Thomas White Global Investing
Morocco Stamp
October 29, 2010
A Postcard from Africa
Morocco: Investment Spending to Rise

Hassan II mosque in Casablanca

The European Union, Morocco’s main trading partner, has highlighted corruption in Morocco as a major drag on foreign investment.

Africa may feel a bit left out in the race for emerging market supremacy, now currently dominated by the BRICs – Brazil, Russia, India and China. However, after a very successful hosting in June of the soccer World Cup in South Africa, the region is rebuilding interest in what is a volatile but potentially exciting arena for investors. New inflows to African equities funds touched $484 million in the first half of this year. The region’s collective gross domestic product (GDP) of $1.6 trillion in 2008 is almost the same as Brazil or Russia’s, according to a recent McKinsey report. And now Morocco has ambitious plans of its own.

The country’s Finance Minister Slaheddine Mezouar told Reuters that Morocco is targeting a 3% increase in its investment spending next year. Morocco is one of the fastest growing economies in the region and Mezouar is confident of at least a 5% expansion in 2011 to build upon a projected 4% growth in GDP this year. Morocco’s main trading partner is Europe, and prospects of a slowdown in the EU have stoked worries ever since the financial crisis broke out. In the period between 2008 and 2010, the government chipped in with spending of $49.62 billion. This year alone Morocco plans to spend $20.13 billion, and raise that to $20.75 billion in 2011. Are these investments necessary especially with a potential budget deficit of 4% this year? Mezouar believes so, stating that Morocco needs a push of this kind to keep it resilient until the global economy completely recovers, especially the European markets.

And the government is keeping busy in other ways too. In a new initiative, Morocco announced a two-year anti-corruption drive, which it hopes will help curb graft, estimated to cause a loss of around 2% of its GDP every year. Rampant corruption has hampered foreign investment. And the government acknowledges that graft is a blot not just on the economy, but also on its cultural and moral image. Part of the new efforts, which begin next year, include public awareness programs on television and other channels as well as anti-corruption classes in schools. The government is also promising protection to those who report corrupt officials, and plans to make asset declarations mandatory for higher level officials. Morocco is ranked 89 among 189 countries on Transparency International’s Corruption Index, and predictably, the government’s latest cleanup effort was met with skepticism by the corruption watchdog because these kinds of promises have been made before. It would be interesting to see given that context just how Morocco will fare on its next corruption scorecard.

And cleanup it must do. Africa’s collective GDP is estimated to be $2.6 trillion in 2020 according to a recent McKinsey report. Other African countries like Nigeria appear to be leading the race, with Nigeria already part of the Next 11 countries – economies defined by Goldman Sachs as having high growth potential. The tiny kingdom of Morocco still has quite a bit to do to climb onto that elite list, but in taking these two steps – to increase public spending and reduce corruption- it has shown that it has the ambition and drive to emerge near the top in what may well be Africa’s decade as well.

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