By Nicholas Norbrook in Tokyo
NIZAR BARAKA MINISTER FOR FINANCE AND THE ECONOMY, MOROCCO/PHOTO©NORBERT SCHILLER/WORLD ECONOMIC FORUM
Having ridden the wave of the Arab Spring, Rabat is now looking to Gulf financing and multilateral financiers to help it roll out infrastructure building programmes and develop and support a network of small enterprises.
Europe’s slowdown has spread gloom to the Moroccan economy, but the government in Rabat has developed a series of policies that target long-term growth.
Morocco’s finance minister Nizar Baraka is happy to admit that the government chose a Keynesian solution to the eurozone crisis, engaging counter-cyclical measures such as boosting salaries.
Times are tougher for Morocco: continued malaise in Europe, a key export destination and source of tourists, has contributed to growth rates dropping from 4.5% in 2011 to around 3% this year.
Baraka explains that Morocco is approaching international capital markets to lift pressure on domestic debt markets and avoid squeezing small companies and the private sector.
The government issued a eurobond in 2010 and tested Morocco’s international valuation. Given the 4.5% interest rate it received, it was a generally positive result.
November 2012 represented the first time the government issued on the dollar market, “which is much more liquid, and we hope the confidence in the Moroccan market will give us a good spread. We are going for between $750m and $1bn.”
The money will be used not to repay loans – the Next big repayment instalment comes in 2017 – but to finance investment, Baraka says.
Baraka will not countenance the idea that Morocco’s debt levels are unsustainable.
Ratings agency Standard and Poor’s downgraded its outlook analysis of the country from stable to negative in early October.
“The problem of debt sustainability is a false problem,” says Baraka. “External debt represents just 12% of GDP [gross domestic product], while the global debt of the treasury is around 57% of GDP. So we are very, very far from external debt problems.”
He points to the continued stream of companies entering Morocco as proof the country has created the conditions to attract investors.
“We have Renault in the auto sector, Bombardier in aeronautics and lots of Spanish companies are seeking to escape the crisis in their own country and set up here.”
Other sectors are opening up, with new legislative frameworks to support public-private partnerships (PPP) in green energy, pharmaceuticals and tourism.
Tried and Tested
The government hopes that using instruments such as the Caisse de Dépôt et de Gestion will allow it to lend support to these sectors without getting stuck in the ‘industrial policy’ problems of the past.
Rabat also seeks to avoid a more recent problem: that of the private sector doing well out of PPPs, while the government is saddled with debt and uncompleted projects.
“There is a certain benefit to not being the first to attempt these deals,” says Baraka, wryly pointing to the United Kingdom’s woes with PPP contracts in the overhaul of the London Underground.
“We are trying to get the best practice in this area, particularly in the specification of performance criteria and getting the best value for money.” Other sources of non-market finance remain close to hand.
International finance organisations are keen on stable clients: the African Development Bank has $1bn invested in Morocco, World Bank funds rose from $300m to $700m last year and may well hit $1bn, and the European Bank for Reconstruction and Development started operations there in October.
It is the only country to have received a $6bn precautionary credit line from the International Monetary Fund, should it need one.
The Gulf is also a useful source of finance. Morocco is now an observer member of the Gulf Cooperation Council and will receive a grant of $5bn over the next five years to finance development.
“We are currently putting together the project proposals for this funding, which should begin next year,” says Baraka.
Confidence remains strong, not least because of the manner in which Morocco surfed the North African uprisings.
“Morocco has managed to capitalise on the fact that it had started the democratic transition earlier. We started in the middle of the 1990s. There was a change in power.
“With the arrival of the new king [Mohammed VI] there was an acceleration of political, social and economic reforms, so that when the Arab Spring came we were the best prepared to complete our democratic transition, which resulted in a new constitution and the November 2011 elections,” says Baraka.
The Palace Prevails
Morocco benefits from this political stability “because it gives us continuity of policymaking. This is in part driven by the palace – we can have a strategic vision, which is essential for development. But the new governments also give a fresh impetus each time.”
In the early 2000s, the government was working with McKinsey, the consultancy group, to flesh out an industrial strategy for the decades to come.
McKinsey was against getting involved in solar energy – but the palace prevailed, and Spanish investors are now queuing up to plug into the country’s five large-scale solar energy projects.
Baraka is keen to boost the job-creating potential of small and medium-sized enterprises (SMEs).
While governments pay much lip service to SMEs, many of these companies hit cash-flow difficulties because bills are not paid on time.
“What we have done,” says Baraka, “is to push through a law on payment schedules that fixes it at a maximum of 90 days, with a 10% punitive interest rate for all late payments. This goes for government contracts, too.”
The government has also put in place a monitoring system in the prime minister’s office to ensure govern- ment follows through on these promises.
The finance ministry equally has a monitoring agency to ensure that government reimburses value-added tax for small businesses in a more timely manner.
Policymakers plan to adopt another new law before the end of the year to ensure at least 20% of government contracts go to SMEs.
“Different markets will be broken up into smaller lots to allow SMEs the chance to compete,” explains Baraka.
Ministries are also demanding that all large companies that receive a government contract transmit the list of SMEs they subcontract to so that these companies can be prequalified in future bidding rounds.
There are also various programmes that fund corporate governance overhauls so that SMEs can grow, and another fund that helps build technical capacity and supports the adoption of new technology●
