Morocco’s Export Success Has a Catch for Policymakers

Wisconsin offered Foxconn up to US$2.85 billion in tax credits for an LCD complex that never reached its promised scale, leaving public infrastructure designed around a factory plan that changed. From Morocco to Malaysia and Ethiopia, the evidence shows that incentives can influence a final decision, but infrastructure, skills, supplier depth and market access decide whether a factory becomes a cluster.

In Wisconsin, the local stake was not an abstract line in a state budget. It was a proposed LCD complex, a US$10 billion investment, 13,000 promised jobs and public infrastructure built around the expectation that a vast new factory would need it.

In 2017, Wisconsin authorised up to US$2.85 billion in state tax credits for Foxconn, the Taiwanese electronics manufacturer, to build the complex. State and local support, including infrastructure, exceeded US$4 billion.

Then the LCD project did not scale.

That meant public infrastructure had been committed around a factory proposition that no longer existed in its original form. This is the stranded consequence people can miss when they focus only on tax credits: a tax credit can be withheld. Infrastructure designed for a particular industrial plan is much harder to repurpose.

Wisconsin material cited in the research brief records the correction. In 2021, Foxconn renegotiated its agreement. Potential credits fell to US$80 million, conditional on US$672 million of investment and 1,454 jobs. By December 2024, Wisconsin had verified nearly US$717 million of eligible investment, 1,242 jobs and US$62.9 million of credits. In 2025, Foxconn proposed a different, server-related US$569 million expansion, with US$16 million of additional performance-based support for 1,374 prospective jobs.

The revision was sensible. Wisconsin stopped paying for an ambition and started paying for activity it could verify.

But it also reveals the central problem with factory subsidies. A government can protect itself from an unfulfilled promise. It cannot necessarily use a subsidy to conjure the commercial reason for a factory to exist.

That is why Foxconn belongs in the same story as Renault in Morocco. Both cases test the same investment thesis: does public support sit on top of an operating system that makes production viable, or is it being asked to replace one?

One deal was trying to buy a destination. The other was joining one.

The incentive is usually the last conversation

Most public debate starts with the visible thing: the tax holiday, free land or grant announced from a stage. It makes political sense. A government can put a number on a podium.

Manufacturers cannot run a plant on a podium.

They need reliable power, a route to customers, workers who can do the job, suppliers that can deliver parts, approvals that arrive when promised and access to the markets their goods are meant to serve. These are the boring parts. They are also the parts that determine whether a plant keeps running after the photographs are over.

The OECD’s 2024 survey of investment-promotion agencies placed infrastructure first for export-oriented investment. Educated workers came next, followed by market prospects, the legal-administrative environment and suppliers. Corporate-income-tax incentives ranked seventh.

That does not make incentives pointless. It makes them late-stage tools. The Upjohn Institute’s review of 34 estimates found that typical incentives changed only 2% to 25% of location decisions. Slattery and Zidar found direct employment gains from US firm-specific deals, but no strong evidence that the deals reliably produced wider state or local growth.

At first glance, this sounds like an argument against incentives. It is not.

It is an argument against treating the cheque as the factory.

Morocco built the route first

Renault opened its Tangier plant in Morocco in 2012 with tax, land, finance and training support. Yet the World Bank’s account of Morocco’s development identifies the stronger proposition as the system already operating around it.

Tanger Med, the deep-water port serving northern Morocco, was running. Rail links connected the industrial area. Industrial zones were available. The government had financed two automotive training institutes.

Renault was not entering an isolated tax zone. It was entering a system designed to make cars and move them out of the country.

In 2024, Tanger Med exported 368,843 Renault vehicles. Morocco’s wider automotive sector had 260 factories and 173,000 direct jobs in 2023.

Tanger Med made export manufacturing operationally plausible before incentives entered the final site-selection conversation. Photo: Adam Cli / Wikimedia Commons, CC BY-SA 4.0.

Here is the twist. Export success does not automatically mean a country has captured the highest-value work.

A first-tier supplier sells major parts directly to a carmaker. A second-tier supplier sells inputs to that first supplier. The OECD counted only 20 Moroccan-owned first- and second-tier automotive suppliers.

In plain English, Morocco has become highly capable at producing and shipping vehicles, but fewer locally owned firms sit deeper in the chain of components, machinery and engineering.

