Morocco eyes privatization to fill its budget deficit

Article Summary
The 2019 finance bill shows a return of the privatization process in Morocco as a step in the direction of opening up the economy, but economists believe this is the ultimate proof of a failing fiscal policy.

CASABLANCA, Morocco — Following a heated plenary session Nov. 16 in the Moroccan House of Representatives, the 2019 finance bill passed 189-83 in a vote marked by the absence of several ministers of government.

On Nov. 6, two days ahead of the Government Council meeting, the Moroccan government had not yet defined the public entities and enterprises concerned by the privatization program set out in the 2019 finance bill. When contacted by Al-Monitor, Moulay Hafid Elalamy, minister of industry, trade, investment and economy, was unable to provide further information.

“The Ministry of Economy and Finance will propose the assets to be divested and we will give our opinion. We do not play any role at the moment,” Elalamy told Al-Monitor.

Two days later, on Nov. 8, the Government Council identified two companies as being partially or fully privatized in accordance with the bill: La Mamounia Hotel, recently voted the best hotel in Africa by readers of Conde Nast Traveler, and the Tahaddart power plant, which produces one-tenth of Morocco's total energy consumption.

This raises the question whether privatization is a strategic dimension in the state policy or whether it is a way to quickly dispose of public property aimed only at filling the budget deficit.

The amount at stake for these privatizations is not negligible. Minister of Economy and Finance, Mohamed Benchaaboun, newly appointed by King Mohammed VI, seeks privatization proceeds of up to 5 billion dirhams ($524 million) earmarked for the state budget. This would curb the state budget deficit from the initially forecasted 3.7% of gross domestic product (GDP) to 3.3%.

The objective, according to Benchaaboun, who presented the finance bill during a news conference Oct. 22, is to modernize the national economy, increase the level of foreign direct investment, improve governance and boost the capital market.

Moroccan economists, on the other hand, see a purely financial motivation, aimed to fill the holes in an economy undermined by years of deficits.

While the Tahaddart power plant has accumulated net results of several hundred million dirhams and is particularly attractive to investors, this is not the case with La Mamounia, as the hotel has reported substantial losses over the course of several years.

According to Najib Akesbi, economist and professor at the Hassan II Institute of Agronomy and Veterinary Sciences in Rabat, this raises the inevitable question of how the valuation will be done before privatization. “When you are desperate for money, you are not in a position to negotiate,” he told Al-Monitor.

The Moroccan budget deficit has grown over the last decade, despite donations from Gulf countries and loans from international institutions. “This will make further loans increasingly difficult,” said Fouad Abdelmoumni, economist and secretary-general of Transparency Maroc.

“Morocco's public debt now stands at 82% of GDP and the economy’s growth rate is low. The state will not be able to take out debts in a sustainable manner,” he told Al-Monitor. “With the dwindling gifts from the Gulf countries, it will be difficult to reduce the budget deficit in the future.”

For Akesbi, the privatization program in the new bill is a warning sign, heralding a future financial crisis. “The structure of the state budget does not allow it to cover its expenses. Specifically the tax policy — which should be the main source of financing for a country like Morocco — does not fulfill its role. It suffers from unjustified exemptions and tax benefits for certain categories. As a result the state is obliged to sell its assets to fill the gaps,” he said.

In 1993, privatization of the public sector commenced. By 2006, 114 companies were privatized, yielding a total revenue to the state of 103 billion dirhams (around $11 billion). Ironically, this amount is equivalent to the cumulative dividends paid by the only telephone operator, Itissalat Al Maghrib (Maroc Telecom), to its shareholders since the beginning of its privatization process in 2001.

This illustrates how the state can miss out on the opportunities of exploiting the economic potential and profitability of public companies. “What we are seeing here is the government playing the privatization card without even evaluating its effects in the past,” Akesbi noted.

When asked if he believes the companies to be fairly valued ahead of privatization, Akesbi said, “Clearly not. Several examples demonstrate that Morocco values its assets poorly before their disposal. This is the case of Samir refinery, for example, which was sold far below its actual value — less than $400 million in 1997.”

According to Abdelmoumni, there are many reasons for the government to sell shares in public companies at prices below their value. Specifically, he pointed to the fact that the Moroccan state is under heavy budgetary pressure. “The state has no choice but to make decisions that will provide short-term solutions. It is forced to liquidate its assets, no matter the price. It is a predicament that prevents Morocco from proceeding to the necessary restructuring of these public companies to benefit from their dividends. These companies would not reap the profits until years from now,” he explained.

For Akesbi, the upgrading of state-owned enterprises is not realistic. He said, “The public sector is defined on the basis of political criteria. It is not conditioned by the logic of profitability, efficiency and wealth growth. This is the case for the high-speed rail project by the Moroccan National Railways Office, for example — a project that will never be profitable as it has a political dimension.”

The railway project was signed between Morocco and France following an official visit by former French President Nicolas Sarkozy to Morocco in 2007, after the failure of negotiations between Paris and Rabat over the kingdom's acquisition of French Rafale fighter jets. The start of the project’s works stirred protests demanding the cancellation of this rail project not needed by Morocco.

The government objective that privatizations would aim to increase the level of foreign direct investments is sought to improve Morocco's international competitiveness and supply the Moroccan stock with currency. An ambitious goal, of which Akesbi is skeptical. “Foreign investors generally make sure to render their investments profitable within 2 to 3 years after the acquisition of the assets. After that, they would resort to bank loans from local commercial banks. This was the case with CEO of Samir refinery Mohammed al Amoudi, who not only ruined the refinery industry in Morocco but led Moroccan banks into a huge financial chasm,” he said.

Addressing this concern, Elalamy said, “No distinction will be made between Moroccan and foreign investors in terms of future privatizations.”

One question remains, however. Will La Mamounia Hotel and Tahaddart power plant follow Samir refinery’s suit when the state disposes of its shares in these two companies?

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Found in: Economy and trade

Amine Belghazi is a freelance journalist and video producer based in Casablanca. He holds a master's degree in international finance.

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