At a factory in Casablanca this month, executives and officials gathered at a launch ceremony for a new car model. It was a small but significant step, Moroccan officials hope, in the country's emergence as an auto producer for the region.

The factory is operated by Somaca, a venture which is majority owned by the Moroccan arm of French car maker Renault. Somaca produced 60,000 cars in 2012 under the Renault and Dacia brand names.

Now it is making a new version of the Sandero, a small, low-cost sedan from Dacia, the Romanian unit of Renault.

"All the process that you see comes from the Romanian plant. We have just copied it, and it works perfectly," Fabrice Delecroix, Somaca's managing director, told Reuters.

Somaca is part of an expanding web of car makers and parts suppliers in Morocco, a heavily agricultural country which hopes to use the auto sector to expand its industrial base.

A strong auto industry, exporting cars to Europe, North Africa and further afield, could help to resolve one of the country's main economic weaknesses, its external deficits. Morocco posted a trade deficit of $5.3 billion in the first three months of 2013, and last year obtained a $6.2 billion precautionary credit line from the International Monetary Fund in case of further pressure on its foreign reserves.

The auto industry may also become important to Morocco's political stability by reducing unemployment, which is officially estimated near 10 percent and is believed to be much higher for young people.

Currently, agriculture - some of it in the form of rudimentary and subsistence farming, and highly vulnerable to the vagaries of rainfall - employs about 40 percent of the workforce of over 11 million people.

"Morocco has a chance to become a big player in the auto industry," said Najib Akesbi, an economist at the Hassan II Institute of Agronomy and Veterinary Science in Rabat, though he added that the country would need to develop a better qualified workforce.

TANGIER PLANT

Morocco at present has only two factories making fully assembled cars: the Somaca facility and a plant opened by Renault near the northern port city of Tangier in February last year. The country's total car production last year was about 120,000 cars, with roughly 90,000 of them exported, mainly to Europe and Arab nations.

Renault's Tangier car factory, the biggest in North Africa, required initial investment of 600 million euros ($785 million) and is expected to reach an annual production capacity of 400,000 vehicles in coming years.

"The capacity of the Tangier plant will double in 2013 and 95 percent of its production is to be exported," the head of Renault's Moroccan operations, Jacques Prost, told Reuters.

Many of the benefits to the wider Moroccan economy come in the form of parts orders from Renault to local companies; Prost said some 42 percent of the content of Renault's Moroccan cars came from local suppliers.

Renault claims a 37 percent market share within Morocco, selling 47,700 new cars in 2012 including 24,042 under the Dacia brand. Peugeot and Ford also have major presences in the market.

Morocco has several advantages in attracting auto sector investment. Workers' salaries are about a quarter of the French minimum wage; the average monthly pre-tax wage in Morocco is around $550.

Meanwhile, car exports from Morocco benefit from several free trade agreements signed by the government, mainly with the European Union and with Jordan, Egypt and Tunisia.

A manufacturing presence in Morocco can also be helpful to car makers facing down union pressures elsewhere in the world. Last week, Dacia threatened to shift some of its production from Romania to Morocco after workers in Romania downed tools for two days in pursuit of a 40 percent pay increase.

"If this protest will not end up reasonably and in a mutually beneficial manner and if employees will continue with unrealistic demands, there's a greater probability to transfer an important part of production to Morocco," Dacia vice-president Constantin Stroe said.

INCENTIVES

Despite strained state finances, the Moroccan government is offering a range of monetary incentives to foreign investors in the auto industry. Trade minister Abdelkader Amara has said talks are at an advanced stage on possible investments by other foreign firms including India's Tata Motors.

He told Reuters last week that he was still waiting for news from the companies. "It's a tough task to attract such investments, but we have taken the necessary steps to convince them," he said.

Morocco faces obstacles, however. One is a shortage of qualified technicians and engineers; the government is trying to overcome that by building training institutes and allowing foreign investors to run them.

At an institute run by Renault, the company teaches students how to perform tasks necessary for its entire assembly line, Prost said.

Morocco also faces actual or potential competition from other relatively low-cost countries which may have better-skilled labour, such as Turkey, Egypt and Algeria. Last year Renault said it would build a car factory in Algeria, resuming production there after an absence of more than four decades.

The Algerian plant is to begin operating in 2014 with initial annual production of about 25,000 cars, which would be sold in the local market. Production there could grow to 75,000 cars depending on demand.

A third problem is the political unrest which continues across much of the Middle East since the Arab Spring uprisings of 2011. The unrest has hurt some important markets such as Egypt and slowed growth elsewhere in the region, Renault's Prost said - for now at least, weakening Morocco's position as a car exporting platform.

"In Egypt, we have a good importer and he does everything to boost sales, but the demand isn't there," Prost said. – Reuters