1. Morocco IslamicFinance 2014:UnlockingtheKingdomsPotentialA JOINT INITIATIVE OF:A Member ofExclusiveANALYSIS | TheRole of IDB Groupin Poverty Allevia-tionand ReducingUnemployment inMorocco P49ANALYSIS | MoroccosYouth: Misfortune orBad Policies P54Exclusive Interview:Mohammed Boulif,Al Maali ManagingPartner P18Exclusive Interview:Houda Chafil,Managing Director,Maghreb SecuritizationP137Exclusive Interview:Karim Hajji,CEO, CasablancaStock ExchangeP162STRATEGIC PARTNER:ALMAALI

2. IslamicYour gateway to Islamic markets and investmentsA revolution in the way you access information on Islamic Finance is now here,all in one place.Zawya Islamic makes Shariah-compliant investments, decision making and networking with the Islamicmarkets easier with access to: Fatawa, Standards, Regulations, Legal Documentation and Product Guidance Notes intelligentlyconnected with scholars and instruments Global Sukuk, Islamic Funds, and Shariah-compliant Equities Islamic Finance News, Research, Money Markets, Indices, & Benchmark Rates The Islamic Finance Development Indicator and Islamic Finance Gateway CommunityFor more information, contact: membership.zawya@thomsonreuters.comzawya.com 2013 Thomson Reuters. 9568510 09/13 and the Kinesis logo are trademarks of Thomson Reuters. 3. Morocco Islamic FinanceCountry Report 2014 presentsthe necessary confluence ofeconomic, financial and politicalfundamentals that are comingtogether in a kingdom ready toembrace Islamic finance.In Arabic, Morocco is called Al Maghreb, the western-mostland in the northwestern region of the maghreb(region denoted in lower case). Yet this dominantArab complexion of Morocco belies the countrys andindeed the entire maghreb regions richly taperedhistory and heritage long before lines in the sand weredrawn to separate the modern nation states of Algeria,Morocco and Tunisia.Historically, the maghreb as a region is home to thenative diverse Berbers who pre-date the arrival of theArabs in the 7th century. Between the 7th and the16th centuries the region was ruled by different suc-cessiveBerber and Arab dynasties. During this periodthe maghreb reached a high during the 10th to the13th centuries under the Arab Fatimid caliphate andthen under the Islamic Berber dynasties Almoravidsand Almohads. The Almoravids founded Marrakesh in1062, and extended their empire beyond present-dayNorth Africa to parts of modern-day Spain, Portugal,France, Gibraltar and Mauritania. In the mid-12thcentury the Almohads overtook the Almoravids, andruled until their decline in the mid-13th century. Lesserand smaller Berber rule reigned until the middle ofthe 16th century when Arab dynasties returned firstwith the Saadis and then with the Alaouites in the17th century. The maghreb fell under the influence ofThis report gives youthe economic, financialand political funda-mentalsyou need to navigateinvestment decisions for Mor-roco.More exclusively, this re-portalso presents an overviewof the potential for the growthand development of Islamicfinance based on four studies:a national survey focused onretail Islamic finance, anotherfocused on SMEs, interviewswith key industry stakeholders,and an assessment of Islamicfinance investment scenarios.European powers in the early 19th century, but theAlaouites have persisted, and their position preservedthrough the five decades of European rule from theearly to the mid-20th century, even if they did not havesignificant power.Today, the maghreb as an entity is embodied in theArab Maghreb Union, which is a trade agreementsigned in 1989 that envisions an economic and futurepolitical unity for Algeria, Libya, Mauritania, Moroccoand Tunisia. The state of the Union, however, isinactive, fraught as it is with political disputes. 4. ABOUTTHOMSON REUTERSWe are the leading source of intelligent information for the worldsbusinesses and professionals, providing customers with competitiveadvantage. Intelligent information is a unique synthesis of human intel-ligence,industry expertise and innovative technology that providesdecision-makers with the knowledge to act, enabling them to make bet-terdecisions faster. We deliver this must-have insight to the financialand risk, legal, tax and accounting, intellectual property and science andmedia markets, powered by the worlds most trusted news organization.KNOWLEDGE SOLUTIONS POWERING DECISION MAKINGThomson Reuters is an integrated knowledge services provider that assiststhe Islamic Finance industry through providing solutions that enhancetransparency, clarity and accessibility of Islamic Finance to the globalaudience of businesses and professionals. We are proud to have been atthe heart of Islamic banking since the first commercial Islamic bank waslaunched in 1975.Our knowledge solutions help you gain clarity and transparency in therapidly emerging Islamic finance industry by providing you with dataservices, research products and consulting services.DATA SERVICESThomson Reuters Eikon and Zawya productsprovide access to a full spectrum of all relevantIslamic asset classes and content sets to give us-ersthe best of class research capabilities.RESEARCHBuilt on the back of the worlds most extensivedata capabilities, Thomson Reuters leveragesits global network to provide primary source in-telligenceon markets, industries and institutionsrelevant to Islamic finance.CONSULTINGThomson Reuters can provide bespoke serviceharnessing our global knowledge network com-binedwith our deep expertise in Islamic finance.ISLAMIC FINANCE GATEWAY COMMUNITYIslamic Finance Gateway (IFG) Community is theone dedicated knowledge Gateway for profes-sionalsfrom across different countries to convergeand interact on industry issues that matter inorder to generate actionable outcomes to shapeand speed up the industrys growth.To join the community:online.thomsonreuters.com/ifgConnect with Us:FOR MORE INFORMATION ABOUT THE COMMUNITY REACH US AT:Ifg.community@thomsonreuters.comFOR RESEARCH AND CONSULTING:Ifgeditor@thomsonreuters.comFOR SALES AND MARKETING:Mohammed.alsharaf@thomsonreuters.comFOR ALL OTHER ENQUIRES:Islamic.finance@thomsonreuters.com 5. A Member of 6. 7ExclusiveInterviews2014 ISLAMIC FINANCE COUNTRY REPORT | MoroccoCONTENTSForeword 9ACKNOWLEDGEMENTS 12STUDY PURPOSE, SCOPE & APPROACH 13EXCLUSIVE TO THIS REPORT 15MOROCCO AT A GLANCE 27MACRO -ECONOMIC ENVIRONMENT 33FINANCIAL MARKET LANDSCAPE & TRENDS 61ISLAMIC FINANCE DEMAND & POTENTIAL 93ISLAMIC FINANCE DEVELOPMENTAND RECENT ACTIVITIES 125ISLAMIC FINANCE INFRASTRUCTURE 155ISLAMIC FINANCE SECTOR INVESTMENTCONSIDERATIONS & KEY CHALENGES 165STRATEGIC ROADMAP FORISLAMIC FINANCE INDUSTRY DEVELOPMENT 173APPENDIX 177contributorS 183ANALYSIS | The Role of IDB Group inPoverty Alleviation and ReducingUnemployment in Moroccoby Dr. Ismaeel Ibrahim Naiya (ERPD) &Dr. Rami Abdelkafi (CTY), IRTIANALYSIS | Moroccos Youth: Misfortune or Bad Policiesby Lahcen ACHY, Professor of Economics(INSEA,Morocco) and Senior Associate (CarnegieMiddle East Center)Exclusive Interview withMohammed BoulifAl Maali Managing PartnerExclusive Interview withHouda ChafilManaging Director at Maghreb Securitization,Maghreb Titrisation, Groupe CDGExclusive Interview with Karim HajjiGeneral Director and CEO, Casablanca StockExchangeLhassane BenhalimaDeputy Head, Banking Supervision,Bank Al-MaghribLaidi El WardiGeneral Director, Retail Banking, Banque PopulaireMinistry of FinanceMohamed MaaroufDirector, Participatory Development Finance,Banque marocaine du commerce extrieur(BMCE)Abderrahmane LahlouIndependent expert who has been involved withthe development of Islamic finance in Moroccofrom the late 1980sMohammed AlKawrariAwqaf President, Ministry of Endowments andIslamic affairs495418137162698184104121142 7. Blue window on pastel wall. 8. FOREWORDSThe Morocco Islamic Finance Country Report is part of a series designed toprovide key insights and analysis on the development of emerging or frontierIslamic finance markets. The Reports objectives are aligned with those ofThomson Reuters Islamic Finance Gateway to provide accurate information andinsightful analysis and to promote transparency and access to information on thebroader Islamic Economy.The Islamic finance industry is developing unevenly across a number of countries,but one point is clear, perhaps more than at any other time in the industrys develop-ment,that appropriate regulatory measures and frameworks are needed to builda dynamic infrastructure to support both the conventional and Islamic financialsystems within a countrys borders, and contribute to stronger supply streams toattract demand in under-penetrated markets.Driven by the repercussions of the 2008 financial crisis and the shockwaves of theArab Spring, countries in North Africa have started to strengthen the core pillarsthat support the growth of a holistic Islamic finance industry. Tunisia, Egypt andLibya all have plans for the development of their respective Islamic finance indus-tries,with Libya aiming to completely restructure its financial sector in line withIslamic principles starting from 2015.Morocco had introduced Islamic or alternative financial products as they areknown locally,on a small scale in 2007. The country is now putting in placenecessary legislative frameworks that will allow for the establishment of participa-torybanks, kickstart sukuk issuance, build an Islamic capital market, and start atakaful sector. Investors are scrambling to participate in what appears to be theimminent growth of a potentially vast, relatively greenfield sector in a countryhungry for funding and financing, particularly for infrastructure development as wellas the overall inclusive prosperity of the nation.Beyond economic and financial fundamentals, this Report provides a spectrum ofkey insights and perspectives of government and private sector stakeholders withrespect to the unique opportunities and challenges faced by Moroccos new Islamicfinance sector. These are combined with retail and SME surveys to present Islamicfinance investment opportunities and scenarios for Moroccos real economy.We