PSA Peugeot-Citroën has announced that it is to invest in the construction of a new production site in Morocco as it seeks to raise its profile in Africa and Middle East.

PSA Peugeot-Citroën has announced that it is to invest in a new production site in Morocco. According to a statement released by the automaker, chairman of the Managing Board of PSA, Carlos Tavares, and Morocco's Minister for Industry, Trade, Investment and the Digital Economy, Moulay Hafid Elalamy signed an agreement to build a plant on Friday (19 June). Construction will take place in Ameur Seflia in Kenitra province, and around EUR557 million (USD632 million) of capital expenditure has been allocated to the project. Under the plan that has been put together, the site will manufacture as yet unnamed B- and C-segment engines and vehicles from 2019, which are intended to meet the needs of both local customers as well as those in the rest of the region. Annual production capacity is expected to be initially pegged at 90,000 engines and vehicles per annum. However, it sees that there is the opportunity to lift this to 200,000 units per annum if market demand increases.

PSA added that the site will leverage the Moroccan supplier base, "which will benefit from the plant's gradual ramp-up of production, as well as the development of engineering operations required for the project." On production starting at the site, local content rates will stand at around 60%, although this is expected to rise to around 80% eventually.

Commenting on the agreement, Tavares said, "Africa and the Middle East are among PSA's historic markets and we must make this region a key driver of international growth as part of our Back in the Race plan. The agreement signed today with the Kingdom of Morocco will allow us to increase our production capacity in the heart of the region in order to achieve our goal of selling one million vehicles by 2025."

Outlook and implications

This would mark a return to vehicle production by PSA in Morocco. Until 2010, it manufactured small volumes of Peugeot Partner and Citroën Berlingo light commercial vehicles (LCVs) at SOMACA (Société Marocaine de Construction Automobile) in Casablanca (Morocco) which it shared with Renault, before Renault took over the entire site. Renault has been extremely active in North Africa in recent years, developing its presence not only in Morocco with an additional site in Tangiers producing the Dacia Lodgy, Dokker and Sandero, but also Algeria where it now manufactures the Dacia Logan-based Renault Symbo. However, despite its long-standing ties to the region, PSA has been shipping in vehicles predominantly from l France and Spain, most notably B- and C-segment passenger cars, as well as compact LCVs.

Although the automaker is yet to reveal which models will be built at the site, IHS Automotive believes that it is likely that the timings would suggest that it will build the next generation of its low cost C segment models, the Peugeot 301 and Citroën C-Elysee, as well as the Peugeot 208. The high levels of local content initially will be supported by the automaker already having links with the component supplier base in the country already. Indeed, these suppliers are already manufacturing parts for existing versions of these vehicles which are then being shipped to current production locations.

The location chosen places the site in the Atlantic Free Zone (AFZ) which is run by local development company Medz. The site is said to be well connected for both road and train links, the latter offering the opportunity for moving completed vehicles to Casablanca port for export out of the country.

As well as the benefits of component supplier base and location, there are other reasons why PSA is likely to have decided to invest here. Certainly it will have a great deal of support from the Moroccan government which has stated an ambition of having three large OEMs having a base in the country during the next few years, with now only a third to go to reach its targets. Also, there is now an increasing skilled and educated workforce, particularly in this field due to the specialist automotive educational facilities. PSA will also be keen to more deeply tap the North African market which is seen as growing strongly over the next few years.

As a result, this investment looks set to significantly increase PSA's opportunities for the Middle East and Africa region, alongside its facility in Nigeria and another being negotiated in Iran. As noted above, PSA is planning to sell around one million units per annum in this region by 2025, supported by its strong sales foothold already in some markets.

Nevertheless, with greater localisation of production in this lower-cost market, it once again raises questions as to what the future holds for PSA sites in parts of Europe. Indeed, the vocal French CGT union has denounced the plan, stating, "There's no way we are going to accept that PSA's internationalisation strategy be carried out at the expense of workers." This could lead to some tricky juggling in future production for some models, and a great deal of hope that PSA's latest strategy for growth is as successful as it hopes.

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