Arabian Gulf aid and investment give new depth to Morocco ties
Qatar’s recent pledge of US$1.25 billion in aid to Morocco is the latest sign that Arabian Gulf interest in the country is reviving.
It forms one tranche of $5bn in aid scheduled by the UAE, Saudi Arabia, Qatar and Kuwait up to 2017. It also underscores the deep cultural ties between Morocco and the region.
Faced with current account deficits on its balance of payments and a deteriorating fiscal position, Morocco is in need of increased external investment, as pressure to retrench mounts.
In its most recent budget, the government skimmed a quarter off its public investment spending.
“Morocco is not a rational investment. It’s a guilty pleasure,” said Jean-Philippe Oursin, the managing director of Hines International, in an interview with Breanne Henkelman, the author of a report on foreign property development in Morocco.
By investing in telecoms, energy, retail, property, and tourism, Gulf firms have been happy to plug the funding gap.
Tourism, in particular, is central to Morocco’s development strategy. It is the country’s “main source of foreign exchange income, and accounts for about 5 per cent of total employment”, says Elisa Parisi-Capone, an associate vice president and analyst at Moody’s.
The Atlas Mountains boast some of North Africa’s most impressive scenery, and Morocco’s relative political stability and cultural liberalism give it the potential to become an attractive tourist destination. It’s even home to a ski resort.
Al Maabar, a UAE company that has Mubadala Development and Aldar as shareholders, joined three Gulf sovereign wealth funds to contribute to the Moroccan Fund for Tourism Development.
This new investment vehicle is intended to increase capacity in the tourism sector, as part of Morocco’s Vision 2020 plan, which aims to transform it into “a mythical place for Arabs, an oasis, a lavish vision of paradise”.
Al Maabar is building a mixed-use residential, commercial and tourist site at Bab Al Bahr, in Rabat, while the Dubai-based Majid Al Futtaim, the owner and operator of the Mall of the Emirates, is set to build North Africa’s largest shopping mall near Casablanca.
Qatar’s aid payment is “bound to benefit the tourism industry in the wake of envisioned infrastructure investments and stronger economic ties with Gulf countries”, says Ms Parisi-Capone.
Tourist revenues have remained flat since the onset of the 2008 financial crisis, as France and Spain, Morocco’s biggest source markets, wrestled with recession and unemployment. Morocco’s government is hoping that calm in the euro zone will bring in new holidaymakers.
It’s clear that Gulf firms have benefited significantly from Morocco’s wave of privatisations in the 1990s.
Etisalat’s €4.2bn (Dh20.9bn) purchase of Maroc Telecom, once the country’s sole telecoms provider, from French firm Vivendi, is one example.
Morocco has one of the highest penetration rates in the region, according to a recent report by Paul Budde Communication, an information provider for the sector.
There is scope for Maroc Telecom to expand its shares of fixed-line phone and broadband usage, says Paul Budde. That is on top of the 47.7 per cent of the market it held at the end of July, according to Informa Telecoms & Media.
And, says Ms Parisi-Capone: “An upgrade in the internet data transmission network, and increasing numbers of mobile phone subscribers” are improving prospects for Moroccan telecoms companies.
Meanwhile, Taqa recently launched an initial public offering for its wholly-owned Moroccan subsidiary, Jorf Lasfar Energy Company, the country’s first private energy firm.
The issue, on the Casablanca Stock Exchange, was six times oversubscribed and raised about Dh667 million. Its single coal plant, Morocco’s largest, currently supplies 40 per cent of the country’s electricity. That is before the completion of a $1.6bn investment that will boost the plant’s capacity by another 50 per cent.
“Lower energy costs and increasing domestic demand” mean good prospects for Moroccan energy, says Ms Parisi-Capone.
“There are good reasons why Morocco should be achieving high growth”, the World Bank reports. “A privileged geographic position as well as significant progress in price stability, public debt reduction, strengthening of the financial system, infrastructure improvement, educational reform, reinvigorated tourism and privatisation.”
Gulf firms’ investments look like good bets on recovery in the euro zone.
As The Economist puts it, Morocco offers “affordable proximity to Europe”. Morocco’s major trade partners are Spain and France, and eurobond issuance is popular with both firms and the government, while 60.8 per cent of its exports were to Europe last year.
Negotiations continue between Brussels and Rabat on a “deep and comprehensive” free-trade agreement, according to the European Commission.
The aim is for “the gradual integration of the Moroccan economy into the EU single market”, says Ms Parisi-Capone.
The downside of this exposure is that trade, remittances and tourism have all taken a hit from the euro crisis, as the continent’s consumer spending has fallen.
Gulf firms are also helping the country to diversify.
Morocco has sought to move its economy away from agriculture, which is labour-intensive, low-skilled and seasonal. Rising wages have hit its ability to export manufactures and intermediate goods competitively, while high rates of illiteracy, low education completion rates and the absence of domestic skilled jobs have prevented the country from exporting higher value goods and services.
Outflows of reserves and increasing fiscal deficits led the Moroccan government to take a loan from the IMF in 2012. While not legally conditional on cuts, the IMF has repeatedly urged Morocco to reduce its budget deficit.
It has criticised the wide range of commodity subsidies, from gas to bread, that the government provides. Politicians and investors, however, are worried that the removal of these subsidies may cause unrest.
GCC aid packages should help to lessen the impact.
Morocco’s fixed exchange rate encourages foreign investment by reducing currency risk, but prevents the government from boosting consumer spending to power growth.
Monetary policy has to remain tight to keep the exchange rate down, but fiscal policy cannot encourage demand for fear of weakening the country’s balance of payments position. This policy bind means Morocco must either export or invest its way to growth.
But there remain significant obstacles to doing business in the country, especially for western companies.
American firms are put off by the ubiquity of corruption, according to the state department of the United States, where federal law makes a company liable if a joint-venture partner makes payments to officials – a common practice in Morocco. Even tourists may find themselves stopped by local gendarmes who seek small bribes to supplement low wages.
The commercial judiciary takes 612 days on average to process a case, according to the US state department. Even King Mohammed VI has acknowledged the legal system’s deficiencies.
But in the absence of effective dispute resolution, wasta and bribes are important tools for those looking to get things done.
These issues are compounded when western executives cannot speak French or Arabic, which gives Gulf firms an advantage.
“The GCC states have a special political, social and religious relationship with Morocco that they are interested in preserving,” writes Ms Henkelman.