Download 2015 Quarter 1

2015 Quarter 1
Inflation – Morocco has a stable monetary environment, with consumer price inflation averaging 1.1% p.a. over the past five years. In 2014, consumer price
inflation averaged only 0.4% as tight domestic liquidity conditions, a relatively stable exchange rate and low international commodity prices all contributed to
stable inflation.
Growth – Real GDP growth is estimated to have slowed from an average of 4.1% p.a. in 2009-13 to 2.4% in 2014 due to a contraction in agricultural
production. The non-agricultural sectors of the economy are fairly reliant on the euro zone, as this region is Morocco’s main trading partner, as well as the
main source of foreign direct investment (FDI), tourists and remittances. With the euro zone performing very poorly in recent years, Morocco’s non-farming
sectors have also been under pressure, growing by 2.1% in 2013 and approximately 2.7% in 2014.
National development plan – The authorities have made excellent progress on subsidy reform. By early-2015, all subsidies on liquid petroleum products
(including petrol and diesel) had been eliminated. Morocco’s industrial policy has also been successful in attracting investment in new manufacturing
industries. This has boosted vehicle, aeronautic and electronic equipment exports. In addition, the development of Morocco’s renewable energy capacity has
the potential to reduce the country’s fossil fuel imports over the medium term
OPPORTUNITIES
STRENGTHS
Immense scope for wind and solar power generation: Desertec project in
Sahara Desert.
Strong prospects for tourism industry (improving tourism infrastructure is a
key focus for the government).
Relatively low cost and productive labour force (though labour market rigidity
is a weakness).
Proximity to Europe provides a large market on Morocco’s doorstep.
Diverse economy that has seen strong growth over a long period of time.
Stable macroeconomic performance with low inflation, adequate stock of
foreign exchange reserves and a moderate external debt burden.
Well developed, well regulated, and liquid capital markets. Asset quality is
relatively good.
Morocco holds 75% of global phosphate reserves.
VULNERABILITIES
WHAT IS BEING DONE?
Trade and tourism heavily dependent on European Union, where economic
growth has been poor in recent years.
A large structural trade deficit weighs on Morocco’s external position.
Limited economic freedom and challenging business environment.
The public sector is large, resulting in a substantial wage bill.
Strengthening ties with Arab and Asian countries, which are becoming
increasingly important players in the global economy.
Newly developed manufacturing industries like aeronautics and automobiles
are providing new sources of export revenues.
Morocco has been one of the best reformers globally in the World Bank Doing
Business surveys over the last six years, with its ranking improving from 130th
in the world in the 2009 survey to 71st out of 189 countries in the 2015 edition.
Although it has not declined, the growth rate in the public wage bill has
slowed dramatically since 2013.
MEGA TRENDS
Population
32,987,206 (July 2014 est.); Age 15 - 64: 67%
Population growth rate (%)
1.02% (2014 est.)
Life expectancy at birth
Total population: 76.31 years; male: 73.25 years; female: 79.53 years (2013 est.)
HIV/AIDS
Adult prevalence rate: 0.16%; People living with HIV/AIDS: 30,556 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 68.5%; male: 78.6%; female: 58.8% (2015 est.)
and write)
Urbanisation
Urban population: 59.2% of total population (2013); Urban population growth: 2.3% (2013)
Population below $1.25 (PPP) poverty line
2.6% (2007 est.)
Unemployment rate
9.2% (2013 est.)
Employment (% of total)
Agriculture: 39.5%; Industry: 20.8%; Services: 39.7% (2013 est.)
Labour participation rate (% of total
population ages 15+)
48.3% (2013)
Business languages
Arabic (official), Berber dialects, French (often the language of business, government, and diplomacy)
Telephone & Internet users
Main lines in use: 2.92 million; Mobile cellular: 42.42 million; Internet users: 18.47 million (2013)
Sources: CIA World Factbook, World Bank, UNESCO, ITU, UNAIDS, Morocco Statistics Agency & NKC Research
1
Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
175
80
71
72
89
189
144
178
187
129
0
Source: NKC Research
Morocco
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
BBB-/Stable
BBB-/Stable
Ba1/Stable
Standard & Poor’s (S&P) affirmed its sovereign risk rating on Morocco at “BBB-” with a stable outlook in November 2014, noting that the country has
demonstrated resilience in the face of strong headwinds in recent years. According to S&P, Morocco performs fairly well in international comparisons of
governance and institutional quality. However, development indicators, such as GDP per capita and the Human Development Index, are weaker than that of
most other investment-grade peers. S&P expects fiscal consolidation to continue and that the fiscal deficit will therefore narrow to 3% of GDP by 2017, down
from a deficit of over 7% of GDP in 2012. The rating agency highlighted the progress made on subsidy reforms, while also noting that the government is in
the process of lowering public sector salaries as a percentage of GDP. Fitch Ratings affirmed Morocco’s credit rating at “BBB-” with a stable outlook in
October 2014. According to the agency, Morocco’s rating is supported by the country’s resilient economic growth and political stability. Furthermore, the
gradual removal of energy subsidies since 2012 has facilitated a marked improvement in Morocco’s current account and budget deficits in recent years. The
rating agency expects the budget deficit to narrow to 4.5% of GDP in 2015, down from over 7% of GDP in 2012, mainly due to lower subsidy spending.