hope that this Report will help you navigate your way to meaningful and suc-cessfulinvestments in the Kingdom of Morocco.Dr. Sayd FarookGlobal Head Islamic Capital Markets, Thomson Reuters92014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 9. The Islamic Finance CountryReports continue to focus oncountries where Islamic Financehas a great potential to develop. The thirdedition of this report is dedicated to theKingdom of Morocco, which across historyhas been one of the most important gatesof civilizational interaction between theOccident and the Orient.Endowed with a strategic location inNorthwest Africa at the confluence of theAtlantic Ocean and the Mediterranean,Morocco is one of the best performingcountries in the MENA region in termsof economic growth with an average of4.7% since 2000. The country offers astable and business-friendly environ-mentand is engaged in an ambitiousmultidimensional economic programthat focuses on the enhancement of thecompetitiveness of its economy and therealization of an inclusive and sustain-ablesocio-economic development.It is therefore not surprising that Moroccolaunched the Casablanca Finance City(CFC) to be a regional financial hub; itis endowed with an attractive environ-mentcapable of attracting internationalinvestors. The Islamic Financial ServicesIndustry (IFSI), with total assets estimatedat USD 1.6 trillion in 2012 and expected toreach USD 6.5 trillion in 2020, naturallyconstitutes one of the engines which canfavour the acceleration of the CFCs de-velopment,on condition that the industryis well anchored in the country. And thepremises of the emergence of an IFSI inMorocco are not lacking. The kingdomenjoys: i) strong government support forthe development of Islamic finance assignaled by recent advances in the legalframework of the Islamic financial system,ii) high interest from the population foralternative financial products offered bythe IFSI, iii) interest from the countrysconventional banks in opening specialisedwindows for alternative products.It is not surprising that the IslamicResearch and Training Institute (IRTI)have accorded a high priority to theproduction of the Islamic FinanceCountry Reports (IFCR). Indeed, it isin line with the institutes strategy tocontribute to the development of theIslamic finance services industry in OICmember countries. With our missionTo inspire and deliver cutting edgeresearch, capacity building, advisoryand information services in the area ofIslamic economics and finance IRTIis ready to extend our support to theMoroccan public and private institutionsin their efforts to improve their capaci-tiesin Islamic Economics and Finance,to offer high level advisory services toconventional banks who wish to openparticipatory banking windows andrelated services, and to advise privatefirms looking to raise funds through theissuance of sukuk.It gives me great pleasure to invite youto discover the Morocco Islamic FinanceCountry Report 2014, which has beenproduced with professional rigour, andwhich benefits from diverse perspectivesand opinions from the primary stakehold-ersactive in Islamic finance in Morocco.Enjoy the report and do not hesitate toshare your opinion!Professor Dr. Mohamad Azmi OmarDirector General, IRTI10Forewords 10. The Kingdom of Morocco firstintroduced Islamic financialproducts and services, or alterna-tivefinancial solutions as they are calledin the country, through conventionalfinancial institutions at the national levelin 2007. In 2013, the country approvedthe amendment to the securitization billto allow for the issuance of sukuk andbenefit from the potential of the Islamiccapital market.Enhancing the related ecosystem andenvironment has been a necessarycorollary to recent initiatives and theKingdom has been gradually workingto develop an appropriate legal andregulatory framework for participatorybanks, the term used in the Kingdom forIslamic banks. The Moroccan parliamentis now expected to approve the bill onparticipatory banking anytime in 2014.To follow, the regulatory framework fortakaful is expected to be issued towardsthe end of 2014. These and other relateddevelopments are clearly signaling thedawn of a new horizon for Islamic financein Morocco.The Morocco Islamic Finance CountryReport 2014 delivers the recent, mostrelevant, high impact insights on Islamicfinance investment and expansion op-portunitiesin Morocco, and providesa comprehensive overview of thelegal and regulatory requirements forIslamic financial services. It providesan accurate pulse of retail consumers,corporate customers and the govern-mentregulatory roadmap, all of whichwe believe will be very meaningful forall interested stakeholders.We are confident this Report will bringuseful insights to the stakeholders thathave interest in this promising market,from inside or outside the Kingdom. Itis a timely contribution which highlightsthe opportunities as well as the potentialchallenges interested parties may facewhile tapping into this market.The Report is one of a series of Islamicfinance country reports and marketanalyses produced collaboratively byCIBAFI, IRTI and Thomson Reuters.The series evaluates the appetite andpotential for Islamic financial servicesas well as the economic and financialfundamentals for the new frontiers andemerging markets for Islamic finance.They provide practical insights for local,regional, and international investors andall stakeholders, especially those inter-estedto offer Islamic financial services,as well as those interested in benefitingfrom the same services.As the global umbrella of Islamic banksand financial institutions, CIBAFI iscommitted to addressing the needsand expectations of our members andstakeholders, in effectively contributingto the development and dissemination ofIslamic finance information, awarenessand analysis. In partnership with IRTIand Thomson Reuters we will continueto deliver pioneering reports such as thisin order to galvanise the development ofIslamic finance globally.Mr. Abdelilah BelatikCIBAFI Secretary General112014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 11. ACKNOWLEDGEMENTSThe Morocco 2014 Islamic Finance Country Report ispart of the series of reports produced in partnershipbetween Thomson Reuters, the General Council forIslamic Banks and Financial Institutions (CIBAFI) and theIslamic Research and Training Institute (IRTI).The goals and motivations of this report follow in the same vein as the previous country reports - toserve the needs of the Islamic finance industry and to provide financial institutions, customers andother stakeholders with high quality intelligence and insights into the Islamic finance opportunityin Morocco in order to help all parties make informed decisions. This report reflects the efforts of abroad and diverse group of experts.The authors are grateful to Abderrahman Elglaoui, Director of the Islamic Development Bank for theWest Africa Region for facilitating our interviews and meetings in Morocco.We are also grateful to Dr. Abusif Ghnyah and Najat Abqari of the Islamic Development Bank, fortheir invaluable support during our field trip to Morocco.We would also like to thank Islamic Finance Advisory & Assurance Services IFAAS, a leading interna-tionalsharia advisory firm, for sharing the information and data of their Morocco Consumer SurveyDr. Sayd FarookGlobal Head Islamic Capital MarketsThomson ReutersMr. Abdelilah BelatikSecretary GeneralCIBAFIDr. Mohamad Azmi OmarDirector GeneralIRTIexecuted in 2012.Last but not least, we would like to express our appreciation to Thomson Reuters management, par-ticularlyNadim Najjar (Interim Managing Director, GGO Middle East, Africa and Russia) for his trustin and commitment to our work.Sincerely12Acknowledgements 12. STUDY PURPOSE, SCOPE & APPROACHThe MOROCCO 2014 ISLAMIC FINANCE COUNTRYREPORT is part of a series of Islamic finance countryreports and market analyses to evaluate the situationand appetite for Islamic finance in the Organisation forIslamic Cooperation (OIC) countries that are developingor engaged in Islamic finance. The reports are distrib-utedfree of charge for the benefit of the industry andother interested parties. These Islamic finance countryreports are different from the regular country reportsavailable in the market, since they focus on the invest-mentand development opportunities of Islamic finance.The MOROCCO 2014 ISLAMIC FINANCE COUNTRY REPORT provides practical insights forlocal, regional, and international investors to offer Islamic financial services. These insightsbetter inform the investor of the Islamic finance potential for emerging and untapped marketsvis--vis the retail and corporate markets. The reports also provide an assessment of the devel-opingregulatory environment.The objectives of the Morocco Islamic Finance Country Report are:1. To provide the most relevant, high-impact insights on emerging Islamic finance investment andexpansion opportunities in Morocco2. To provide a comprehensive overview of relevant legal and regulatory requirements or trends tothe offering of Islamic financial services in Morocco3. To provide an accurate pulse of retail consumers, corporate customers and government regula-toryroad map4. To be a pioneering report in galvanizing the development of the Islamic finance space inthe country132014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 13. EXCLUSIVESurvey with focus on retail Islamic finance 16SME survey on use of financial services 17Key insights from industry stakeholders 20Islamic finance investment scenarios 24and industry developmentArabesque interior, Meknes, Morocco 14. 