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Continental crossroads

May 2009
Morocco is where Africa, Europe and the Middle East meet, both economically and culturally. If economic forecasts are correct, then the North African country could well come out of the global credit crisis in much better shape than many of its Middle Eastern and Mediterranean neighbors. Mike Gallagher gives Morocco the once over
The line about a country being described as sitting at the crossroads of civilisations is often used by unimaginative writers as a piece of flattery to fill out an article, but nowhere it is more apt than in describing the Kingdom of Morocco, Al Mamlakah al Maghribiyah or Al Maghrib, as the locals call it.

The country sits opposite the southernmost tip of Europe, separated from Spain by the Strait of Gibraltar which is just 14.24 km (or 7.7 nautical miles) wide at its narrowest point and is where all four cultural compass points meet. It is where the ancient and learned cultures of the East mix with the vibrant fashions of the West and the poverty-stricken masses of the southern hemisphere congregate and encounter the wealthy tourists of the northern hemisphere who go there on holiday.

However there was a time when the Strait of Gibraltar (or Bab el-Zakat as it is called in Arabic, which translates rather prophetically as the 'Gate of Charity') didn't mean much because the Moorish dynasties of the time owned a large swathe of Spain. In fact, the ancient scholars in Northern Europe often declared that Europe began/ended at the mountainous Pyrenees that mark Spain's border with France.

The highs and lows of Morocco
Morocco's mix of high mountain ranges (Jebel Toubkal rises to 4,165 metres) and low desert plains (the lowest point is Sebkha Tah at -55 metres) means that temperatures range from the freezing to the scorching. They go from -17.8°C to as much as 40°C, although the North Atlantic does a good job of keeping things slightly cooler in the summer and warmer in the winter than in other parts of the Middle East and North Africa (MENA) region, especially around the coast where the vast majority of the population lives.

The largest cities are Casablanca with a population of over three million and the capital, Rabat, which has nearly two million. Other sizeable cities include Fes with about one million and Marrakech with a little less than one million. The total population of the country is thought to be roughly 35 million, with the majority in their 20s and 30s. The main languages are French, Arabic and Spanish, although English is widely understood and spoken in most of the bigger towns and cities.

These days Morocco is going through the economic wringer just like every other economy that has been hit by the global credit crisis. It saw its share of foreign direct investment (FDI) rise during the boom times between 2003 and 2008 and is now seeing a slowdown in inward investment. It takes 12 days to get the requisite paperwork done to start a business in Morocco, which is not bad compared to the OECD average of 13.4 and the regional average of 23.5.

Internet access is a little over 15 per cent and is steady, if unspectacular and about as good as anywhere else in that part of the world. Wireless internet is taking off in a big way and all the major hotels are well wired up, although it leaves something to be desired further out in the countryside. Even fixed lines are bit iffy.

Nearly three quarters of the population are in their 20s and 30s with a per capita GDP of around $4000 and a report by the GSM Association said that Morocco's mobile operators are able to provide coverage to approximately 96 per cent of the population, and have a penetration rate of 44 per cent. Maroc Telecom began offering BlackBerry access to corporate clients in early 2007 and Meditel and Wana also offer the service.

Kuwait telecom company Zain recently entered into a 50/50 partnership with Morocco's Al Ajial Investment Fund Holding to invest in a newly established joint venture to be called Zain Al Ajial. Both companies paid MAD 2.85 billion ($324 million) in return for a 31 per cent of Wana, the third mobile telecom operator in Morocco.

Mort ala Maroc
Morocco was also the first country to recognise the then almost unheard of country called the United States of America back in 1777 and in events bearing an uncanny resemblance to what is going on today off the coast of Somalia, Morocco's Sultan Mohammed III helped the fledgling US Navy battle the Barbary Pirates which were plundering US ships in the Mediterranean and protect vital trade routes.

These days the waters around Morocco are a little safer, although the Kingdom's proximity to Europe means that thousands of destitute immigrants from Sub-Saharan Africa make their way there and attempt to cross the hazardous straits to Spain or attempt to enter the four Spanish enclaves of Ceuta, Melilla, Peñón de Vélez de la Gomera, Peñón de Alhucemas, as well as the Chafarinas islands, and the disputed island of Perejil.

Hundreds drown every year in the dangerous crossing or die from exposure as they make their way across the desert. The bodies of those who don't make it across channel often end up washing ashore on beaches up and down the Mediterranean. In October 2005, nearly a thousand migrants, most of them Sub-Saharan Africans, but also including Iraqis, Afghans and Kurds who had travelled thousands of miles to the edge of Europe, flung themselves on the razor wire surrounding the enclave of Melilla in a desperate attempt to enter the Spanish territory. The television images of battling a human wave of third world refugees, including women with babies battling besieged border guards lead to a fundamental rethink of immigration issues in Europe.

