Leverage Morocco in an increasingly challenging MENA portfolio

In a region filled with volatility, severe economic pressures, and drastic reforms, Morocco stands out as a beacon of steadiness and reliability for investors. Economic growth is fairly predictable, the operating environment is among the easiest in North and West Africa, and despite the importance of the agriculture sector to GDP, the economy is quickly diversifying with growing industrial and services sectors.

Morocco diversified economy

Yes, Morocco is reliable, but to optimize growth in their businesses in 2018, executives need to overcome specific challenges in the market, rather than ride the wave of steady economic growth. The following are the key challenges MNCs executives should address for their 2018 planning:

  1. Making the case for more investments in your Morocco operations: For their 2018 planning, many EMEA and MENA executives are focused on bringing back profitability in Egypt or managing price pressures in the GCC. Because some executives perceive Morocco as smaller and less problematic than other MENA markets, they may dedicate fewer resources to the market, which can limit performance despite the economy’s steady growth. However, to capture Morocco’s opportunities, businesses need to dedicate more resources to the country and adapt to its business environment, which is characterized by relationship-based transactions, a fragmented distribution and retail landscape, and limited access to credit. Executives can emphasize Morocco’s emerging middle class and strategic location as a potential hub for North or West Africa to make the case for more investments.
  2. Preparing for exchange rate reform: The government is planning to move to a more flexible exchange rate regime in the near future, meaning the dirham will be able to fluctuate on a wider band, specifically 5%. The reform was delayed from its original timeline because of a decline in the country’s foreign reserves, and the new timeline for the reform has yet to be announced by Bank al-Maghrib. However, there are signposts MNCs can monitor to estimate when the reform may be implemented. The central bank wants to ensure sufficient foreign reserves, so an increase in the reserves close to levels seen in Q1 2017 may signal that the implementation is near. MNCs should also align on the impact of this reform once it is implemented. FSG expects up to 2.5% depreciation in the currency at the time of devaluation. Although the depreciation would be of low magnitude compared to other markets experiencing more volatile currency fluctuations, MNCs will still have to adjust their costs assumptions and consider their pricing and marketing strategies to address a short-term dampening in customer demand.
  3. Navigating government inefficiency: During the past year, the government has lost its momentum, taking months to form a government and delaying approval of the 2017 state budget until June. Tensions between political parties or lack of harmonization between ministries could result in delayed spending plans, making it difficult for MNCs to assess government demand. Additionally, a crackdown on corruption is resulting in dismissals of several ministers and officials in national and local governments, making it hard for MNCs to identify key officials and stakeholders in the government. To mitigate these risks to operations, MNCs should enhance their government engagement strategy by demonstrating support to the government’s long-term goals, and diligently monitor the market to stay aware of the latest shuffles.
  4. Aligning local teams and corporate on key risks: Since October 2016, the Rif region in northern Morocco has been marred with protests against poor living conditions and neglect from the central government. The protests in Rif have fluctuated in intensity, and solidarity protests have been organized in other major cities. The government has responded by cracking down on protestors, while also re-allocating funds from other regions to the Rif to accelerate development projects, though this has failed to quell the protests completely. Although the protests are unlikely to become widespread and violent, MNCs should still align on the impact on operations should social instability escalate. Consumer and investor confidence would dampen, and public funds would likely focus on security spending.

For more details on Morocco’s 12-month outlook and macroeconomic scenarios, FSG clients can access our Morocco Market Spotlight report here.

Not a client? You can purchase the 2018 EMEA Outlook from our online store. Contact us to learn more.

Leave a Reply

Your email address will not be published. Required fields are marked *