15EXCLUSIVE TO THIS REPORTMorocco has not taken to modern Islamic finance quiteas readily as its Arab cousins in the Gulf despite thekingdoms prominence and deep roots in Islamic civilisa-tion2014 ISLAMIC FINANCE COUNTRY REPORT | Moroccosince the 7th century.The introduction of Islamic finance in Moroccohas been start-stop at best; the first attempt atintroducing Islamic financial products, or alter-nativefinancial products as they are called inthe country, was in 1991 when Wafa Bank tookthe lead but the banks offering of alternativefinancial products was short-lived due to legalissues. In 2007 there was a more concertednational-level introduction of sharia-compliantfinancial products within conventional financialinstitutions but this has not made significantimpact. Following these first experiments andincreasing investment opportunities particu-larlyfrom Gulf countries and the plans for theCasablanca Finance City to propel Morocco as aregional financial hub, the kingdom is now readyto more fully embrace Islamic finance.Morocco is viewed as an exciting emergingIslamic finance market with vast opportunitiesfor investment, and the countrys current govern-mentis keen to develop the industry both for itscitizens as well as to attract foreign investment.Islamic finance in Morocco is set to take rootand bloom with the establishment of Islamicbanks, or participatory banks as they are calledlocally, and other Islamic financial institutionsthat will come onto the financial landscape onceall relevant legislation is put in place. As of thiswriting a bill regulating participatory banks andsukuk has been adopted by government, pavingthe way for a final vote by parliament. Approvalof the law is expected before the end of 2014.The draft laws for takaful and mutual funds areset to follow. 15. 1. SURVEY WITH FOCUS ON RETAILISLAMIC FINANCEThis Report presents a national retail financial servicesusage and perception survey conducted by the IslamicFinance Advisory and Assurance Services (IFAAS) inJune 2012. The survey assessed the demand for alter-nativefinancial products in the Moroccan retail marketfrom a weighted sample of 813 individuals aged 18to 55 from a variety of socio-economic backgroundsfrom cities and surrounding rural municipalities ofCasablanca, Rabat, Marrakech, Agadir, Fes, Tangier andOujda. A significant 79% of respondents said they wouldbe very interested in participatory banking servicesonce available.Based on the survey findings and the experience of other markets that have launched Islamicbanking, we estimate that Moroccan participatory banking assets could potentially reach between3% and 5% of total banking assets by 2018. This could mean participatory banking assets ofbetween US$ 5.2 billion and US$ 8.6 billion, generating a profit pool of between US$ 67 millionand US$ 112 million for Islamic finance providers.Our projections are based on two primary assumptions: full government support, and increas-ingknowledge and awareness of Islamic finance products and services to highlight the Islamicfinance proposition.16EXCLUSIVE TO THIS REPORT 16. 2. SME SURVEY ON USE OFFINANCIAL SERVICESSMEs are a major part of the Moroccan economy. Theyaccount for more than 95% of the total number ofoperating enterprises, contributing over 30% to GDPand 48% to total employment1. SMEs struggle withaccess to capital, and Islamic financial institutions couldfill this gap.Almost half of the SMEs we surveyed did not use any type of financial services in the last five yearsand those who did use financial services mainly depended on financial institutions for corporatefinancing needs. 98.2% of SMEs surveyed do not bank Islamically and when asked if there wasinterest to consider participatory banking, 71% answered maybe with 22% saying yes and a low7% saying no. How would Islamic financial institutions win over SMEs? The survey found that ahigh percentage 85% of SMEs consider low rates and fees the most important factor whenusing financial services and so it was unsurprising that a high 64% said the most important factorfor them to consider participatory banking is competitive rates.1 EBRD strategy doc/ European Bank for Reconstruction and Development 2012172014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 17. Exclusive Interview with MohammedBoulif, Al Maali Managing PartnerWhat is your opinion of the evolution ofthe Moroccan Islamic finance industrysince 2007?Morocco is a recent entrant to the Islamicfinance industry and has chosen a specificpath that is moderate and progressive. Thisprudent approach started with the launchof Alternative Finance in 2007 and wasconfirmed by the Participative Banking Actchapter (which is being considered by par-liamentas of this interview) that is incorporated into the generalBanking Act. This is also true for the bill on takaful. We believe thatthis gradual strategy aims at maintaining stability of the financialsector of the country. However, this incremental strategy for the devel-opmentof the industry should be embedded in a clear 5- or 10-yearstrategic plan driven by a clear vision. This would give strong signalsto the market, especially to investors, of Moroccos next steps forward.What will be the key challenges for Islamic finance in Morocco?We believe that the most critical challenge is to get all stakehold-ers regulators, banks, financial institutions, operators, academia,and others on board. We must stop hesitating as we did during theAlternative products phase.The second challenge is obviously the need for a strong regulatory andcomprehensive framework that will ensure legal security for all stake-holdersand provide tax neutrality for Islamic financial instruments.Operational challenges are more about how to meet the specific re-quirementsof operators in this industry, and challenges will includeliquidity management, central bank refinancing scheme, and settingup an appropriate accounting and reporting framework.The sharia governance system seems to be on the right path; it is setby the National Council of Sharia Scholars, a move which will stream-linethe harmonisation process at the national level.Market and customer awareness needs the engagement of all stake-holders.Indeed, though the appetite for Islamic financial products ishigh among the population, most of the consumers are not knowl-edgeableor correctly informed about Islamic financial products whichcan harm the penetration process and again repeat the same misfor-tunesfaced earlier for Alternative products.What is the most appropriate model for Morocco to adopt tobenefit from the development of the Islamic finance industry?Morocco should develop a proper model that will fit its economicand social environment. We think that an intermediary modelALMAALI18EXCLUSIVE TO THIS REPORT 18. between the one in the Middle East, which ishighly capitalistic, and the Malaysian model,which is based too much on debt instruments,would be the most appropriate.The Moroccan model should be developed withmajor innovations and diversification in terms ofproducts that must meet the market demand,for example:1. A financial inclusion program mainly for poorand rural populations is important. This canbe achieved through the development ofIslamic microfinance and would also benefitmicro and small businesses.2. The large agricultural sector needs instru-mentssuch as salam and mugharasa3. SMEs need strong support through profit-sharingtools such as mudaraba andmusharaka,4. Home financing could be bolstered throughistisna and diminishing musharaka5. For industrial and infrastructure projects, theuse of sukuk instruments will help the countryattract foreign and new sources of funding.Many surveys have highlighted the willingnessof Moroccan retail customers to adopt Islamicfinancial products. Do you think these inten-tionswill lead to a significant change in thelocal financial industry landscape?A significant switch to or take-up of Islamicfinancial services has not happened in themore than 50 countries where Islamic financialservices exist, especially within prudent, strongand stable financial systems. However, weshould note that the Moroccan financial systemis developing dynamically, and it is characterisedby diversification which will make the marketa friendly environment for product innovation,including Islamic finance. We believe that likeany new industry, there will be a wait and seephase in Morocco, which may take time.Could Morocco be positioned as the regionalfinancial hub for Islamic finance?It goes without saying that Morocco has thepotential to become the Islamic finance hub innorthern and western Africa, in the footsteps ofother hubs such as Malaysia, UK and Bahrain.First, the country is blessed with a unique locationat the crossroads between the Middle East,Europe and Africa and with strong economic andpolitical relationships with these regions.Furthermore, Morocco has an enviable politicalstability, a vibrant economy and strong religiousleadership in the region. Finally, many economicsectors, especially the financial industry, haveembraced a regional strategy and have becomekey players in Africa.Consequently, Morocco could become animportant player channeling Islamic financeinvestments from GCC countries to the region,which is in line with the Casablanca FinanceCity project. In order to do so, and as mentionedearlier, a strong strategy within a long-termvision should be clearly set and communicatedto all stakeholders. For example, we cannotimagine a regional leadership without an in-stitutionalIslamic finance infrastructure thatharmonizes standards and practices, tax neu-tralityor without qualified human resources. Butdefinitely Morocco is well positioned to capturethis opportunity.Mohammed BOULIFMohamed Boulif is Managing Partnerat Al Maali Consulting Group. He heldseveral senior positions in interna-tionalcompanies, and was Group asDirector of Finance for Dar Al MaalAl Islami for 10 years where he was incharge of planning, coordination andsupervision of financial and account-ingactivities for two entities in bankingand takaful in Luxembourg. Mr Boulifhas extensive international experi-encein documenting and developingIslamic financial products (Legal,Sharia and Operational aspects),Audit, Governance and AccountingNorms for Islamic financial institutions.He is frequently invited as a speakerat international Islamic finance eventsand conferences, and is also a visitingprofessor and lecturer at executivemasters courses in Islamic finance inuniversities in Europe and Africa.192014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 19. 