What that particular incident and many others like it represented was the fine geographic line between the haves and the have-nots and Morocco's pivotal position as an economic crossroads. EU Ministers, appalled at the scenes from Melilla thought that more FDI in Morocco might prevent further incidences of its type.

Investment in the Kingdom has been a mix of European and Middle Eastern money, with companies like Bahrain's Gulf Finance House (GFH) investing in $1.5 billion worth of projects in Marrakech and Tangiers, which will cater to the lucrative tourism sector which attracts approximately eight million tourists and earns Morocco around $7.3 billion.

Many of the tourists come from Europe, but also from the Middle East, most of whom are fed up of Lebanon's habit of blowing up every few years and are looking for an alternative to the so-called 'Paris
of the East.'

Islamic finance
Morocco's mid-range tourist market, multi-cultural mix, mild climate and relatively stable currency (roughly MAD 8.5 to $1) means that it has a broad appeal for tourists and Sharjah-based budget airline Air Arabia said it was planning to begin offering flights to Casablanca by the early summer.

However, the downside for tourists who are drawn to Morocco is that a group called Al-Qaeda in the Islamic Maghreb occasionally sets off bombs at popular tourist locations, although no lasting damage seems to have been done to the tourist industry, largely thanks to a robust response from the security forces who have managed to keep a lid on things, while blaming the attacks on foreign elements.

Morocco somehow managed to avoid the fate of neighbouring Algeria, which for most of the 1990s was convulsed in a civil war between the government and Islamic militants in which more than 100,000
people died.

It is this fear of Islamic militancy that has made Moroccan authorities squeamish about allowing Islamic banks to set up shop. There is are concerns in government circles that certain sections within the young and unemployed population in the more conservative rural areas could seize on the Islamic theme and use it to voice its disenchantment at the government.

In 2007, Islamic Business & Finance magazine reported that while Islamic finance did not officially exist in the Kingdom, the government was allowing a number of banks to offer what it called 'alternative products.' Those products were Ijarah, Musharaka and Murabaha.

An announcement from the Central Bank (Bank Al-Maghrib) in 2007 said, "The offer of these products takes place on the basis of rules enacted by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)."

Bank Al-Maghrib defined the methods of accounting of the products and said it would "allow a widening of banking services" that would "contribute to a higher rate of banking in the economy." This is about as close as Moroccan banks have got to having Islamic windows. Morocco is keen to get more of its young population to open bank accounts and avail of their products.

However, not a lot has happened since then. In March 2009, Al-Sharq Al-Awsat reported Abdul-Latif al-Jawahiri, the Governor of Bank Al-Maghrib as saying that they had received requests from a number of Gulf countries to open Islamic banks, but suggested that size of the market was too small and that no licences would be given.

Attijariwafa Bank
Morocco has 20-odd banks and Attijariwafa Bank is considered to be the biggest with around $27 billion of assets (and Africa's seventh largest bank overall), while Banque Centrale Populaire has around $24 billion followed by BMCE with $8 billion.

Attijariwafa, which is led by Chairman and Chief Executive Officer Mohammed Al Kettani, is reported to be expecting 15 per cent growth in 2009. The bank's portfolio of investments ranges from Tunisia, where it owns 30 per cent of an investment bank called Sud Sicar, to the Congo where it owns 81 per cent of Credit du Congo. It also has interests in Gabon, Senegal, Mali, Cameroon, Italy, France and Spain, where it owns 83 per cent of Andalu Maghreb Holding and 50 per cent of Casa Madrid Developpement.

Global Investment House reported that Moroccan banks' strong balance sheets increased by 9.5 per cent from January to September 2008, and forecast that Moroccan banks are expected to stay strong during 2009, since the economy of Morocco has not been hit hard by the current global financial crisis.

"The banking environment of Morocco is stable and is supervised closely to avoid any outreaches by banks. BCP has acquired a 5.88 per cent of Office Cherifien de Phosphate valued at $600 million in 2009, indicating available liquidity in the banking sector. In addition Banque Centrale Populaire has also acquired a stake in Upline Group, Morocco's second largest investment bank in 2008," the report said.

The Casablanca Stock Exchange has 77 listed companies with a market capitalisation of $60 billion as of 31 December 2008 and a report by Global Investment House said the Casablanca Stock Market holds the highest price to earnings (P/E) ratio in the MENA region, with a P/E ratio of 16.65 at the end of 2008.

