Business Brief: Morocco Reaches for Stronger Trade Ties with Russia; Islamic Financing Legislation Inches Forward; and African Development Bank Ups Support – Jean R. AbiNader

Jean R. AbiNader, MATIC
July 19, 2017

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Even though it’s summer, Morocco’s leaders are still actively promoting stronger economic relations globally. The African Development Bank extends additional support for industrial growth in the Kingdom; and the Chamber of Deputies authorizes expansion of Islamic financial services.

Morocco-Russia ties set to increase. Since King Mohammed VI visited with President Vladimir Putin in March 2016, talks aimed at increasing trade between the two countries have continued. Most recently, Minister of Foreign Affairs Nasser Bourita co-chaired the sixth Mixed Moroccan-Russian Commission for Economic, Scientific, and Technological Cooperation in Moscow. He noted that the King was “keen on boosting partnership with Russia on all levels, as it plays an important geo-political and economic role” that Morocco welcomes. It is now Russia’s second largest trading partner in the Arab world and Africa, with a total bilateral trade value of $2.5 billion.

Minister Bourita continued, “Morocco aspires to be Russia’s major Arab and African [trading] partner. We are ready to put all our efforts to reach that goal. The kingdom also wants Russia to be among the ten major trading partners of Morocco.” To this end, he identified several sectors for cooperation, including existing partnerships in agriculture and fishing, and opportunities in new technologies, pharmaceuticals, and the automotive sector. He also mentioned Morocco’s potential role as a gateway for Russian investors to West Africa.

In response, Alexander Tkachev, Russia’s agriculture minister seconded the importance of boosting agricultural trade and said that there are also plans to increase Russian tourists threefold, from 50,000 to 150,000 per year.  The Russian minister also affirmed that Moscow wants to boost its oil and gas exports to Morocco.

Islamic financial instruments approved. Since the approval of five joint ventures to provide Islamic financial instruments in Morocco, the government has been putting in place the various elements needed to make this a reality. The most recent steps, according to Morocco World News, have been the adoption of two decrees by the government council charged with implementation. The decrees cover what is termed “participatory finance,” i.e. financing in which the borrower and seller are both involved in the investment. One governs Sukuk, which are investment certificates; the other governs Takaful, which is insurance coverage. For those who are not familiar with Islamic finance principles, the basic tenet is that both parties share in the risk, with no one guaranteed benefit over the other (as in paying interest on a loan).

The provision on Sukuk provides for how the securitization of assets in an investment are to be certified and then placed with local investors, and under what conditions. The Takaful bill spells out the authority of the government agency responsible for Islamic finance to define the provisions of insurance contracts, types of insurance, and the terms and conditions. It empowers the Ministry of Finance and Economy to “set the criteria and terms of remuneration of the insurance and reinsurance undertaking for the management of the Takaful account, as well as the arrangements for distributing technical and financial surpluses between participants in the Takaful operations.” It is on the basis of this remuneration and distribution that business benefits both partners in the transaction.

The Minister of Finance and Economy, Mohamed Boussaid stated that the effective launching of participatory banks in the Moroccan financial sector will allow diversification of sources of financing, stimulating the collection of financial savings, particularly that of households, and promoting investment by those who currently avoid western style commercial banks.

African Development Bank (AfDB) gives more support for Morocco’s industrial drive. In launching the Support Program for the Acceleration of Industrialization in Morocco(PAAIM 1), the AfDB approved a $200 million loan aimed at consolidating the “foundations for sustainable and shared growth” as Morocco’s industrialization moves apace. The goal is to increase industry’s GDP share to 23% and create half a million jobs by 2020.

In addition, the Board also approved an APA risk-sharing agreement amounting to $50 million to the Central Popular Bank (BCP) to meet the demand for greater trade financing. This will be used to “hedge a portfolio of transactions up to $100 million supporting a cumulative value for $700 million in intra-African business operations over a three-year period.”

A story in North Africa Post noted that “According to the AfDB, the APA will meet the growing demand of African markets for trade finance in vital economic sectors such as agri-food, health, services, and industry. In addition, it will promote regional integration and financial sector development and help generate additional tax revenues for several African States. This agreement will support in particular Moroccan exporters as well as banks and SMEs on the continent.”

Trade and project financing is especially critical to Morocco’s economic growth. The article pointed out that “To date, 32 transactions amounting to USD 2.3 billion in commitments are registered under the partnership between Morocco and the African Development Bank Group. The projects concern the transport, energy, water, and sanitation and agricultural sectors.”

Pick a card, any card. Morocco’s Interbank Monetary Center (CMI) reported that in the first six months of 2017, credit card activity rose by more than 84% over the same period in 2016, 3 million vs. 1.6 million. The largest increases were registered by domestic users. Automated Teller Machines (ATMs) recorded a total of 134.5 million transactions from both national and international credit cards. Cards from Moroccan banks dominated transactions in the kingdom at 98.2 percent. Wow, they’re loving their plastic!!

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