3. KEY INSIGHTS FROM INDUSTRYSTAKEHOLDERSInterviews with key industry stakeholders have givenus direct insight into the concerns and issues facingIslamic finance in Morocco. In this section we note keypoints from the interviews. While only select excerptsare presented throughout this report, all interviews haveinformed and contributed to the research and writingof this report. Interviews were conducted in September,2013 with:1. Ministry of Finance Directorate of External Financing and Budget2. Bank Al-Maghrib (the central bank)3. Ministry of Endowments and Islamic Affairs4. Attijariwafa Bank5. Dar Assaffa6. Banque Populaire7. Banque Marocaine du Commerce Extrieur (BMCE) Bank8. National Agency for the Promotion of Small and Medium Enterprises, and9. An independent expert20EXCLUSIVE TO THIS REPORT 20. a. Ministry of Finance At the time of the interview, the draft law onparticipatory banking allows participatorybanking windows. Conventional insurance companies will notbe allowed to open takaful windows; takafuloperations must be separated and operateout of a different branch. The draft law on takaful does not includeany considerations for inclusion of socialsecurity (pension) funds. Moroccos currentlegal provisions for pension funds allowfor investments in the stock market, statebonds and real estate, and these legal pro-visionsare under a separate purview. Members of the central sharia board forIslamic finance will be appointed from theSupreme Council of Scholars, with the sec-retariatbased at Bank Al-Maghrib.b. Bank Al-MaghribBank Al-Maghrib is Moroccos central bank. Itwas founded in 1959 and is based in Rabat. Alternative banking products were intro-ducedin 2007 after a series of trainingworkshops were conducted within conven-tionalbanks and related financial institu-tions.A limited range of products was in-troducedcentering around ijara, musharakaand murabaha. From the first introduction of alternativeproducts between 2007 and 2011, murabahawas dominant. However, overall, alternativebanking products did not exceed MAD 1 billion(approximately US$ 120 million). Additionally,there are still double taxation issues relatedto ijara, which are being looked into now. The draft banking law will allow the creationof any alternative financial product thatis consistent with sharia provisions. It willallow the creation of participatory banks (i.e.Islamic banks) which will be licensed by thecentral bank and conventional banks willalso be allowed to offer the same productsto their customers. The draft law definessome of them murabaha, mudaraba,musharaka and ijara but other productswill also be allowed. All products must beapproved by the central sharia board. Morocco seeks to unify fatawa for Islamicfinance under the Central Sharia Board(which will follow the Maliki school of juris-prudence)with the secretariat based at thecentral bank. According to Bank Al-Maghrib, there will beno restrictions as to who can apply for par-ticipatorybanking licenses. However, jointventures between local banks and foreigninvestors might be encouraged.c. Ministry of Endowments and Islamic AffairsMorocco has a deep heritage of endowments(awqaf) that spans 12 centuries. In 2012 theMinistry of Awqaf started a restructuringexercise in order to enhance the management ofawqaf institutions and Islamic charitable bodies.The ministry currently manages a substantiallegacy of over 51,000 commercial, housingand professional real estate in the kingdom.Awqaf properties include those in cities aswell as agricultural lands. Income from theseendowments jumped 62% in 10 years fromMAD 164 million in 2002 to MAD 266 million(approximately US$ 31.5 million). Total incomefor agricultural endowments totaled MAD 70.7million in 2012. The ministry oversees the con-structionand maintenance of awqaf propertiesfor rent in order to increase awqaf revenues.The main challenge is to modernise the systemand administration of awqaf, especially in termsof leveling off rental prices at market rates andironing out issues related to customary rights,which are tradeable but lower the rental valueof awqaf properties. However, if rental prices are212014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 21. hiked up to market rates then the many poorfamilies who currently occupy awqaf propertieswould be left homeless. Awqaf will benefit from financing from partici-patorybanks in the country. Currently, the mainsources of financing come from the Ministry ofFinance and the Islamic Development Bank. The ministry has dabbled in the stock market,and in terms of the development of Islamicfinance in Morocco, the ministry is lookingtowards investment funds in real estate. The interests of the awqaf lands are numer-ous;they are not limited to the religious,social and educational aspects but alsoextend to the medical and health sectors. Urban expansion has enveloped many piecesof agricultural lands, which if left undevel-opedwill be turned into slums. The ministryworks with the private sector through invest-mentpartnerships to develop these plotsof land. These investment opportunities areopen to both local and foreign partners. The ministry is overseeing large construc-tionprojects for residential buildings andcommercial complexes. Many of Moroccos most touristic sites areawqaf properties, but the budgets of the Min-istryof Culture and the Ministry of Tourismare not sufficient to maintain the sites. The Ministry of Endowments and IslamicAffairs has started a new strategy to diver-sifyincome; the ministry is building culturalcentres that will house the rich heritage ofthe different regions. These centres househistorical and literary artefacts, and offerpublic lectures and viewings. The ministry also works on literacy pro-grammesin mosques. These programmesmainly attract older citizens and women.The ministry also oversees programmes forimams and religious leaders.d. Banque PopulaireBanque Populaire (BP) is a publicly listedcompany that was established in Moroccoin 1926. It is Moroccos second largest bankin terms of size and market share. In 2007the bank was one of three that introduced alimited range of alternative banking products(centering around murabaha and ijara), withinits conventional banking network. In BPsopinion, the first (i.e. 2007) wave of alterna-tivebanking products was not successful inMorocco due to three reasons: higher cost thanconventional products, public perception oflack of Islamic authenticity of products, andregulator constraints on bank promotion andmarketing of alternative financial products.BP will open an Islamic subsidiary once theIslamic banking law is passed by parliament. BP considers the regulations on participa-torybanking to be very general and thesemay not necessarily help make alternativebanking products as competitive as conven-tionalproducts. BP is seeking to open its participatory banksubsidiary with a partner who has technicalexpertise in Islamic banking. The bank hasa potential candidate partner but remainsopen to other potential partners. BPs new participatory banking subsidiarysbrand, name and distribution channels arein place. The bank will assume a defensivestrategy. BPs participatory banking subsidiary will firststart with individual financing. The bankssurveys have revealed that there is no hugeinterest for SME or corporate financing.Additionally, matters related to sharia-com-pliantSME and corporate financing are stillunclear. Hence this sector will grow slower22EXCLUSIVE TO THIS REPORT 22. than individual financing at the outset. BP will have a definitive plan for trainingbank employees on participatory bankingand finance by Spring 2014. It will rely onFrench-speaking experts in Islamic financeto train its staff. The bank is aiming for around 60 largebranches for its participatory bank in fourto five years.e. Banque marocaine du commerceextrieur (BMCE) BankBanque Marocaine du Commerce Exterieur, orBMCE Bank, is listed on the Casablanca StockExchange. It was established in Morocco in1959. BMCE Bank is Moroccos third largestbank in terms of size and market share. Thebank is planning to establish private partici-patorybanking, and is equally interested insharia-compliant investment banking, andproviding takaful products for Morocco. BMCEBank has an eye on being a gateway Islamicinvestment bank for Africa and Europe. BMCE Bank believes that Moroccos regu-lationson participatory banking are notsufficiently robust to develop a dynamicIslamic Finance industry for the countrybut that it is adequate for a nascent sectorand are confident on the willingnessof Bank Al Maghrib to develop this lawwhenever it is necessary. The bank has conducted several feasibil-itystudies which have revealed a lack ofawareness about Islamic finance in theMoroccan market. BMCE believes that in Morocco the impor-tantplayers in banking sector will certainlyuse their expertise and resources to supportMorocco Participative Finance industry andto make it as successful as the conventionalfinance for their dedicated niches. BMCE Bank sees a promising future for thesukuk market in Morocco, especially withregards to financing infrastructure projects. BMCE believes an Islamic finance academyin Morocco will help develop the industryshuman capital. Casablanca can assume an important posi-tionfor Islamic finance as the mid-pointbetween Africa and Europe.f. Independent ExpertDr Abdul Rahman founded the MoroccanAssociation for Islamic Economics in 1987 andwas involved in the countrys first experimentwith participatory banking when Wafa Bankattempted to open an Islamic window. Thisexperiment was suspended due to politicalopposition. He then went on to establish thecountrys first sharia-compliant joint mutual fund. Among other matters the participatorybanking draft law considers sharia gover-nance.Dr Abdul Rahman calls for mindfulnesson the matter, saying that sharia governancemust also be considered separate from theCentral Sharia Board. The draft participatory banking law cur-rentlydoes not cover Islamic microfinancedespite feedback and demands from thebanking sector. A good goal to achieve by 2020 is toincrease the market share of participatorybanks to 5% of the total banking sector. To start with, a joint venture bank that willinclude both local and foreign banks ispreferred. With this, existing banks shouldnot be worried about customer migration asthey will all be part of the new bank. Awareness of Islamic finance comes mainlyfrom religious institutions.232014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 23. 