"The market activity has been increasing by the years, and with the Moroccan economy having strong fundamentals, this will help cushion the effect of the world crisis and cause a better market performance in the future. Although market activity is expected to slow down in 2009 on the back of the global financial crisis, companies' results in 1Q-09 could prove otherwise and induce more trust into the market,"
Global said.

Casablanca and Tangiers
Morocco is keen to build up its infrastructure and has been working on a plan to build a 200 km high-speed train line between the cities of Casablanca and Tangiers as part of a $20 billion infrastructure project. The line is scheduled to be completed by 2016. Morocco hopes that projects like that will increase the number of tourists visiting the country and open up other parts for industrial development.

A port not far from Tangiers already handles around 3.5 million containers a year and is aiming to double in size in a couple of years to become (if it isn't already) the largest port on the Mediterranean, although virtually every one of its neighbours along the North African coast have been flat out doing something similar. Morocco faces stiff competition from the likes of Libya and Algeria, but the fact that it is so close to Spain (ferries cross the Strait in just 30 minutes), allied with Spain's extensive train network, means that it has the edge over its rivals.

In April 2009, the African Development Bank (AfDB) gave Morocco a $310 million loan to help upgrade the country's facilities at the Casablanca, Fez, Agadir, Marrakech and Rabat airports, which handle the bulk of air traffic to and from Morocco.

It is no secret that Morocco has taken a good look at what Spain has done (it too is building a high-speed line between major tourist centres like Barcelona, Seville and the capital, Madrid) and has been trying to offer travellers more than just bars and beaches. Morocco appears to be trying to market itself as something between Spain, whose beaches throng with cheap package holiday crowds and France's upmarket Riviera region.

Europeans, reflecting their desire to diversify their suppliers of oil and gas in the aftermath of rows with Russia and wars in the Gulf, have been attracted by the possibility of oil and gas reserves off the coast and in the desert. Neighbouring Algeria has plenty of hydrocarbons, so there is no reason why Morocco shouldn't have similar quantities, especially given that another near neighbour to its south, Mauritania, has also been attracting wildcatters and other frontier market oilmen.

European countries such as Spain's Repsol and Ireland's Circle Oil have been drilling for oil and gas on the Atlantic coast in inland. Circle said that the exploration agreement for the Rharb Basin, just north of Rabat, "is for a total period of eight years with the right of automatic conversion to a minimum (but extendable) 25-year Exploitation period."

Repsol discovered gas off the coast of Tangier recently and Dana Petroleum from the UK reported a "significant" find at Anchois, in the Tanger-Larache licence, some 40km off the coast. The Moroccan government, according to a report by Reuters, is planning to invest around $700 million in oil exploration over the next four years.

Morocco typically imports around 45 million barrels a year (around 95 per cent of its total) and roughly half comes from Saudi Arabia, with another quarter coming from Iran, with which it has been having a bit of a diplomatic spat with of late over Bahrain's territorial issues with the majority Shia Iran, which claims Bahrain as its 14th province.

Largely Sunni Morocco quickly recalled one its diplomats from Tehran in early March 2009 after what it called, "inappropriate language" when a statement attributed to Iran's Expediency Council on a Government-owned news website said that "The Islamic Republic of Iran believes that at the present juncture when the unity and solidarity of Islamic countries is necessary for supporting the Palestinian people, this act of Morocco harms unity of the Muslim world."

Iran's Foreign Minister Manouchehr Mottaki seemed to be amazed by Rabat's move, describing it as "surprising and questionable," although the row does not appear to have had any effect on Tehran's decision to continue supplying Morocco with oil.

Aerospace companies like EADS and Safran have set up shop in the Kingdom and a report by Afrique en ligne claims that the aeronautics sector in Morocco, which is made up of about 50 companies employing more than 2,000 workers, intends to triple its turnover to €1 billion ($1.2 billion) by 2012, up from €300 million in 2003.

The country has also been trying to promote itself as an outsourcing centre for European companies, but the decision to raise the minimum wage means that keeping inflation in check over the longer term could be tricky.

The general consensus amongst investors seems to be that Morocco will probably weather the growing global economic storm better than some of its neighbours (possibly even Spain whose sovereign rating was recently downgraded) as long as economic reforms keep pace with the economic reality of a rapidly changing world.

Morocco's government has worked hard to cement economic ties both with Europe and the Middle East as well as its continental kinsmen in resource-rich parts of Africa. If, as forecast, it does endure, then it could become an African success story in the next 15 years.

The country has also been trying to promote itself as an outsourcing centre for European companies, but the decision to raise the minimum wage means that keeping inflation in check over the longer term could be tricky.

© Banker Middle East 2009