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Update on Algeria; Assessing the Role of Credit in the Moroccan Economy – Jean R. AbiNader

Jean R. AbiNader
September 4, 2019

Jean R. AbiNader, Moroccan American Center

One of the potential calamities or blessings, depending on your point of view, of the continued stand-off between the Army and demonstrators in Algeria is its deepening economic stagnation. So far the Army has not demonstrated that it has the capacity to manage security, political, and economic challenges at the same time. It has continued with a non-aggressive security posture towards the demonstrators, which worries some that this focus is giving terrorists and militants along the southern and eastern borders time to strengthen their numbers and decide on new tactics.

Politically, the Army stresses the need for sooner rather than later steps that conform to the existing constitution to bring about elections. The demonstrators claim that this is a ruse that favors existing parties and politicians who have the name recognition to keep out independent candidates. This step is further compounded in that, unlike Sudan, there is no recognized leadership among the opposition that can negotiate a forward process on elections, political reforms, and returning Algeria to competent civilian rule.

Economically, some analysts see the current breakdown as an opportunity to remodel and refresh the economy away from its dependence on hydrocarbons and extensive corruption to a more transparent and diverse economy that takes advantage of the well-regarded human resources and youthful population to generate badly-needed jobs. Back to the same problem: who will be the leaders that make this happen given the political stalemate?

Another point that has recently come to surface is concern that the Army’s rounding up of business and political leaders with business interests for questioning regarding corruption has frozen economic activity. What is happening to state industries and allied private sector companies to continue some level of economic activity for the country? While Sonatrach continues to produce gas and oil to earn foreign income, even though several of its senior officials past and current having been detained, this is not consistent across state companies and the private sector.

A recent article in La Tribune Afrique reported that the government has created an ad-hoc inter-sectoral committee made up of technical experts to act as temporary administrators to monitor how companies are performing to ensure continued business activity. Headed by Prime Minister Noureddine Bedoui, the committee has proposed “qualified” directors to undertake a conservative management function, according to the Ministry of Finance.

“In the face of the identified social, economic, and financial risks, the situation of companies and projects affected by judicial decisions to freeze bank accounts requires the adoption of adequate safeguarding measures of the production tools and jobs in accordance with the law, “said the ministry.
The appointees will oversee financial flows, procurement, and marketing to ensure continuity and safeguard jobs. The effectiveness of this approach in moving companies into more competitive and transparent operations may well hinge on the actual discretionary responsibility that comes with the assignments.

Credit has always been a difficult subject in Morocco. In the past, there were three challenges: onerous collateral requirements or other institutional barriers, the perceived shame of having not succeeded in generating sufficient income, and the reliance of family and friends for start-up financing. These negative effects are particularly clear in the stunted growth of the SMEs sector that lack sufficient credit with suppliers, as well as being unable to provide credit to customers to survive.

This has especially impacted entrepreneurs and start-ups that lack sufficient funding for their initial operational phases and rely on other businesses (B2B) for loans. According to the article in La Tribune Afrique, “On average, companies are over-indebted (64% in bank credit and excluding B2B lending), which is above the level of countries with larger economies that have dynamic capital markets (for example, bank credit represents barely 20% of corporate debt in the United States, compared to more than 90% in Morocco). Companies have become the bankers of other companies, much to the chagrin of real bankers!”

Despite government efforts, banks continue to focus on real estate as the primary outlet for credit, and when that sector falters, as it is currently, resulting in non-performing loans or defaulted mortgages, banks are reluctant to give credit to others to maintain positive balance sheets. This is undercutting the government’s programs and those of international donors that are focused on building the capacity of SMEs to create jobs and diversify the economy. This requires a multidimensional network of resources, from the Central Bank to the banking sector, the employers represented by CGEM, the bankers (GPBM), and relevant government agencies and donors to have an integrated strategy for supporting SMEs and other ventures.

As the article points out, “Because the growing needs of the national economy, consumers, savers, and jobseekers, can only be satisfied by strong and steady growth.” Given Morocco’s low inflation rate, the cost of borrowing should be similarly low and manageable given available new business support programs. A dynamic domestic business sector not only provides jobs and diversification, it also builds confidence for international investors that supply chains and human resources that are part of the logic for investing in Morocco.

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