Morocco: Risk Assessment


Country Risk Rating

A4 A somewhat shaky political and economic outlook and a relatively volatile business environment can affect corporate payment behavior. Corporate default probability is still acceptable on average.

Business Climate Rating

A4 The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.

Strengths

  • Favorable geographic position, close to the European market
  • Strategy to move upmarket and diversify production in automobiles, aerospace, electronics, offshoring, chemicals, pharmaceuticals, textiles/leather, and agri-food
  • Policy of macro-economic stability
  • Political stability and commitment to reforms  

Weaknesses

  • Economy very dependent on performance of the agricultural sector 
  • Considerable social and regional disparities. Although declining, poverty rates remain high
  • Weak productivity and competitiveness and significant unemployment rate 

Current Trends

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Growth peaked in 2015 with activity expected to slow in 2016

Moroccan growth should decline in 2016, after recording a growth rate of almost 4.5% in 2015. The slowdown in cereal production by more than 70%, between 2015 and 2016, is expected to constrain the country GDP at a growth rate near 2% this year. The contraction is observable on the data of the first and second quarters of 2016. According to the estimations of the Haut commissariat au plan, growth reached 1.7% in the first quarter 2016. The deceleration is expected to continue in the second quarter with a 1.4% annualized growth rate. While agricultural value added contracted by 12.1% in the second quarter, non-agricultural valued added rose by 2.5% over the same period. Private demand continues to act as a driver of domestic activity. After growing by 2.7% in the first quarter, household consumption would record a slight decline in the second quarter. The later would be constrained by a slight rise in inflation, boosted by a surge in food prices (+3.6%). Investment growth was dynamic at the beginning of 2016, and is expected to remain strong over the year.

Public deficit in decline and current account balance remaining stable

After contracting slightly in 2015, the public deficit will reduce significantly in 2016. Low hydrocarbon prices favored continued reform of subsidies, enabling savings of 31 billion dirham in 2015, or 3% of GDP. Some of these savings will be reallocated to investment spending, as well as to social programs. The broadening of the tax base planned under the 2016 finance law is expected to help consolidate budgetary income. The fiscal consolidation under way since 2014 and the reduction in the resulting public deficits will, therefore, continue to positively influence the trajectory of the debt, the level of which has stabilized since 2014.

In 2016, Morocco will continue to benefit positively from the weak hydrocarbon prices, enabling it to maintain a reduced energy balance. As a continuation of the trends observed in 2015, import values will decline, but at a slower pace. According to the Central bank’s data, the growth in industrial investment also results in an increase in imports of capital goods. Indeed imports grew by 3.1% over the first five months of 2016, supported by a growth in imports of capital goods of 13.6%. The surge in exports by 1.2% has only slightly offset the rise in imports and caused a trade deficit of US$7bn. Phosphate exports declined during the first five months of 2016 (-11.3%) whereas automotive exports kept increasing (+14%), backed by an upturn in the European demand.

The banking sector will remain profitable and well capitalized although an increase in non-performing loans was observed in 2015, mainly due to difficulties recorded by the property and tourism sectors. Credit is expected to continue to stimulate investment modestly in 2016, with the fall in investment lending offset by a rise in property and consumer loans.

Towards advanced regionalization

The Islamist-leaning party is expected to complete its final year in office in 2016, as parliamentary elections are scheduled for September. In the wake of the regional elections, the authorities are expected to implement the proposed regionalization reforms, opening the way to a reconfiguration of the Kingdom's economic landscape by focusing on the development of the most isolated areas. The question of granting autonomy to the Western Sahara will continue to punctuate the country's political agenda, maintaining a climate of political tension with its Algerian neighbor.

Morocco, aiming to preserve its attractiveness to foreign investors, is expected to continue reforms to improve and stabilize the business climate, especially as regards simplifying the administrative procedures associated with fostering investment and modernizing the legal framework.

Source:

Coface (09/2016)
VERY LOW RISK............ACCEPTABLE RISK............ VERY HIGH RISK


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