4. BIRDS EYE VIEW: Islamicfinance investmentscenarios and industrydevelopmentMorocco presents substantial opportunity for anyIslamic financial institution and investor; the country ishome to a majority Muslim population of 32.52 million,it embodies a strong heritage of waqf, holds a bankingasset base of $127 billion (2012), and has no standaloneIslamic financial institution. Our retail survey findingsalso point to significant interest in Islamic finance fromthe population. The most requested products andservices are personal financing, home financing andautomobile financing. Takaful, investment funds, andmicrofinance are other key product opportunities.Morocco allows 100% foreign ownership ofbanks but some sources within the countryhave indicated that the level of foreignownership for Islamic financial institutionshas not been determined (the banking draftlaw 103-12 was not officially published asof January 2014). The financial sector willbenefit from the Casablanca Finance City(CFC) project to make Casablanca a regionalfinancial centre. The Moroccan Financial Boardmanages the initiative. Firms that qualify to bepart of the CFC will receive a CFC Status thatallows for specific tax incentives, exchangecontrol facilitation and other elements that fa-cilitateease of doing business.Public Private PartnershipsInvestment opportunities should be evaluatedagainst various active government reformprogrammes that include projects not only ininfrastructure but also in renewable energy,agriculture, and automotive and othermanufacturing sub-sectors. Investment ingovernment projects through Public Private24EXCLUSIVE TO THIS REPORT 24. Partnerships (PPP) is a viable opportunityin Morocco; approximately 50% of energyprojects have been put into action by PPP.CorporatesThere is strong appetite from the corporatesector for sukuk. According to a survey conductedby the Moroccan financial market authority(official name Le Conseil Dontologique desValeurs Mobilires, CDVM) in 2012, 9 out of 10institutions would be interested to issue sukukif permitted by law. The market will also beboosted by the Islamic Development Banks(IDB) decision to support Moroccos plannedfirst sovereign sukuk. The countrys infrastruc-tureprojects could also benefit from sukuk.There are large gaps in Moroccos infrastruc-turesector, particularly in municipal services.SMEsSMEs account for more than 95% of the totalnumber of operating enterprises, contributingover 30% to GDP and 48% to total employ-ment.2 Our survey of SMEs reveals that theyare most concerned with cost of financingand perceive alternative products (i.e. Islamicproducts) to be more expensive than con-ventionalproducts. Almost half of the SMEssurveyed had not used any financial servicesin the last five years. Islamic providers havethe opportunity to tap into this lucrative andfinancially underserved market particularly forworking capital, equipment/material financingand leasing. Morocco has a strong microfi-nancesector that presently does not haveany Islamic microfinance participation. Bothconventional and Islamic microfinance presentanother viable financing option for SMEs.WaqfAnother key area of opportunity is Moroccoswell-established awqaf network. The awqafministry currently manages over 51,000 com-mercial,housing and professional real estates.The ministry is keen to fully modernise its awqafpreservation and development system, andawqaf asset management could provide lucrativeopportunities for Islamic financial institutions andinvestors. The ministry has experience workingwith local and foreign private companies todevelop awqaf lands and would welcome moreprivate partnerships for future growth and devel-opmentof awqaf lands and properties.TourismTourism is a major growth sector for theMoroccan economy. The sector is developedand has always been a key target of FDI intoMorocco. Additionally a large segment of thepopulation either directly or indirectly dependson tourism for employment. There is a growingMuslim tourist niche market that Morocco cancertainly benefit from. With its rich heritageand cultural connectivity, Morocco can moreactively work to attract this growing market.Muslim tourists represent a major nichemarket globally worth US$ 126.1 billion in2011, with the sector set to grow another 4.8%through 2020. This compares favourably to theglobal average of 3.8%. The biggest benefi-ciaryof this market has been Turkey, Malaysia,and the United Arab Emirates.12 EBRD strategy doc/ European Bank for Reconstruction andDevelopment 2012252014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 25. People walking by buildings in Morocco 26. MOROCCO AT A GLANCEPolitical snapshotIn the modern era Morocco gained independence from France in 1956,when Sultan Mohamed became king. His son Hassan II succeeded himin 1961 and ruled for 38 years. He was an important proponent of theprocess of pursuit for peace in the Middle East and North Africa and wasone of the original promoters of the Islamic summit meetings; underhis patronage the fist meeting that led to the establishment of theOrganisation of the Islamic Conference (OIC) (renamed Organisationof the Islamic Cooperation in 2011) in 1969 took place in Rabat. Thatmeeting was co-initiated with King Faisal of Saudi Arabia.In more recent years, Morocco avoided the moresignificant political fallouts of the Arab Springexperienced in Tunisia, Egypt and Libya. In June2011 King Hassan IIs son, King Mohamed VIresponded to the growing demands for moredemocracy by introducing a wide range ofpolitical and social reforms including the draftingof a new constitution accepted by a large marginin a popular referendum in July 2011.The new constitution introduced various funda-mentalreforms, including a more democraticdecentralised system of governance with anindependent judiciary, and outlined the funda-mentalgrounds for a new social contract withlaws guaranteeing both public engagement andaccess to information. Nevertheless, MohammedVI continues to be the definitive authority main-tainingcommand over the national army andthe power to veto new laws as well as appoint-mentof ministers. The prime minister, however,must come from the political party with the mostnumber of seats in parliament.The new coalition government formed inJanuary 2012 was led by the moderate IslamistJustice and Development Party (offical name Parti de la justice et du dveloppement, PJD),followed by the Istiqlal party, and the NationalRally of Independents (NRI). The cabinet of 30ministers was headed by Abdelilah Benkiranefrom the PJD. After ministers from the Istiqlalparty left the coalition in July 2013, KingMohamed increased the number of ministersto 39, and the ministers from the Istiqlal partywere replaced by members of the NRI.No fundamental changes were broughtforward by the Islamist-led government, par-ticularlywith respect to public liberty andfreedom when compared to previous govern-ments.However the government has placedimportance on social dialogue as a means tostrengthen social democracy. Important stepstowards the governance agenda relating toaccess to information law were also taken.Municipal elections were expected to be held inmid-2013 but no dates have been confirmed, asof this writing. Municipal elections supported bythe king are considered to be the internal factorof the regionalisation process.272014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 27. View from Mount Toubkal (4,167 metres), Atlas, Morocco.Moroccos 2011Protest MovementThe February 20 Mouvementdes Citoyens pour le Change-ment,or Movement forChange attracted tens of thou-sandsin major Moroccan citiesdemanding political change andmore democracy. The demon-stratorsalso demanded an endto corruption, and improvementsto the countrys socio-economicills which include high unem-ployment,abuse of authority bysome government officials, andconcentration of political andeconomic power amongst theminority elite. (Also known asthe Makhzen.)After two weeks of demonstrations across thecountry, King Mohamed VI appeared on nationaltelevision on March 9 promising significant consti-tutionalchanges.The protest movement came into existence from aloose alliance between liberals, supporters of theIslamist Justice and Charity Organisation (JCO, AlAdl Wal Ihsan) and leftist youth leaders. The JCOis banned (but tolerated) yet is estimated to beamong Moroccos largest grassroots organisations.The protests continued after the 2011 constitutionalrevision process but are now greatly reduced. As of2012, activities and plans involving the liberals andthe JCO have receded. Most Moroccans want to givethe new government enough room and opportunityto prove itself rather than take their demands to thestreets again. However a minority still remains ag-gravated.Most fear that continued protests wouldlead to greater instability and impact negatively onthe economy. Such apprehensions may perhapsalso stem from the fear of heightened politicalturmoil in neighbouring Libya and Syria.28MOROCCO AT A GLANCE 28. Full name: Kingdom of MoroccoPopulation (2012) 32.52 million (IMF)Capital RabatLargest City CasablancaArea 710,850 sq. km / 274,461 sq. miles (including W Sahara)Major Languages Arabic and Berber (official), French, SpanishMajor Religion IslamLife Expectancy 70 years for men | 75 years for Women (UN)Monetary Unit Dirham (MAD) = 100 centimesMain Exports Minerals, seafood products, textile, fertilizers, fruit and vegetablesGDP Per Capita (2012) US $2,955.86 (current US$) (IMF)Internet Domain .maInternational Dialing Code +212Largest cities and townsRegionPopulation,thousandsPopulationDensity,persons persq. kmSum(Area in sq.km)1 Grand Casablanca 3,616 2,239 1,6152 Souss Massa Draa 3,095 44 70,8803 Marrakech Tensift Al Haouz 3,088 99 31,1604 Tanger Tetouan 2,460 213 11,5705 Rabat-Sal-Zemmour-Zaer 2,349 245 9,5806 Mekns-Tafilalet 2,126 27 79,2107 Doukkala Abda 1,978 149 13,2858 Oriental 1,909 23 82,9009 Gharb-Chrarda-Bni Hssen 1,850 210 8,80510 Taza Al Hoceima Taounat 1,803 75 24,15511 Chaouia Ouardigha 1,646 235 7,01012 Fs-Boulemane 1,568 79 19,79513 Tadla Azilal 1,448 85 17,12514 Guelmim Es semara 425 3 122,82515 Laayoune Boujdour Sakia El Hamra 246 2 139,48016 Oued ed Dahab Lagouira 73 1 50,880Source: African Development Bank.292014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 29. PoliticsMorocco has a fundamentally stable politicalenvironment relative to its North AfricanArab Spring neighbours. In June 2011 KingMohamed VI responded to the growingdemands for more democracy and introduceda wide range of political and social reformsincluding the drafting of a new constitutionaccepted by a large margin in a popular ref-erendumin July 2011. Early Parliamentaryelections were held in November 2011 whichushered in a coalition made up primarily ofthe Justice and Development Party (officalname Parti de la justice et du dvel-oppement,PJD), the Istiqlal party, and theNational Rally of Independents. In July 2013the Istiqlal party quit the coalition govern-ment,forcing the PJD to form a new coalitionwith the National Rally of Independents (NRI)in October.EconomyMorocco has been on a steady path of economicrecovery since the stagnation of the 1990s,with sound macroeconomic managementand sustained growth in non-agriculturalsectors. The countrys Haut Commissariat auPlan reported GDP growth of 4.8% in the firstquarter of 2013, rising to 5.1% for the secondquarter and dipping to 4.5% in the thirdquarter. All signs point to an improved GDPperformance in 2013 from sluggish growth of2.7% in 2012 (IMF World Economic OutlookOctober 2013). Moroccos economy has grownan average of 4.7% since 2000, which isalmost double that of the average of 2.6%per year from 1990 to 1999. The InternationalMonetary Fund (IMF) projects growth of 5.1%for the whole of 2013 and 3.8% for 2014, attrib-utingthe slowdown in 2014 to the normalisationof rain-dependent agricultural production afteran exceptional harvest in 2013. (IMF WorldEconomic Outlook October 2013)LegalWith the new constitution and government,aspects of Moroccos legal system are beingreviewed and revised, particularly the judicialsystem that has traditionally been viewedby Moroccans as corrupt, and favouring therich and powerful. Modern Morocco followsa mixture of Spanish and French civil codes.Islamic law prevails with the Mudawana, apersonal status code based on the Malikischool of jurisprudence, that governs primarilyfamily matters such as marriage, divorce, in-heritanceand child custody. Like sharia, theMudawana is not immutable and has beenupdated throughout the years; the most recent2004 reforms particularly considered therights of women and children.Foreign PolicyMoroccos foreign policy focuses mostly onFrance, Spain, and the United States. Thecountry is currently serving a two-year stintas a non-permanent member of the U.N.Security Council. It is a major non-NATOally of the United States. Unlike neighboursTunisia, Algeria and Libya, Morocco is not amember of the African Union. It is a memberof the Arab League.GeographyMorocco is located at the northwest of Africa.It is bordered in the north by the strait ofGibraltar and the Mediterranean Sea; to thesouth by Mauritania; to the east by Algeriaand to the west by the Atlantic Ocean. TheMoroccan coast extends over 3,500km.30MOROCCO AT A GLANCE 30. PORTUG A LNorth Alant i c OceanS PA I NMOROCCOA LG E R I AC A N A R I E( S PA I N )MAU R I TA N I ACeutaMelillaFsRabatCasablancaMarrakechM A L I 31. InsideMACRO-ECONOMICFUNDAMENTALSResilient economy 34Budget deficit post 2008 36and Arab SpringGood trade links 39Ambition to be regional financial hub 41FDI & Investment trends 45Unemployment a critical concern 47General business environment 52Rabat Cityscape, Morocco. 32. 33MACRO-ECONOMIC FUNDAMENTALS2014 ISLAMIC FINANCE COUNTRY REPORT | MoroccoStrengths1. A strategic geographical position Morocco stands at thecrossroads between Europe and Africa and has land and seaaccess to Arab lands across North Africa to Jordan and theGulf Cooperation Council (GCC) countries.2. Member of Arab Maghreb Union.3. The worlds biggest producer and exporter of phosphate.4. Thriving sectors include services, automotive, logistics, andtransport.5. A solid and resilient banking sector with little exposure toexternal risks.6. Low level of inflation.7. Unique Free Trade Agreements with access to 1 billion con-sumers(Europe, Africa, North America).8. Competitive labour costs.9. Stable and business-friendly environment for foreign investors.10. Despite headwinds from the Eurozone crisis and the ArabSpring, the kingdom retains its investment grade rating. Fitchaffirmed Morocco at BB- with a stable outlook while S&Pholds the kingdom to BB-, but with a negative outlook (bothNov 2013).weakness1. High-level of unemployment: 9% in 2012 (IMF, October 2013),unemployment high especially among young graduate menand women.2. High compensation fund for subsidies but currently transi-tioningout of subsidies; the government announced (on Jan17, 2014) an end to subsidies of gasoline and fuel oil and wasstarting to significantly cut diesel subsidies3.3. Limited access to financing for SMEs.4. Arab Maghreb Union as an entity is inactive, and Moroccostrade with other member countries is very low.5. Weak business climate.6. Economy heavily dependent on the Eurozone, with Spain andFrance each absorbing 20% of the countrys exports.7. Relatively limited domestic capital market.8. Very dependent on agriculture and vulnerable to price move-mentsof hydrocarbons.opportunities1. Implementation of the national pact for Industrial Emergenceto boost growth.2. Development of Casablanca Finance City (CFC) to pushMorocco as a regional hub to serve the fast emerging Northand West Africa region.3. Encouraging niche industries for export and promotionof service.4. Pledge to reduce budget deficit.5. Favourable tax reform.6. Speeding up reform of public procurement.7. Increasing education budget (6% of GDP in 2012).8. Active strategies for renewable energies (solar and wind)and water production and management.9. Development of capital markets (including new productsand markets).Threats1. Foreign exchange reserves depleting since 2008.2. Low level of household saving.3. High level of corruption.4. Sensitive to swift implementation of compensation fund reform.5. Close eye must be kept on trade and budget deficits; both nar-rowedin 2013 and must be controlled to meet conditions setby international lenders. Treasury debt is about 60% of GDP.6. Shortage of raw materials for agri-food and textile sector.7. Moderate drop in transparency and international ratings.SOWTSWOT Analysis3 Reuters, Morocco ends gasoline, fuel oil subsidies. Jan 17, 2014. 33. Resilient EconomyDespite the twin negative shocks of domestic politicalupheaval in 2011 and the Eurozone crisis, real GDP inMorocco grew by 5% in 2011 compared to 3.6% in 2010.However, a slowdown in activity in 2012 pushed growthdown to 2.7%, which was a mid-point figure for oil-importingcountries in North Africa. Real GDP growthbounced back up to 4.5% in 2013.Moroccos 4.5% GDP growth was the clear leader in North Africa in 2013 when Tunisia and Algeriagrew 2.7%, and Egypt 2.1%. Moroccos economy grew an average 4.6% for the period 2000-2007,which is almost double that of the average of 2.6% per year from 1990 to 1999.GDP breakdown by sector (2013)Sector % of GDP% ofPopulationEmployedServices 43.35% 34.6%Manufacturing &29.86% 21.90%IndustryAgriculture 15.09% 39.8%Contribution of different sectors to GDP (2013)14.8%5.5%2.4%3.7%3.2%0.9%14.2%2.4%5.8%9.4%9.8%2.5%13.4%8.9%Education, Health and socialactionPublic AdministrationServices provided to firms andpersonal servicesFinance and InsuranceCommunicationTransportHotels and restraurantsTradeConstruction and PublicworksElectricityManufacturing IndustryExtractive industryFishingAgricultureSource: Ministry of Economy & Finance, Q3 2013.34MACRO-ECONOMIC FUNDAMENTALS 34. Real GDP Growth And Projected Growth (% changes and constant prices)Sustained growthA middle-income, medium-sized economy,sustained economic growth over the lastdecade has pushed GDP in 2013 to US$ 105.1billion (current US$), which is almost treblethe US$ 37 billion in 2000. GDP per capitahas also more than doubled to US$ 3,199.13in 2013 (current US$, IMF) from US$ 1,300in 2000.Buoyant GDP growth to 2019The IMF estimates real GDP growth movingon a positive trend to reach 5.6% by 2019above the estimates for Algeria (4.3%), Tunisia(4.5%), Egypt (4%), South Africa (3.0%), andLibya (3.5%). (IMF World Economic Outlook,April 2014)Diverse economyIn terms of importance to GDP, Moroccoseconomy is predominantly services-based.However the agricultural sector employsa larger proportion of the population. Thecountrys manufacturing sector has beengrowing, but the government needs to domore to create jobs in the industrial sector.REAL GDP GROWTH PROJECTED GDP GROWTHMorocco GDP per capita at PPP (US$)1.6%7.6%3.3%6.3%4.8%3.0%7.8%2.7%5.6%4.8%3.6%5.0%2.7%4.5%3.9%4.9% 5.2% 5.4% 5.6% 5.6%2000200120022003200420052006200720082009201020112012201320142015201620172018201920132012201120102009200820072006200520042003200220012000$5,456$5,193$4,741$4,568$4,374$3,939$3,585$3,224$3,007$2,901$2,671$3,415$4,107$5,022As a result of the ArabSpring, there is a newpolitical constitutionand economic strategyMorocco has started the process of increasingpolitical pluralism and openness which impactson economic strategy. It is implementing struc-turalreforms in many areas: the labour market,justice, education, competition