This distinction matters. The supplier shortfall clearly limits how much domestic value is captured from automotive exports. On the evidence available, it does not by itself prove that Morocco’s export platform is fragile or that future resilience is materially threatened. Port, rail, training and international suppliers can still support production. The unresolved issue is ownership of the capabilities that can outlast the next vehicle model or corporate strategy.

This is where most people stop looking. They see exports and assume the cluster is complete.

Put Morocco beside Wisconsin and a pattern appears that neither case says outright. Infrastructure can make scale possible. But the lasting prize comes when skills and suppliers become useful to many businesses, not just the first factory that received support.

Penang did not stay cheap

Intel, the US semiconductor company, began assembly operations in Penang, Malaysia, in 1972. It added testing in 1978, then product design and development in 1990.

That sequence matters. Penang did not remain frozen at the first job it won.

The World Bank’s investment perspective on global value chains traces how the Penang Skills Development Centre was established in 1989 to address industry-wide labour shortages. Intel also fostered local machinery suppliers by developing prototypes internally and outsourcing production. Knowledge moved outward. Local firms learned to make more specialised equipment.

The result was not merely a longer Intel presence. Penang produced home-grown automation, test-equipment and precision-engineering firms. By 2023, it recorded RM341 billion in electrical and electronics exports. Intel’s current advanced-packaging programme represents US$7 billion of investment.

What surprised us was not that an early investor expanded. Big companies often do. The more important fact is that the place acquired capabilities transferable beyond the original assembly operation.

That is what a cluster looks like when it sticks. Workers can move between firms. Suppliers can serve several customers. Training serves an industry rather than a single employer. The location becomes more valuable with time.

For an operator searching for manufacturing grants, this changes the question. Do not just ask, “How much incentive value can we obtain?” Ask: “What does this support unlock that improves our economics after the support ends?”

A training programme, supplier qualification effort or technology transition can be worth more than a larger tax reduction that leaves the operating problems untouched.

Sunderland shows when a smaller cheque matters

Nissan established its Sunderland operation in the United Kingdom in 1985. Before its EV36Zero expansion in 2021, it had accumulated more than £5 billion of investment.

The 2021 programme began with £1 billion. It combined Nissan vehicle production, an adjacent Envision AESC battery plant and renewable-power infrastructure. Earlier, a £420 million LEAF and battery investment received a £20.7 million government grant, roughly 5% of project cost, alongside proposed European Investment Bank finance.

Nissan’s EV transition built on decades of production, suppliers and skills rather than a grant alone. Photo: John_the_mackem / Wikimedia Commons, CC BY-SA 2.5.

By 2024, the North East automotive ecosystem included more than 200 supply-chain companies, more than 30 first-tier suppliers and 13,115 automotive jobs.

The grant mattered. Pretending otherwise would be silly. But it did not create Nissan Sunderland from scratch. It helped close a costly transition gap as an established productive site moved from conventional vehicles to electric ones.

That is a radically different use of public support from trying to substitute for an entire industrial ecosystem. A subsidy is strongest when it buys a bridge to a new capability and is matched by private capital, suppliers and a credible operating base.

The same discipline matters in financing. As GI Network has examined in the subsidy-finance gap, a promised benefit is not the same as cash a factory can use when bills fall due.

Hawassa had sheds, but not enough certainty

Hawassa Industrial Park in Ethiopia opened in 2016 with serviced factory sheds, one-stop government services and tax advantages. Plans envisaged 60,000 jobs and US$1 billion in annual exports. By early 2019, approximately 25,000 workers had been hired.

PVH, the clothing company operating manufacturing there, closed its own operation in the fourth quarter of 2021.

Hawassa’s serviced sheds could not fully offset unstable trade access, worker constraints and operating disruptions. Photo: Amein Eskinder / Pexels, Pexels licence (free commercial use).

The World Bank’s 2025 assessment records the operational context: conflict, high worker turnover, housing shortages, foreign-exchange and logistics delays, plus power outages requiring diesel generation. It also records that US duty-free AGOA access for Ethiopia ended on 1 January 2022. By 2025, the park had 15 active companies and 18,000 workers.

That is real activity. It is also far below the original ambition.

