy. The Taetir program seeks to requalify those that have been unemployed for a long period of time.

TARGETED PROGRAM TO PROMOTE PAID/FORMAL EMPLOYMENT Evolution of the Beneficiaries of the IDMAJ program 2010-2017 Evolution of the beneficiaries of the TAEHIL program 2010 2017 Evolution of the beneficiaries of the TAHFIZ program 2016 2017 Beneficiaries of the training for emerging sectors by sector 2017 Evolution of the beneficiaries of the self-employment program 2010 - 2017

EVOLUTION OF THE BENEFICIARIES OF THE IDMAJ PROGRAM 2010-2017 2010 2011 2012 2013 2014 2015 2016 2017 Number of beneficiaries 55881 58740 55399 56716 63143 70123 75613 89077 Share of Women (%) 50.2 48.3 47 50.2 52.7 48.4 48.4 51.6 Structure of beneficiaries by type of contract (%) 56.3 59.5 67.8 67.4 76.4 67.6 67.5 71.1 Insertion Contract 38.2 36.2 28.5 27.1 20.1 28.6 27.5 24.6 Fixed term contract 5.4 4.3 3.7 5.6 3.4 3.8 5 4.4 Contract of indefinite duration Growth rate of the number of beneficiaries of IDMAJ 6.9 5.1 5.7 2.4 11.3 11.1 7.8 17.8 Annual achievement rate of the objectives set for IDMAJ 101.6 97.9 85.2 94.5 114.8 116.9 116.3 118.8

EVOLUTION OF THE BENEFICIARIES OF THE TAHFIZ PROGRAM 2016 - 2017 April 2016 to January 2017 2235 Protocol TAHFIZ 705 Enterprises January 2017 to December 2017 3211 Protocol TAHFIZ 1450 Enterprises

EVOLUTION OF THE BENEFICIARIES OF THE TAEHIL PROGRAM 2010 - 2017 2010 2011 2012 2013 2014 2015 2016 2017 Number of beneficiaries 14902 19040 18313 18658 18390 15171 16542 18612 Contractualized training / or employment 2994 4761 3141 4285 2138 2183 3986 3752 Qualifying training or retraining 2313 3522 3152 2610 1852 1945 2793 2856 Training for emerging Sectors 7856 9247 10483 11763 12798 8892 7395 8817 Training with partnership regional X national 1739 1510 1537 _ 1602 2151 2368 3187 Growth rate in the number of beneficiaries 6.2 27.8 -3.8 1.9 -1.4 -17.5 9 12.5 Annual achievement rates of the TAEHIL program 62.1 68 61 93.3 102.2 84.3 91.9 93.1

EVOLUTION OF THE BENEFICIARIES OF THE SELF-ENTREPRENEUR PROGRAM 2010 - 2017 2010 2011 2012 2013 2014 2015 2016 2017 Number of created entreprises 1029 633 749 776 665 1021 848 1296 Number of jobs generated 2566 1582 1970 1769 1200 1755 1836 2709

BENEFICIARIES OF THE TRAINING FOR EMERGING SECTORS IN 2017 BY SECTOR Offshoring 73.5 Automotive 16.4 Aeronautic 6.5 Electronics 0.2 Renewable Energy 3.3

POLICIES OF EMPLOYMENT FORMALIZATION ARE CONDUCTED AT THE SAME TIME AS SOCIAL PROTECTION AND POVERTY REDUCTION

SOCIAL PROTECTION

SOCIAL PROTECTION National Level Share of employees that do not have medical coverage= 78.4% Share of wage earners that do not have medical coverage= 58.8% Urban Area Share of employees that do not have medical coverage= 64.6% Share of wage earners that do not have medical coverage= 50.3% Rural Area Share of employees that do not have medical coverage= 92.8% Share of wage earners that do not have medical coverage= 80.5%

SOCIAL PROTECTION Informal employment is defined as the absence of affiliation to a social security system, or the absence of a contract of employment, or a low quality of employment. Informal employment can prevail in the public sector (including government and local governments) or the private sector, in large or small firms. Based on NLFS, a study of the HCP describes the degree of medical coverage of the Moroccan population in 2017. According to the HCP study nearly half of the Moroccan population has medical coverage with, however, disparities by sex, age and whether one lives in the rural or urban areas.

SOCIAL PROTECTION Medical coverage is not always related to the job. Only about a quarter of the employed labor force has medical coverage related or directly linked to their job. Just over one in five (22.5%) employed aged 15 and over has medical coverage related to their job. This rate varies depending on whether one is urban or rural. 34.5% of urban workers and 7.8% of rural workers have employment-related medical coverage. This rate is 38.5% among employed persons in the "industry including crafts" sector and 34.9% among those in the "services" sector, whereas it represents only 11% in the "Housing and Public Work" sector and only 5.7% in that of "Agriculture, forestry and fisheries".