policy and mon-etarypolicy. It is working to consolidate publicfinances, and liberalise the economy through aprivatisation policy.Source: IMF World Economic Outlook Database, April 2014.Source: IMF World Economic Outlook Database, April 2014.352014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 35. Budget deficit post 2008and Arab SpringMoroccos 2013 budget deficit fell to 5.4% of GDP, thelowest level since before the Arab Spring uprisings. Thedeficit had been on the rise it was 4% in 20104, 6.9%in 2011 and 7.6% in 2012.Moroccan public finances were relatively healthy before the global crisis of 2008 but have sincedeteriorated due to the swelling of expenditures. Pressures were particularly fierce in 2011 and2012 when the government had to manage growing social demands and the sharp rise in interna-tionaloil prices while maintaining its investment efforts.4 Reuters, Moroccos budget deficit falls to lowest since beforeprotests. Jan 23, 2014.5 Reuters, Morocco ends gasoline, fuel oil subsidies. Jan 17, 2014.6 Reuters, Moroccos budget deficit falls to lowest since beforeprotests. Jan 23, 2014.Current account deficitSince 2007, Morocco has run a currentaccount deficit, mainly driven by a negativetrade balance. The persistent merchandisetrade deficit, driven by the countrys need forimported energy, has been largely offset byinflows including transfers from Moroccansresident abroad, tourism revenue, and foreigninvestment. In 2010, the current account deficitstood at 4.6% of GDP.Good credit ratingEconomic growth in the 2000s led to a positivecredit rating by the major credit rating agencies.Since 2010, Standard & Poors has main-tainedthe kingdoms Investment grade ratingalthough the latest Nov 2013 outlook wasnegative. In 2013, Moodys changed its outlookto negative from stable with the local currencybond rated Baa1. On Nov 5, 2013, Fitchaffirmed the kingdoms long-term foreign andlocal currency Issuer Default Rating at BBB-andBBB respectively, with a stable outlook.Controlling subsidiesIn a bid to improve public finances, the govern-mentannounced on Jan 17, 2014 that it wasputting an end to gasoline and fuel oil subsidies,and was starting to make significant cuts todiesel subsidies.5 The public budget for foodand energy subsidies for 2014 is MAD 35 billion,down from MAD 42 billion in 2013 and MAD 53billion in 2012. The government is aiming for abudget deficit of 4.9% of GDP in 2014.6Zagora, Morocco March 14, 2010 : People takingfuel at one of the rare gas stations of Afriquia, whichis the largest gas provider in Morocco, along the roadbetween Ouarzazate and Zagora. This region alreadybelongs to the Sahara desert.36MACRO-ECONOMIC FUNDAMENTALS 36. Gross Debt, and as % of GDP Structure of External Government Debt8070605040302010600500400300200100Gross Debt (Billion MAD, LHS) % of GDP (RHS)2003200420062010Source: Ministry of Finance, Kingdom of Morocco. Source: Ministry of Finance, Kingdom of Morocco.Prudent debt management policyThe Moroccan authorities have implemented anactive debt management policy to reduce thekingdoms public debt. However, treasury debtto GDP has been above the 50% target set bythe Ministry of Economy and Finance, and was60% of GDP in 2012. The public debt was on adownward trend until the financial meltdown andthe soaring prices of raw materials. At the end of2012, treasury debt stood at MAD 493.7 billion,which is the equivalent of 59.6% of GDP, a 6-pointrise compared with 2011. Overall, the debt burdenhas been declining since 2000 and has remainedflat since 2009 to reach 2.4% of GDP as of thiswriting. Only 14.1% of the debt is denominated inforeign currency, but the bulk of this is contractedto official creditors at concessional terms.100%90%80%70%60%50%40%30%20%10%BilateralcreditorsMultilateralcreditorsInternationalfinancial marketExternal DebtForeign exchange reserves and activeexternal debt management policies giveMorocco the capacity to service its debt. Atthe end of 2010, current external debt stoodat US$ 20.5 billion.FOREX reservesForeign exchange reserves continued todecline in 2011, totaling less than 6 monthsworth of goods and services imports. Thistrend has continued in 2012 with foreignexchange reserves dropping 20% and coveringfour months worth of imports.0020002001200220052007200820092011201233 31 2936 37 35 34 2950 54 5658 5650 534818 15 166 815 13240%2005 2006 2007 2008 2009 2010 2011 2012General Government Gross Debt (% of GDP)2006 2007 2008 2009 2010 2011 2012Egypt 90.3 80.2 70.2 73.0 73.2 76.6 80.6Morocco 59.4 54.6 48.2 48.0 51.3 54.4 60.5Asia 34.5 35.1 31.3 31.5 40.8 36.7 34.5Euro Area 68.2 80.1 85.7 88.2 93.0Latin America 50.6 49.5 50.4 53.2 51.7 51.5 52.0MENA 78.4 71.1 62.3 64.9 66.8 70.1 75.5G-20 36.5 35.6 32.9 34.6 39.8 36.8 35.1Source: IMF World Economic and Financial Surveys, Fiscal Monitor: Taxing Times, October 2013.372014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 37. Low inflation levelsMorocco has been running a structurally low inflationrate and the annual growth of consumer price index(CPI) has surpassed 3% on only two occasions sincethe early 2000s. Inflation was maintained at that levelmainly due to a cautious monetary policy targetinginflation, stable exchange rate and government inter-ventionthrough the compensation fund (food and oilprice subsidies).In 2012, inflation as measured by the change in the CPI was 1.3% versus 0.9% in 2011, despitea 16% increase in administered fuel prices in June 2012 and a poor harvest amid high globalcommodity prices. This can be attributed to the milder pressures from local demand and the easeof inflation for Moroccos trading partners. Inflation in Morocco remained the lowest in the MiddleEast and North Africa region, at 1.3%.Evolution of Inflation and Projected Inflation (% changes) Regional Average Inflation 2000 - 2012 (%)3.91.91.0 0.9PROJECTEDSource: IMF World Economic Outlook Database, April 2014. Source: IMF World Economic Outlook Database, October 2013 andIRTI calculation.1.90.62.81.21.51.03.32.01.0 1.32.5 2.5 2.5 2.5 2.5 2.5200020012002200320042005200620072008200920102011201220132014201520162017201820191.73.5 3.8 3.95.9 6.17.912.319.7MoroccoTunisiaAlgeriaJordonEgyptSouth AfricaMauritaniaNigeriaTurkey38MACRO-ECONOMIC FUNDAMENTALS 38. Good trade linksTo boost foreign trade and attract foreign direct invest-ment(FDI), Morocco has adopted an open economystrategy towards foreign markets. Morocco has freetrade agreements with the EU, US, Turkey and severalArab nations.Trade deficit, Imports & Exports2013 trade deficit narrowed 2.8% from MAD202.06 billion in 2012 to MAD 196.38 billion(US$ 23.80 billion) in 2013, driven by a 2%drop in imports energy imports dropped4% and wheat imports were down 31.7%as 2013s national harvest hit record levels.Total imports decreased 2% in 2013 toreach MAD 379.22 billion from MAD 386.94billion in 2012. However 2013 exports dipped1.1%.7 Moroccos trade deficit had been de-terioratingin recent years mainly due to theincreased price of crude oil and an increase inwheat, corn and sugar imports8 (2012 importswere 7.9% more than in 2011) so 2013simproved import figures are indeed goodnews. However the dip in exports in 2013would need to be checked moving forwardas the country was enjoying rising exports inrecent years as a result of a rise in the sales ofphosphates and derivatives. Exports of goodsincreased by 5.5% in 2012 to MAD 184.7billion while manufacturing goods exportsincreased by 4.7% in 2012.91 2 3Worlds largestexporter of phosphatesMorocco is known for its fertile land and is theworlds largest exporter of phosphates; it has75% of the worlds known reserves, and supplies36% of the worlds crude phosphates.9Red arches on the coast of the Atlantic Ocean,Morocco.7 All 2013 trade deficit, import and export figures from Reuters, Jan17, 2014. Moroccos trade deficit narrows 2.8 percent in 2013.Available from: http://www.reuters.com/article/2014/01/17/morocco-trade-deficit-idUSL5N0KR08V201401178 Monetary Policy Report, prepared for the central bank board.December 20, 2011, pp 17-18.9 Office Chrifien du Phosphates, 2013392014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 39. Strategic locationLocated at the confluence of Europe, Africa, andthe Arab World, Morocco has easy access toover one billion consumers in the three regions.Strong links with the EUIn 2008 the kingdom entered into an AdvancedStatus agreement with the European Union (EU)and in April 2013 the first round of negotiationsbetween the EU and Morocco for a Deep andComprehensive Free Trade Area (DCFTA) wasstarted. The DCFTA will extend significantlytrade relations between the EU and Morocco toinclude trade in services, government procure-ment,competition, intellectual property rights,investment protection and the gradual integra-tionof the Moroccan economy into the EU singlemarket, for example in areas such as industrialstandards and technical regulations or sanitaryand phytosanitary measures.10 Moroccos majortrading partner remains the EU, with which 60%of the total volume of the countrys foreign tradetakes place. Asia and the USA are second andthird, with 20.5% and 13.7% shares respectively.Additionally, 75% of workers remittances comefrom EU member states11, and the EU is a signifi-canttrading partner the bloc absorbed 57%of Moroccos exports in 2011, provided 59% ofits imports, and accounted for 70% of touristsvisiting the country.FTA with the U.S.Morocco is the only African country (so far) tohave a bilateral FTA with the United States.The U.S.