Interview: Karim Hajji
What are the challenges in developing the CSE into a veritable regional exchange?
KARIM HAJJI: One challenge is that regulations are not harmonised across the region. Regulators need to come together to ensure harmonisation of listing rules – both in North Africa and in French-speaking West Africa. To this end, we already have a memorandum of understanding (MoU) with the Tunis stock exchange. Another MoU is to be signed in March/April 2013 with the Regional Stock Exchange for West Africa. We want to work with them to create a common passport for companies listed in French-speaking West Africa and Morocco to ensure that approval by one regulator leads to automatic approval by the others. This would also help to improve liquidity across the region. We need to get the support from our own regulator, but given that all such bodies are part of the International Organisation of Securities Commissions, and thus adhere to the same standards, that should not be too difficult.
In what way can the stock exchange enable local companies to finance their development plans?
HAJJI: Around 90% of the economy today is financed through conventional financial means, i.e. through banks. This is a high percentage compared to Europe and the US, and is not sustainable as banks are limited by capital ratios – they all apply Basel II rules and are moving towards Basel III. Hence, they are limited in their lending capacity. Besides, there is a slower growth of deposits than the growth of loans, so there will be a limit on how much they can lend. In addition, Bank Al Maghrib now wants banks to become more discriminatory as to the customers they lend to. They effectively have to rate their customers, and differentiate in terms of risk exposure, creating different interest rates to be applied. The gap in yield between good and bad risk is not large enough, perhaps only 150 basis points, whereas it should be around 400 to 500 basis points. Hence, companies are not encouraged to raise money on the stock exchange, as they can get attractive rates from the banks. Once the difference between good and bad risk becomes more pronounced, companies will come to consider going to the exchange more often. Another advantage of listing on the exchange is that you do not need to give any collateral. Instead, you raise the funds, and the investors take the risk burden.
The CSE will become more successful once bank liquidity tightens, which is in fact what we are currently seeing. The exchange will then exist as an alternative for companies that cannot be serviced by the banks.
How can small and medium-sized enterprises (SMEs) be encouraged to list on the CSE?
HAJJI: We need to first recognise the specific needs and constraints faced by SME’s and address these in an appropriate fashion. Smaller firms do need the financing that the CSE can help them raise. At the same time, they are not always prepared to meet reporting requirements that currently exist on our exchange and do not have the kind of resources necessary to inform investors on a regular basis about company developments.
We can help by designing an SME board with lighter reporting requirements and listing rules, and helping brokers become liquidity providers specialised in SMEs. The CSE can also assist SME’s with training on matters such as investor relations and communications. Investors will of course be informed of the higher risks involved on the SME board than on the main board.
To what extent do external factors have an impact on the performance of the CSE?
HAJJI: Many Moroccan companies are exporting to Europe, which accounts for approximately 60% of our trade. Even so, our financial system has successfully weathered the subprime and sovereign debts crises due to our foreign exchange controls. If Casablanca is to play a bigger role globally, it will also be more exposed to the vagaries of international financial markets. At the same time, I would rather accept more volatility if that also means attracting greater foreign investment.
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