SOCIAL PROTECTION Regarding the pension system, about 1 in 5 employees are covered with large disparities depending on the place of residence, the sector of activity and the professional status. Data from the 2017 National Employment Survey reveals that 20.9% of employed persons aged 15 and over are covered by a pension system, 33% in urban areas and 6% in rural areas. The rate of coverage by a pension system is similar for men and women with 20.5% and 21.8% respectively

THE FORMALIZATION OF EMPLOYMENT IN AGRICULTURE AND IN THE OTHER SECTORS IS LINKED TO THE DEVELOPMENT POLICIES OF THE SECTORS

SECTORAL STRATEGIES Sectoral policies in Morocco are usually presented in terms of the number of formal employment they are intended to create. The Industrial Acceleration Plan 2014-2020 aims to increase the economy's capacity to absorb new entrants to the labor market, increase the share of industry in GDP, boost export capacity, improve the hosting of investors and develop productivity through targeted support to the industrial sector. The Morocco Green Plan was launched in April 2008. Its objective is to make the agricultural sector a primary leverage for socio-economic development in Morocco. It involves all the stakeholders in the agricultural sector. It is based on increasing investment and improving the integration of the different components of the agricultural sectors.

SECTORAL STRATEGIES The Halieutis Plan was launched on 29 September 2009. Its objective is to strengthen the fisheries sector. The Halieutis Plan also aims to reduce the informal sector, increase the number of direct and indirect jobs created in the fisheries sector, increase the export turnover and boost fish consumption in Morocco. The Tourism Strategy was initiated in 2010. The Maroc Digital 2020 plan was initiated in 2016 and succeeds the Maroc Numeric 2013 plan. Its aim is to enable the country to enter the world economy through technological development

LAWS AND REGULATION ARE POSITIVE STEPS, BUT ALONE ARE NOT ENOUGH TO TRIGGER FORMALIZATION OF EMPLOYMENT. CASE OF DOMESTIC EMPLOYMENT AND LAW OF SELF-ENTREPRENEURS Domestic Employment Self Entrepreneurs

DOMESTIC WORKERS 1. D cret n 2-17-356 du 27 septembre 2017 compl tant la liste des travaux dans lesquels il est interdit d'employer les travailleuses et travailleurs domestiques g s entre 16 18 ans. - Adoption: 2017-09-27 | MAR-2017-R-105822 2. Morocco - Domestic workers - Regulation, Decree, Ordinance D cret n 2-17 355 du 31 ao t 2017 fixant le mod le du contrat de travail de la travailleuse ou du travailleur domestique. - Adoption: 2017-08-31 | MAR-2017-R-105821 3. Morocco - Domestic workers - Law, Act Loi n 19-12 du 10 ao t 2016 fixant les conditions de travail et d'emploi des travailleuses et travailleurs domestiques. - Adoption: 2016-08-10 | Date of entry into force: 2017-08-10 | MAR-2016-L-105362 Morocco - Domestic workers - Regulation, Decree, Ordinance

DOMESTIC WORKERS The Labor Code, which came into force in 2004, does not cover domestic workers. Entry into force of Law 19-12 in October 2018, published in the Official Bulletin in August 2016. The law concern domestic workers but also drivers, caretakers, gardeners ... The three decrees of application published in the Official Bulletin in October 2017 provide that their entry into force will take place one year after their publication. They set the model of employment contract and the list of tasks prohibited to those under 18 years. One month after the entry into force of the Law, only 83 contracts of employment had been established, according to the Ministry of Employment.

DOMESTIC WORKERS The number of domestic workers in Morocco is not known with precision. Some institutions estimate the domestic population between 100,000 and 200,000 employees, others speak of a million or even 2 million domestic employees. Morocco has more than 7 million households and the use of domestic workers does not apply only to wealthy families.

DOMESTIC WORKERS An employment contract must be signed and legalized by both parties in triplicate, including one for the labor inspector. For workers under 18, a written authorization from the guardian must accompany the contract. The work of persons between the ages of 16 and 18 is authorized by law for a transitional period of 5 years.

DOMESTIC WORKERS: WHAT NEEDS TO BE SPECIFIED IN THE CONTRACT? The type of contract: If it is a fixed term contract or one with unlimited duration. The nature of the work: cleaning, childcare, home help for the elderly, sick or disabled, driver, gardener, caretaker (non exhaustive list) The trial period: fixed at 15 days for both type of contacts. The number of weekly hours of work: According to the law, it is 48 hours maximum for the over 18s, and 40 hours maximum for those whose age varies between 16 and 18 years.

DOMESTIC WORKERS: WHAT NEEDS TO BE SPECIFIED IN THE CONTRACT? The salary: which must be at least 60% of the minimum wage (which is 13.46 DH per hour). That's about 1,550 DH per month for a full-time employee. Weekly rest : each week, the employee is entitled to a minimum of 24 continuous hours. An employee who continues her work after a period of pregnancy has, in addition to weekly rest, a daily rest of one hour for 12 consecutive months. The annual leave: which is calculated at the rate of one and a half days per month worked. The employee is entitled to annual leave after six months of work. He is also entitled to holidays and leave for family reasons.