Similarly, the current account deficit is forecast to narrow to 5.8% of GDP in 2015, down from almost 10% of GDP in 2012. Moody's Investors Service
revised the outlook on its "Ba1" rating for Morocco from negative to stable in September 2014. More recently, Moody’s released an annual credit report on
Morocco on 7 April 2015, in which it stated that a low GDP per capita and a relatively high public debt to GDP ratio continue to constrain the country’s
sovereign credit rating. Another rating constraint is Morocco’s weak labour market efficiency. Related to this, Moody’s stated that “limited innovation and
pervasive skills mismatches limit Morocco's competitiveness and constrain the growth potential in the non-primary sectors”. On the other hand, Morocco’s
rating is supported by successful reforms in energy subsidies as well as the success of the government’s industrial policy.
Infrastructure
Diversity of
the Economy
Banking
Sector
Fairly good
Well diversified Well developed
Continuity
of Economic
Policy
GDP Growth
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Stable
Fairly strong, but
volatile
Twin deficits
since 2009
Healthy
Moderate
Healthy
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading
Volume
Casablanca Stock
Exchange
74
Liquid
$53.2bn
Banks
521,620 shares ($16m)
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Developed
Liquid
7-day to 30-year
No
Yes
Macro-economic overview
In contrast to the rest of the North African region, Morocco’s political environment is relatively stable. As a result, the tourism sector and FDI have been
resilient to the wave of political unrest across the region. A more pertinent issue for Morocco has been the slow economic growth in the euro zone, a region
that accounts for well over half of all Morocco’s exports, tourism, and FDI. This, in particular, has caused tourism revenues to stagnate since the global
financial crisis, while Morocco’s traditional manufacturing exports have also performed poorly.
In April 2015, the Moroccan authorities changed the weights in the currency basket to which the dirham is pegged. The euro’s share in the currency basket has
been reduced from 80% to 60%, while the US dollar’s weight has been increased from 20% to 40%. The Bank al-Maghrib (BAM) said the new weights will
better reflect the current structure of Morocco’s international transactions. Indeed, the share that the European Union (EU) makes out of Morocco’s total trade
flows has declined steadily over the past decade from 65% in the early-2000s to just over 50% more recently. The BAM said that the change will have no
impact on the current value of the dirham, “which is broadly consistent with the fundamentals of our economy,” as underscored by a recent International
Monetary Fund (IMF) assessment. Under the previous weights, the dirham was essentially fixed to the euro. Therefore, Morocco’s monetary policy was
anchored by the policies of the European Central Bank (ECB). This has served the country well, by ensuring relatively prudent economic policies and low and
stable inflation. The ECB’s monetary policy stance has, however, become increasingly accommodative as it attempts to raise the level of real GDP growth and
consumer price inflation in the euro zone. This policy is most likely not appropriate for Morocco, though, as it could lead to rising inflation, a further increase
in non-performing loans, and an increase in the value of its outstanding foreign debt. The revision of Morocco’s currency weights shifts its monetary policy
more towards that of the US Federal Reserve, and in essence towards a less accommodative monetary policy stance. It is therefore a prudent policy change that
makes the dirham less susceptible to the policies of the ECB.
2
Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
15.8%
Service/GDP
56.3%
Industry/GDP
27.9%
The Moroccan economy is relatively well diversified, although the agricultural sector continues to play a big role in employment. In fact, almost 40% of
employment is in the farming sector. Morocco's non-agricultural sector is highly dependent on the euro zone as it is by far the country’s largest export market,
and source of tourists and foreign investment. Remittances by Moroccans working in Europe are also a key source of foreign exchange for the country.