Hawassa challenges a comforting assumption: that cheap labour and ready-made buildings can compensate for everything else. They cannot. For export manufacturing, trade access is part of the operating model, like power or shipping. Lose it, and the financial logic of the plant changes.

Readers interested in why generators can erase the appeal of a tax zone will recognise the problem. A factory may receive an incentive and still struggle because the basic system around it remains unreliable.

India is the useful exception

If incentives were always wasteful, India would be awkward evidence.

In 2003, India gave Uttarakhand and Himachal Pradesh tax exemptions and capital subsidies. A causal study covering 2000 to 2008 estimated 43% higher employment, 31% more factories, 56% higher output and roughly 33,000 additional jobs. It found the programme cost-effective and detected no firm relocation from control areas.

So incentives can produce additional activity. Full stop.

But the two states did not achieve the same result. A 2025 Economic Advisory Council study found Uttarakhand outperformed similarly incentivised Himachal Pradesh primarily because it planned industrial estates and made land available systematically. Firms in Himachal Pradesh faced more fragmented land acquisition.

Identical fiscal packages. Different execution. Different outcomes.

GI Network’s view: A subsidy should be approved only when it purchases a capability the location keeps, not merely an announcement the government can make.

What companies should ask before signing

For founders and operators, the grant application should not begin with a spreadsheet of headline offers. It should begin with a site operating model.

Test power under real production needs. Map the journey from factory gate to customer. Identify which workers are available now and which need training. Ask where critical components will come from. Check how approvals are issued, how long they take and whether export access depends on a policy that can change.

Then separate incentives into two piles. The first contains support that makes the plant more capable: training, equipment, supplier development, logistics or energy reliability. The second simply lowers the opening bill.

Both can be useful. Only the first makes the location stronger after the incentive period.

Read the fine print, too. Can the programme expire? Can its terms change? Which jobs and investments count? When is payment made? As this GI Network analysis of execution risk explains, a deal can fail long before a regulator formally says no.

What experienced investors see in the small print

Investors should not be impressed by the largest announced incentive number. They should ask whether the support is enforceable, whether the project survives without repeated rescue and whether public spending creates something other businesses can use.

Foxconn offers the cleanest lesson. Its revised credits were tied to verified investment and jobs. That sharply limited exposure. Yet performance rules could not fully remove the risk that project-specific infrastructure would be underused after the original LCD plan changed.

Politically motivated incentives can override commercial discipline when the public sponsor is pursuing an objective wider than the project’s own return: a headline investment, a regional employment promise or a strategic industrial ambition. That does not automatically make the intervention irrational. It does mean private investors must underwrite the factory as if the political promise were absent.

The protection is not cynicism. It is structure. Cap support, pay only against verified milestones, distinguish reusable infrastructure from project-specific works, and test whether the factory can meet costs if an incentive is delayed, reduced or removed.

A serious investor asks four questions. Is support tied to verified milestones? Does the factory depend on one customer, product or export preference? Does public spending create an asset or capability that can serve other companies? Can the plant meet operating costs if the incentive arrives late, changes or disappears?

The psychology matters. An announcement makes people feel that someone else has already done the diligence. A government has endorsed the project. A corporation has issued a press release. Surely the economics must work.

No. Those are signals. They are not proof.

GI Network would test the proposed plant’s cash flows against power, logistics, workforce, supplier and market-access assumptions before investor outreach. We would identify whether the incentive closes a documented viability gap, align its conditions with investor requirements, map appropriate capital providers and rehearse the investment-committee objections around expiry, delivery and downside protection.

Use the After-the-Cheque Test

Before approving, seeking or financing manufacturing investment incentives, apply the After-the-Cheque Test:

1. 1.Can it run? Check power, logistics, labour, permits and market access before pricing the subsidy.
2. 2.What gap does it close? Name the exact cost, capability or transition the support is meant to solve.
3. 3.What remains? Ask whether training, suppliers, grid capacity, tooling or export infrastructure will still benefit the place after support ends.
4. 4.What gets verified? Pay against actual jobs and investment, not aspirations.
5. 5.What breaks first? Stress-test dependence on one customer, product cycle, trade preference or political programme.

Do not ask whether a place is offering enough to win a factory. Ask whether it has built enough for the factory to stay.