DOMESTIC WORKERS: DISMISSAL In the event of dismissal, the worker is entitled to compensation if he has worked for at least one continuous year on behalf of the same employer. The amount of the indemnity increases according to the duration of the work on behalf of the same employer, which is equivalent to: 96 hours of remuneration, for the duration of the actual work recorded during the first five years. 144 hours of remuneration, for the actual working hours recorded during the period from the sixth to the tenth year. 192 hours of pay, for the actual working time recorded during the period from eleventh to fifteenth year.

DOMESTIC WORKERS: SANCTIONS IF THE EMPLOYER DOES NOT RESPECT THE CONTRACT If the employee is deprived of his / her leave and rest periods, the employer risks paying a fine ranging from 500 to 2,000 DH. Any breach of the employment contract gives rise to a fine of DH 3,000 to DH 5,000 for the employer. The contract must clearly include the employee's declaration of willingness to perform domestic duties on behalf of the employer. The employer faces a fine of 25,000 to 30,000 DH if he forces a person to work for him and a prison sentence of one to three months if there is a second offense.

DOMESTIC WORKERS: SANCTIONS IF THE EMPLOYER DOES NOT RESPECT THE CONTRACT A number of tasks deemed dangerous are prohibited to persons under 18. For example to handle household products and other detergents containing hazardous chemicals; use electrical or cutting equipment; to iron the clothes; provide care and handle medicated products; to be close to a family member suffering from a contagious disease; drive any machine, even those that do not require a license; handle chemicals, insecticides ... considered dangerous; keep the house. Failure to comply with these provisions exposes the employer to 25,000 to 30,000 DH of fine. In the event of a second offense, the penalties are either doubled or converted to prison (1 to 3 months).

SELF-ENTREPRENEURS: INTRODUCTION The creation of a legal and fiscal statute dedicated to self-entrepreneurs aims to reduce informal activities, develop the entrepreneurial spirit and facilitate access to the labor market through employment. According to statistics compiled by the Secretary of State for Internal Trade, the number of people who have opted for this self-entrepreneur status in Morocco until the end of 2018 amounts to 85 000 (30 percent women and 70 percent men).

SELF-ENTREPRENEURS: INTRODUCTION Prior to the launch of the self entrepreneur status, an assessment was made of the population potentially interested in this status. This is 4 million people. Among this population, there are the carriers of projects resulting from vocational training and the people who work in the informal sector.

WHO IS ELIGIBLE FOR THE TAX REGIME OF THE SELF-ENTREPRENEUR? Any individual exercising an industrial, commercial or craft activity or service provider, whose annual turnover received does not exceed DH 500,000 for industrial, commercial and craft activities and 200,000 for service providers (the turnover should not exceed the above threshold for 2 consecutive years). Self-employed entrepreneurs who belong to the social security system. Self-employed persons registered in the national register of the self-entrepreneur

WHAT ARE THE ADVANTAGES OF BEING A SELF-ENTREPRENEUR? Auto-entrepreneurs are exempt from: The obligation to register in the commercial register. Keep an extensive accounting. Self-entrepreneurs benefit from: The possibility of domiciling their business in their residence or in premises operated jointly by several companies. Social coverage from the date of registration to the NRAE (National Register of the Auto-entrepreneur).

WHAT ARE THE ADVANTAGES OF BEING A SELF-ENTREPRENEUR? There are also Fiscal advantages: Value Added Tax: Not applicable to self-entrepreneurs Income tax: Applicable to the turnover received (0.5% on the amount not exceeding 500.000DH and 1% on the amount not exceeding 200.000 DH) Professional tax: Exemption from business tax for 5 years from the date of the beginning of activity. Net capital gains: Taxable according to the terms and according to the rates of the general tax code. The amount of tax payable by self-employed taxpayers is paid at the level of one of Barid Bank's branches before the end of the month following the quarter in which the turnover has been cashed.

SIMPLIFICATION OF PROCEDURES National Register of the Auto-entrepreneur (NRAE) registration procedure: 1-Complete the registration request via the NRAE portal 2-Remove and sign the application. 3-Deposit at Barid Al Maghrib's partner bank counter (within 30 days of the application on the portal). N.B: Once registered with the National Register of the Auto-entrepreneur (NRAE), the self-entrepreneur is given a common company identifier (CCI), the tax identifier and the identification number to the business tax.

SIMPLIFICATION OF PROCEDURES Radiation: The write-off from the self-entrepreneur scheme is: On request of the interested party and deposited at the Barid Al Maghrib counter In case of non-declaration of turnover. In case of transformation to another regime or status. In the event of non-payment of social and tax contributions.

CONCLUSION The change in the laws was not sufficient to trigger widespread formalization. There seems to be a need for the information on the changes to be disseminated and explained. Regulation has improved and was made accessible to those in the informal sector through simplification of procedure and reduction of taxes. The growth employment creation depends on domestic policies but also on technology and policies abroad and this has an impact on formalization.