Real GDP Growth & Net FDI/GDP
7.0
3.5
Source: NKC Research
6.0
3.0
5.0
2.5
4.0
2.0
3.0
1.5
2.0
1.0
1.0
0.5
2009 2010 2011 2012 2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
There was a surge in oil exploration activity in Morocco (especially offshore) recently: with oil prices at above $100/bbl in 2013-14, around 40 oil and gas
companies were active in the country. No major discoveries have however been made. Therefore, with oil prices plummeting in 2014 H2 and oil companies
subsequently slashing their capital expenditure budgets, Morocco is likely to see a significant decline in oil exploration while oil prices remain low. Outside of
the hydrocarbon sector, prospects for FDI are upbeat; the telecommunications, retail and manufacturing industries are all expected to see significant inflows of
investment in the short term. Meanwhile, economic growth is expected to pick up this year, owing mainly to a much-improved agricultural season. Nonfarming growth is also forecast to improve on the back of a moderate uptick in euro zone economic growth. Furthermore, private sector credit growth is
expected to accelerate for three reasons: 1) the improvement in Morocco’s external position is expected to boost bank liquidity; 2) a narrowing in the budget
deficit, which should result in less crowding out of private sector credit; and 3) the central bank’s cumulative 50 bps rate cuts since September. These interest
rate cuts were made possible by the fact that consumer price inflation has remained very low (averaging 0.4% in 2014 and forecast at 1.3% in 2015), as well as
weak domestic demand, slow credit growth, and reduced pressure on foreign exchange reserves following the drop in oil prices.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
Main Imports: % share of total
2016F
Mineral fuels, oils & distillation products
Machinery
2014E 2015F
2016F
Mineral fuels, oils & distillation products
27.52
20.06
20.32
Machinery
10.23
11.31
11.30
Vehicles
8.68
9.48
9.31
Electrical, electronic equipment
8.64
9.62
9.63
Vehicles
Electrical, electronic equipment
Electrical, electronic equipment
Main Exports: % share of total
Articles of apparel, accessories, not
knit or crochet
Fertilisers
Phosphates
Source: NKC Research
0.0
5.0
10.0
15.0
2014E 2015F
2016F
Electrical, electronic equipment
15.58
16.42
16.39
Articles of apparel, accessories, not knit or
crochet
10.28
10.33
10.02
Fertilisers
8.55
8.55
8.45
Phosphates
4.26
4.26
4.21
Morocco is highly dependent on oil imports, so with global oil prices soaring from 2011 - 2014 H1, the country’s import bill rose substantially. This,
combined with weak European demand, contributed to the country recording very large current account deficits in recent years. In turn, this led to a rapid
build-up in external debt (from 24.4% of GDP in 2008 to 42.6% of GDP in 2014) and a decline in foreign exchange reserves. Two factors have however led to
a significant improvement in Morocco’s external position. Firstly, some new export-oriented manufacturing industries – the most important of which is vehicle
manufacturing – were created in recent years and have ensured crucial new sources of export revenues. Notably, car and car parts exports rose to $4.8bn, or
20% of total exports, in 2014. The other major development has been the slump in global oil prices since mid-2014. This has already led to oil imports
declining by 10.2% in 2014. As a baseline, we project that energy imports will decline by 32.8% in 2015, which will result in total imports falling by 7.7%.
Consequently, the current account deficit is forecast to narrow to 3% of GDP this year, down from as high as 10% of GDP in 2012. We forecast that FDI will
be nearly enough to finance the current account shortfall; therefore, the country will require significantly less debt inflows to finance the deficit, while also
being able to rebuild its external buffers.
3
Current Account & Budget Balance
(% of GDP)
0.0
0.0
-3.0
-2.0
-6.0
-4.0
-9.0
-6.0
Source: NKC Research
-12.0
-8.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
Morocco’s fiscal position deteriorated significantly after the global financial crisis due to slow revenue growth and surging energy subsidies. At its peak, the
subsidy bill stood at 6.6% of GDP in 2012. Since then, however, the government has gradually phased out fuel subsidies, and, as of January 2015, all subsidies
on liquid petroleum products (petrol, diesel and industrial fuel all) have been eliminated. In 2015, we forecast that the subsidy bill will be down to 2.1% of
GDP. This, combined with slower increases in the public sector wage bill, has led to a significant narrowing of the budget deficit – from 7.4% of GDP in 2012
to a forecast 4.2% of GDP in 2015 – while also creating space for higher capital spending. One of the key issues that still needs to be addressed going forward
is the pension system, which is unsustainable because pension benefits are generous and adverse demographic trends will lead to an increase in the number of
people retiring over the next few decades.
Average CPI (% change, y-o-y)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Source: NKC Research
2009
2010
2011
2012
2013 2014E 2015F 2016F
The central bank has adopted an expansionary policy stance over the past 12 months, reducing reserve requirements from 4% to 2% in March 2014 and cutting
its policy interest rate by 25 bps at both the September and December monetary policy meetings. As such, the policy rate dropped to 2.5% in December. At its
most recent meeting on 24 March 2015, the central bank kept interest rates unchanged. The BAM noted that inflation is still well under control: its forecasts
show that consumer price inflation will average 1.4% in 2015, which is slightly higher than our forecast of 1.25%, and that it will remain at around 1.4% y-o-y
up to the end of its forecast horizon in 2016 Q2. Despite expectations that real GDP growth will rise to 5% this year, the BAM believes that the nonagricultural output gap remains negative, “suggesting the absence of demand-led inflationary pressures in the medium term.” The central bank also sees “an
absence of money-driven inflationary pressure”. However, there have been some signs that money supply growth has accelerated since the BAM started
loosening its policy stance in March 2014. Specifically, M3 money supply increased from 3.5% y-o-y in March 2014 to a four-year high of 7.4% y-o-y in
January 2015.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Fouad Lahgazi – designation is Partner
Tel +212 37 63 37 02
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon
such information or opinions.
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entité suisse. Tous droits reserves. MC7204
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