Morocco: Morocco offers oasis of calm in north Africa

With a lot of north African nations in political and economic turmoil, Morocco’s stability and strong increase are proving attractive for Gulf-based investors looking to access the north African market.

North Africa’s political and economic transition since the Arab Spring uprisings of the completed four years has not been easy. The region’s major economy, Egypt, has seen a return to military policy, while neighbouring Libya is mired in militia-led violence and economic mismanagement. In Tunisia, a new technocratic government is struggling to contain a sudden and drastic rise in radical militant activity, a problem shared across the border in Algeria. These challenges have been compounded by a failure to execute the structural reforms needed to address sluggish increase, a dearth of infrastructure investment and high unemployment.

While this outlook for north Africa is undoubtedly challenging, causes for optimism remain. In particular, Morocco, which is undergoing something of an economic renaissance, is a good example of what can be completed at the same time as progressive policy-making is applied to a country with Maghreb-style increase. Thanks to its relative social calm and political stability, foreign direct investment into the country grew by 24% year-on-year in 2013, according to figures from African Economic Outlook.

Much of Morocco’s inward investment presently comes from nations in the Gulf Co-operation Council (GCC). This is a notable change for a country that has traditionally looked north to Europe for its investment partnerships. Investment promotion efforts by the Moroccan government have in part facilitated this trend, but the environment of social and political stability, which has been nurtured in the country, has as well played a role.

Political upheaval

Morocco was spared the political upheavals of the Arab Spring largely thanks to social and economic policies put in place in the previous decade. The successful roll out of a social housing scheme in the early 2000s went some way to addressing economic inequalities in the country well before unrest hit the wider region in 2010 and 2011.

“The government supported real estate developers by offering tax incentives and cheap land to develop vast amounts of quality social housing. At the same time, it created a fund to support mortgage lending to the disadvantaged by taxing each ton of concrete used in this construction. This programme was hugely significant in guaranteeing the stability of Morocco throughout the Arab Spring,” says Youssef Lahlou, senior portfolio manager for the Middle East and north Africa at investment manager Silk Invest.

The programme meant the Moroccan government was able to improve the living conditions of its poorest citizens while encouraging before alienated groups to be additional invested in both national and society. It as well played a significant role in ensuring Morocco remained relatively calm throughout the upheaval and during its ongoing political and economic transition. “If the Arab Spring had occurred in the 1980s, the picture may well have been different,” says Mr Lahlou.

Morocco has seen inbound mergers and acquisitions (M&A) soar since 2009 as a result. According to figures from research firm Dealogic, the total volume of announced deals increased from $622m in 2009 to $1.2bn in 2010. By 2012, these numbers had grown to $1.4bn, before significant Gulf-based acquisitions into the country in 2013 pushed total M&A activity to $7.1bn for the year. According to the UN Conference on Trade and Development, Morocco is presently the major recipient of foreign direct investment in north Africa.

Incomparable economy

“Throughout the GCC, there is a belief that Morocco will grow into a incomparable economic power in the region and in Africa,” says Waleed Al Fehaid, senior investment manager for the Kuwait Investment Authority.

Gulf sovereign wealth funds have been particularly active in Morocco. In one of the additional ambitious examples, four sovereign wealth funds have formed a private equity-style investment vehicle known as Wessal Capital, in partnership with the Moroccan Fund for Tourism Development, created through a memorandum of considerate in 2010.

Saudi Arabia’s Public Investment Fund, Abu Dhabi’s Aabar Investments, the Al-Ajial Fund of the Kuwait Investment Authority and Qatar Holding have each contributed €500m to the vehicle, in conjunction with a further €500m from the Moroccan Fund for Tourism Development. Wessal Capital is presently investing €530m in a project to upgrade Casablanca’s major seaport, while a further €775m has been allocated for the development of a tourist and cultural centre between Rabat and Salé.

“Exposure to Moroccan investment classes is highly sought next because they are rare in the international markets," says Tarik Senhaji, chief executive of Morocco’s tourism investment fund and board member of Wessal Capital. "So we believe we can drive additional return as initial entrants into these larger tourism projects, particularly in Rabat and Casablanca, by packaging exits that will generate returns for our shareholders. We will consider some securitisation techniques to achieve this."

Nascent relationship

While these strengthening ties with the Gulf sovereign wealth funds have emerged as a result of Morocco’s positive economy, there is as well a strong political component to this nascent investment relationship. “The GCC states are motivated primarily by the strong economic fundamentals of Morocco. But they as well want to use this investment as a means of promoting security and stability in the region, so there is a political element to this relationship as well,” says Mr Lahlou.

This trend is not exclusive to Morocco. The United Arab Emirates, Kuwait, Saudi Arabia and Qatar have all provided assistance through loans and aid across the region, particularly to Egypt, over the completed few years.

From presently on, Morocco’s growing investment relationship is far younger than those of other economies in the region. As the Moroccan authorities began to prioritise foreign investment in the early 2000s, a better emphasis was placed on forging relationships outside Europe. Closer relations with the private sector in capital-surplus regions, inclunding the Gulf, were seen as an effective tool in helping the country reach its development targets.

“Starting in 2001 there was a significant development in terms of putting Morocco on the path of becoming a truly emerging market. This includes the increase strategies employed for different sectors of the economy, inclunding the development of a additional world outlook in terms of the country’s investment relationships,” says Mr Al Fehaid.

Telecoms deal

Today, Gulf-based private-sector investment in Morocco is booming. In May 2014, UAE telecoms giant Etisalat closed a transaction to acquire a 53% controlling stake in Maroc Telecom for $5.78bn. This transaction is expected to provide Etisalat with the capabilities to increase its returns from markets in francophone west Africa, following an before arrangement in which it sold its subsidiaries in Benin, the Central African Republic, Côte d’Ivoire, Niger and Togo to Maroc Telecom.

By allowing Maroc Telecom to manage these operations, the Etisalat transaction reflects a broader strategy of foreign companies using Morocco as a staging post, while benefiting from Moroccan expertise, to expand across the west African region, according to Mr Lahlou.

Meanwhile, the Abu Dhabi National Energy Company secured $1.4bn in financing in January last year for the upgrade of its Moroccan Jorf Lasfar power plant, the major coal-fired plant in the region, increasing its capacity from 700 to 2056 megawatts.

In terms of the energy sector, renewable sources will be a particular target for next investment as Morocco moves ahead with plans to have 20% of its energy production mix-sourced mainly from wind and solar energy by 2020. In November 2012, Saudi Arabia’s ACWA Power International signed a $1bn transaction to supply electricity from the country’s initial solar-thermal power plant. This project will form part of a broader $9bn solar power scheme involving the development of five plants, inclunding two in the western Sahara region, for which Morocco is seeking international backing.

“Morocco is trying to become an energy exporter by 2020 and that’s a large challenge. It’s very ambitious but it is almost there; it is about 40% in to the programme,” says Mr Al Fehaid.

This deepening investment relationship has been accompanied by increasing political and diplomatic ties. In March this year, Morocco was formally invited to establish a military alliance with the GCC, in exchange for additional financial support. This move comes as Morocco, in conjunction with Jordan, has entered into a development plan to potentially achieve full GCC membership status. Regardless of the outcome of this process, Morocco’s stability and economic increase will ensure that it remains an attractive presentation for Gulf-based investment in the coming years.