The Moroccan economy’s notorious reliance on the weather is working in its favour this year. The government is predicting abundant harvests and economic growth of almost 10 per cent, and international investors are returning. Yet, the devastating effects of the 1995 drought are not easily forgotten and the rain-induced mood of the moment is tempered by enduring worries about whether or not Morocco can shape up to face the challenges of the next century.
Morocco has already come far in terms of economic reform. Since the start of reforms in 1983, banking and foreign currency regulations have been liberalised. the stock market has developed and inward investment has become much easier. Companies have profited from this and the non-agricultural sectors bucked the trend last year to grow by 4-5 per cent in spite of the economic downturn.
Economists in Morocco are very aware of the increasing competition that is looming under the General Agreement on Tariffs & Trade (GATT) Uruguay round. One response of the government is a closer alliance with Europe, which would help reshape the economy during a transition period. It was the second country to join the EU’s new-style association accord, in November 1995.
On the face of it, the EU agreement promises more hardship before any benefits become apparent. Local industries will be exposed to raw competition from European manufacturers as all protective customs barriers are phased out. Detailed studies on the probable impact have yet to be carried out.
In the meantime, the government is relying on a Tunisian study that exposed the risks the country was running when it entered a similar accord with the EU. It predicted that a third of local companies would survive, another third would survive if they restructured, while the remaining third would close down altogether. The weakest companies are the small, family-run businesses in rural areas, whose collapse would hit an already disadvantaged section of the population.
Yet the government and the financial community agree that if Moroccans do not take the initiative now, it will be too late. Under the EU agreement, it will be eligible for financial support to help companies restructure. Indeed, if Morocco had not opted for an association accord it would have lost the opportunity to apply for further EU aid, which will be available to countries signing up for closer links with the union.
Stock brokers say many companies have already been restructuring after being listed on the stock market. In an effort to improve the quality of their lending portfolios, listed banks are in turn putting pressure on their small business customers to manage their affairs more efficiently. Public-sector industries are also being privatised in a bid to improve their performance.
New laws have been tabled for the current session of parliament that are intended to enhance further the business climate. A new law on limited liability companies is aimed at improving corporate governance and transparency. Measures include the independent auditing of accounts and enhanced powers for small shareholders. It will also make it easier for companies to raise finance by introducing convertible bonds and nonvoting shares. Under a new competition law, government price controls will only be allowed as a temporary measure in exceptional circumstances; a body will be set up to prevent cartels and other efforts at price fixing; and wholesalers will no longer be allowed to dictate the retail price of goods.
The privatisation programme, which flagged in 1995, has been picking up speed again this year and Privatisation Minister Abderrahmane Saaidi’s plans for the coming financial year are ambitious. He wants to increase privatisation revenues by 43 per cent to MD 5,000 million and bring several large companies to the market before the end of the year (see page 10). Investors and brokers are delighted, but ordinary Moroccans fear that privatisation will lead to sweeping job losses.
‘Because we have so far put strong companies on the market, with a strong potential for expansion, this has not been an issue,’ a Privatisation Ministry official says. The strategy has been to involve employees by giving them priority access to shares and to encourage new owners to expand the businesses rather than dismiss workers. Such agreements are non-binding, but they have been broadly respected, helping to earn privatisation a good reputation. But the honeymoon may soon be over.
‘We don’t know whether the non-binding commitment can still be part of the next privatisations. We will have to reassess the situation,’ the official says. Mass redundancies could inflame social tensions in a country which already suffers from 17 per cent unemployment in urban areas, running as high as 30 per cent among under-25-yearolds. The government already faces opposition to its freeze on recruitment during the current financial year.
Nevertheless the sell-off programme seems irreversible. The government needs the extra revenue to meet the target of reducing the budget deficit to 2.8 per cent of gross domestic product (GDP) from 5.1 per cent in 1995. Debt servicing already swallows up 36 per cent of revenues and the authorities are determined to reduce this ratio.
The government is also banking heavily on increase in the tax take and hoping that its crack-down on tax fraud will bear fruit. Analysts say the campaign against smuggling and illegal business in early 1996 was prompted by the need to secure additional sources of income to compensate for the phasing out of customs duties. Initial results show a jump in receipts from value added tax.
Yet even this policy, greeted by most Moroccans as a boost for legitimate business, is a double-edged sword. The campaign mostly hit the deprived northern area, where factories employing up to 1,000 people were closed down with no prospect of more legitimate businesses springing up in their place in the near future. The campaign has also been criticised by the opposition for being heavy-handed and not always effective.
Morocco’s longer-term political stability will also depend on how the succession will be handled after King Hassan. The monarch, who is 66 years old, has a history of respiratory problems and was hospitalised in the US in October with bronchial pneumonia. The departure of a figure who has governed the country with a firm hand for 35 years will leave a demanding inheritance for his successor.