Morocco is cutting its sugar subsidy and Coca Cola can’t handle it

Global beverage company, Coca-Cola plans to move its manufacturing operations from Morocco to Turkey, following the government’s decision to cut sugar subsidies in the country.

Confirming the news of the Coca Cola’s exit, Morocco’s Higher Education and Scientific Research Minister, Lahcen Daoudi, told a local daily newspaper Al Ahdath Al Maghribia that the soda company’s decision to leave the country was spurred by the government’s decision to cut sugar subsidies.

Compared to the first half of 2016 when the subsidy bill for cooking gas and sugar was $481 million,  Morocco’s spending on cooking gas and sugar subsidies reached an equivalent of nearly $700 million in the first half of 2017; hence the government’s decision to implement subsidy cuts.

In 2013, Morocco started cutting subsidies in what is believed to be one of the most successful subsidy reforms in the Middle East and North Africa. By the end of 2016, the government eliminated subsidies on gasoline, diesel and industrial fuel, reducing its budget deficit to 3.5 percent of GDP from 5.6 percent in 2011.

Government’s justification regarding the decision to end sugar subsidy is that the country’s poor are not the beneficiaries of the intervention, but companies who make use of sugar in large quantities.

Daoudi 71, when asked if sugar subsidies would be reimbursed noted the Nation recovers its due from the soft drink sector unlike juices and pastry manufacturing sectors.

Subsidies of staple goods have been said to be a constant pressure on the state, though it is seen as a way of safe-guarding the purchasing power of poor citizens of the country.

Significance of a Multinational Enterprise’s exit

Multinational Enterprises (MNEs) are perceived to channel physical and financial capital to countries with capital shortages, leading to wealth creation that provides jobs.

In addition, tax revenues from MNEs aids a country’s government in generating income as emerging economies improve their infrastructures and strengthen their human capital.

Upon Coca Cola Company’s  exit from the country, about 38,000 employees would loss their jobs, earning an unemployment status that gives birth to spiral effects that could rock the Nation’s economy. Adding to this would be the country’s  importation of carbonated soft drinks from other countries in order to keep up with local demands.

Without doubt, the effect goes both ways as Coca-Cola sales in the Moroccan market would dwindle, as its exit would open doors to other soft drink manufacturer both in the country and outside.

Also competition for the market would increase, though it might not hold much significance to the company that offers over 500 brands to people in more than 200 countries, earning the American company the spot of one of the world’s largest food and beverage companies.

In the light of the subsidy cut issue, Daoudi, who is also in charge of General Affairs and Governance added that the sugar subsidy “issue is currently under consideration between the Government and the Professional Association of Coca-Cola Industry.”