Interview: Younes Benjelloun
What has been the impact of Morocco’s reclassification as a frontier market by MSCI?
YOUNES BENJELLOUN: The overall market response to Morocco’s reclassification has been positive. Previously, the country accounted for just 0.1% of the MSCI Emerging Markets Index, as only Maroc Telecom, Attijariwafa bank and property firm Addoha were eligible for the index. Morocco was invisible to investors’ radar. However, once Qatar and the UAE are upgraded to emerging market status from May 2014, Morocco will account for 8% in the frontier index and will be unmissable.
So far we have not seen any significant investment inflows, but there is a rising interest amongst investors for frontier markets. In 2014, worldwide flows of investment to frontier markets increased by 40%, mostly geared towards Africa. Nevertheless, these flows are still minor in comparison with the volume of investments existing in the emerging index, which consists mostly of the BRIC countries (Brazil, Russia, India and China).
Given the low volumes in question, the slowdown in the US buyback programme should not have a significant impact on the flow of investments from emerging to frontier markets, or to Morocco in particular. With the reclassification, the sole impediment for Morocco is in the mismatch between, on the one hand, solid macroeconomic signals showing Morocco as an emerging economy with a modernising industrial base and developing manufacturing sector, and, on the other hand, the loss of prestige associated with the reclassification of the country onto a non-emerging index.
To what extent can an increased benchmark encourage foreign investment?
BENJELLOUN: Morocco still has low exposure to foreign investment, as international holdings on the Casablanca Stock Exchange (CSE) account for less than 5% of total capitalisation. However, with the reclassification, six other companies could be listed in the MSCI Frontier Markets Index: Banque Populaire, BMCE Bank, Crédit Immobilier et Hôtelier, Alliances, Compagnie Générale Immobilière and Managem. This extended benchmark will help Morocco gain visibility and energise its capital market. The number of listed companies is generally an important factor as it diversifies options for investment and encourages activity.
Furthermore, I believe the CSE, which has suffered from the knock-on effects of the eurozone crisis and a lack of foreign investors, ended a downward cycle last year with a new initial public offering (IPO) initiated by Morocco’s Jorf Lasfar Energy Company. The offering is the first in Morocco since January 2012, and there are several signs of a new wave of IPOs to be made in 2014. I believe 2014 can be a year of rebound for the CSE and all the conditions are in place for a sharp increase in terms of liquidity along with a gradual upturn in stock prices. It is important for the bourse to reach a critical size so as to ensure that stock prices reflect how dynamic the Moroccan economy is.
What additional measures should be implemented to foster more foreign direct investment?
BENJELLOUN: Morocco is putting in place several strategies to boost its capital markets through a revision of the regulatory framework pertaining to fiscal incentives and transparency. A new law is currently under way in order to diversify the financial instruments available to both issuers and investors, and this should result in the authorisation of securities lending and derivative products in 2014. The diversification of financial tools is considered as a necessary step to revive and help the CSE recover higher trading volumes. Foreign investment has long been at a very low level and so far most of these investments have consisted of MENA funds, Africa funds and thematic funds.
Since Morocco has never been a very volatile market, the country has been sheltered from hot money flows. The CSE has not yet reached a level of sufficient liquidity to cause concerns about inflows of speculative funds that move around markets with high volumes, coming in and going out of these countries quickly.
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