Global Investor Magazine
Under the umbrella of a wide-ranging new stock exchange law, Morocco is about to launch a comprehensive package of reforms designed to boost its sluggish capital markets, opening up new avenues for investment and rejuvenating the Casablanca bourse as a vehicle for financing an entrepreneurial private sector.
Despite its acknowledged success in creating an increasingly diverse economy with a growing high tech sector, the kingdom has lagged behind in the development of capital markets to match.
“There is a shortage of investors, especially from outside the country, reflecting a lack of appetite for Moroccan assets and opportunities,” says Stéphanie Mery, analyst for Moroccan banks at &P Global Ratings. “Most of the indices categorise the country as a frontier rather than an emerging market.”
A number of factors explain this reticence, including wider economic or financial challenges beyond the investment arena. For example, the exchange regime is not entirely open and flexible and the range of investment options has up to now been limited.
“There is a lack of depth in the markets and 90% of funds’ investments are concentrated in fixed income assets,” notes Mery. “Only 8-9% is in equities.”
Potential investors have also been discouraged by problems at two prominent companies, the Alliances real estate group and the refinery Samir. The latter had piled up more than MAD43bn ($4.4bn) in debts and its judicial liquidation was confirmed by the Casablanca commercial appeal court in June.
Such episodes have shaken foreign investors’ confidence in the Moroccan business environment and the manner in which it is overseen by the state. However, Morocco also has considerable strengths. The royal investment vehicle SNI pursues a strategy aimed at promoting diversification.
“SNI intends to gradually reduce its stake in big establishment entities, as demonstrated by the recent sale of its share in large food industry groups,” Mery notes. “Instead, it is playing a strategic role by investing in key new sectors.”
Moreover, the government is now pressing forward with reforms to stimulate a more dynamic investment culture. S&P’s Mery points to the scope for development of conventional product lines such as exchange traded funds (ETFs), socially responsible funds and the major banks’ so-called coordinated funds under the new reforms. The centrepiece of these is the new stock exchange law, approved unanimously by the upper house of parliament in August.
Refreshed framework
The Casablanca Stock Exchange index has lost more than 20% of its value over the past five years and the broad political support for the new law reflects recognition of the need for a refreshed regulatory framework that encourages the development of a wider range of funding options for business – and thus of attractive investment options for both local and foreign investors.
Potentially the reform could transform the bourse into a much more dynamic economic actor – a point made by financial commentator Afifa Dassouli, of La Nouvelle Tribune: “The financial market should at last play its lead role as a financier of the economy – whereas, up to now, it has mainly served as a means of establishing the worth of some companies.”
Transition managers have typically been used in liquid equity markets but they are expanding their services into ever more obscure ones, finds Pádraig Floyd.
Delegate budget minister Driss El-Idrissi underlined the significance of what is the first major overhaul of bourse legislation in two decades: “It aims to relaunch the stock exchange and reinforce the role of the capital market.”
The law bolsters the independence of the regulator, the Autorité Marocaine des Marchés de Capitaux (AMMC) and the instruments it can use, and splits the bourse into a principal market and an alternative platform reserved for smaller businesses. It will provide frameworks for trading in collective vehicles, particularly ETFs and real estate funds. The new rules will also permit the listing of foreign companies.
The confidence of local personal investors should be reinforced by a tighter regulation of investment advisers, while the finance minister will chair a permanent capital markets commission to oversee the future development of the sector. Meanwhile, Morocco has also created a regime for offshore activity, the Casablanca Finance City, with its own regulator. If all goes to plan, it stands to win over once-sceptical investors.
Transition managers have typically been used in liquid equity markets but they are expanding their services into ever more obscure ones, finds Pádraig Floyd.