-Morocco FTA eliminated tariffson 95% of bilateral trade in consumer andindustrial products. Tariffs on U.S. exports toMorocco will be phased out entirely by 2024.The FTA provides new trade and investmentopportunities for both countries and hasencouraged economic reforms and liberalisa-tion.Since it came into force, bilateral tradebetween the two countries increased 272%through November 2011.Formal trade links with the Middle EastIn the contemporary era, Moroccos trade andinvestment links have been closest with theEU but Morocco has recently been more openand attentive to investment and trade with theArab world. Morocco has notable FTAs signedwith Turkey, the Mediterranean Arab nations Tunisia, Egypt and Jordan (through theAgadir Agreement) and the United ArabEmirates (UAE). It is also in continuing discus-sionsand negotiations on a revised UnifiedAgreement for the Investment of Arab Capitalin the Arab States (which first came into forcein 1981 and whose members are nations ofthe Arab League); a draft text was adopted inearly 2013 ensuring free movement of capitaland providing national treatment and most-favoured-nation status to investments.12 12310 European Commission, 2013. Available from: http://ec.europa.eu/trade/policy/countries-and-regions/countries/morocco/11 Ministry of Economy and Finance of Morocco, 201312 United Nations Conference on Trade and Development(UNCTAD), 2013. World Investment Report 2013: Global ValueChains: Investment and Trade for Development. Available from:http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf40MACRO-ECONOMIC FUNDAMENTALS 40. Ambition to be regionalfinancial hubMorocco is developing a regional financial hub knownas the Casablanca Finance City. The government wantsCFC to be a centre notably for the Great North WestAfrica Region (GNWA Region). The financial hub will po-tentiallycontribute up to 2% of Moroccos total GDP andhelp create more than 30,000 new jobs.GDP Growth in Mediterranean Region, 2013 (%) Regional GDP Per Capita 2012 (USD Current Price)4.5%4.3%3.3%2.7% 2.7%2.1%1.0%MoroccoTurkeyJordanAlgeriaTunisiaEgyptLebanon$9,920$11,046$5,174$5,438$6,594$3,199$3,226$4,345$1,469YemenMoroccoEgyptTunisiaJordanAlgeriaIraqLebanonLibyaSource: IMF World Economic Outlook Database, April 2014. Source: IMF World Economic Outlook Database, April 2014.412014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 41. INSPIRE MOREETHICAL BUSINESSWORLDWIDE 42. Casablanca Finance City as a regionalfinancial hubThe Casablanca Finance City (CFC) seeks toposition Casablanca as a regional financialcentre. CFC is still under construction butseveral companies have already been grantedCFC status. The zone is meant to provide anattractive environment for national and inter-nationalinstitutions in terms of a specialisedinfrastructure, a single regulatory system,a qualified talent pool, appropriate humanresources, specific tax incentives, exchangecontrol facilitation and other related services.The development of CFC is part of a com-prehensivestrategy that aims to reinforceMoroccos attractiveness for foreign investmentand enhance and offer international investorsa gateway to regional investment mainly inthe maghreb and West Africa. The project ismanaged by the Moroccan Financial Board,which is a public-private initiative comprisingof founders Bank Al-Maghrib, Caisse de Depotet de Gestion, Casablanca Stock Exchange,Groupe Banque Populaire, Attijariwafa Bank,BMCE Bank and four insurance companies Mamda, Cnia, Atlanta-Sanadand, and Axa.The institutions based at the CFC could serveeither exclusively non-residents or a combina-tionof residents and non-residents. They canbelong to one of the following sectors: Financial services companies: corporate andinvestment banking, private equity, assetmanagement and insurance, etc. Professional services firms: consulting firmsin management strategy, legal, tax andaudit, ratings agencies, research and infor-mation,etc. Regional financial and non-financial head-quarters:undertaking supervisory, marketingand coordinating activities in at least oneother foreign countryThe emergence of a dynamic Islamic financialservices industry in Morocco will also be anasset to the development of CFC and willattract foreign capital, especially from theMENA region.Moroccan banksabroadThe presence of Moroccan banks abroad, mainlyin Africa, is one of the prominent features ofthe Moroccan banking system. Moroccan bankshave more than 25 subsidiaries (with more than1,200 agencies mainly in sub-Saharan Africa), 10branches and 59 representative offices (mainlyin Europe).5th largest AfricaneconomyMorocco has become a major player in Africaneconomic affairs and is the 5th largest Africaneconomy by GDP (PPP).Selection of very colorful Moroccan tajines.44MACRO-ECONOMIC FUNDAMENTALS 43. FDI & INVESTMENT TRENDSMoroccos FDI is concentrated mainly in the real estatesector, followed by industry and tourism. Morocco wasthe only North African country to register FDI growthin 2013 inflows grew a solid 24% to US$ 3.5 billion,according to the United Nations Conference and TradeAgencys (UNCTAD) Global Investment Trends Monitor.FDI inflows into Africa as a whole grew by 6.8% to anestimated US$ 56.3 billion from 2012 to 2013, driven bythe strong performance of Southern African countries,including South Africa and Mozambique.Morocco also led FDI inflows in North Africa in2012 at US$ 2.836 billion. Egypt trailed closelyon US$ 2.798 billion.13 Moroccos stabilityrelative to Egypt, Tunisia, Algeria and Libyahas proven attractive to investors. In addition,a vast project of economic modernisation hasbeen launched to boost FDI. Casablanca inparticular aims to become an internationalfinancial centre.To attract FDI, the government adopted theInvestment Charter in 1995 that providescompany exemptions for VAT and corporatetax for 5 years. In the industrial sector, theEmergence Plan creates infrastructure whichoffers turnkey premises. In the case of off-shoringfacilities, the government has offeredtelecommunications costs set at 35% belowthe market price and training grants of upto US$ 7,000 for each Moroccan employeeduring the first three years of employment.A new version of the investment incentiveregime is currently undergoing a governmen-talreview. 113 United Nations Conference on Trade and Development(UNCTAD), 2013. World Investment Report 2013: Global ValueChains: Investment and Trade for Development.452014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 44. FDI by SectorCar trade and repairs 7%Finance and Insurance 12%Accomodation and catering 11%Real estate 34%Manufacturing ind ustry 26%Ele ctricity, gas, air conditioning 7%Con struction 3%FDI BYSECTORSource: Moroccan Investment Development Agency (2011).FDI by SourcesGermany 3.0%Kuwait 3.7%USA 5.0%Britain 5.3%Switzerland 5.3%Belgium 5.4%France 38.2%Sp ain 6.9% United Arab Emir ates 20.0%Sa udi Arabia 7.1%FDI BYSOURCESSource: Moroccan Investment Development Agency (2011).FDI Inflow, 2007-2012 (US$ million)2,8052,4871,9521,5742,5682,8362007 2008 2009 2010 2011 2012Source: United Nations Conference On Trade And Development, World Investment Report 2013.46MACRO-ECONOMIC FUNDAMENTALS 45. Unemployment a critical concernUnemployment, especially among the youth, remainsa critical concern. It fell to 9% in 2012 from a high of13.4% in 2000 but questions remain over the quality ofjobs on offer. Youth unemployment (15-24 years of age)fell from 31.1% in 1990 to 15.7% in 2005 but increasedto 17.9% in 2012 with urban youth unemployment sur-passing33.5%.Private sector hiring lower than public sectorsThe Moroccan government has been undertaking necessary initiatives to tackle unemploy-mentover the years. However the governments expanding workforce is not matched by similargrowth within the private sector. Other measures such as enhancing industry and servicessectors maybe more effective.A World Bank report puts Moroccos unemployment rates of tertiary education graduates at18.1% (down from 28.9% in 2000), which is lower in the MENA region only to Tunisias 22.9% (upfrom a much lower 8.7% in 2000) and Egypts 19% (up from a lower 12.8% in 2000)14 althoughit is clear from the figures that Moroccos employment situation for tertiary education graduateshas improved while Tunisias and Egypts have deteriorated. For Morocco (and similarly for itsNorth African neighbours) youth unemployment is not only a waste of productive resourcesbut also a catalyst for social unrest. Education and employment synchronisation, effective jobcreation strategies, and self-dependency of the youth are key. 114 World Bank, June 2013. Benchmarking Governance As a Tool for Promoting Change: 100 Universities in MENA Paving the Way.472014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 46. Poverty down from doubledigits but still an issueThrough the creation of the National Initiative for HumanDevelopment which makes available Micro credit (or microfinance) to provide access to basic social services and alsopromotes employment for youth and women, Morocco hasachieved the first Millennium Development Goal (MDG)relating to poverty reduction. Using the national poverty line(US$ 1.50 per day) as a standard measure, the rate of povertyfell from 16.3% in 1999 to approximately 9% to date (the figureis higher in rural areas, at 14.4%). (Moroccan National Bureauof Statistics, 2013) The government has initiated the secondphase of the national initiative which is to improve health,education, roads, water, sanitation and electricity.Improving Human DevelopmentIndex rankingMorocco ranks 130 out of 187 countries on the2012 Human Development Index (HDI) andranks 17th in the MENA region. (United NationsDevelopment Program, 2013) Its HDI score(0-1, where 1 is best) has been climbing steadilyfrom 0.435 (1990) to 0.507 (2000) to 0.579(2010), to 0.582 (2011) and 0.591 in 2012. Its2012 ranking places it just below Nicaraguaand directly above Iraq.Improving life expectancy and yearsof schoolingLife expectancy at birth has improved from64.1 years in 1990 to 72.2 years in 2011. Lifeexpectancy for females has increased from 66.1to 74.5, and from 63 to 69 for males; expectedyears of schooling have improved from 6.6years in 1990 to 11 years in 2011. Despite thisconstant improvement in the past two decades,Morocco still lags behind comparable countriessuch as Egypt and Tunisia. This is mainly due tothe disparity in access to health and educationbetween the urban and rural areas.48MACRO-ECONOMIC FUNDAMENTALS 47. Fes, Morocco - July 27, 2010: People on a streetmarket. Fes center is listed in UNESCO and it isthe largest preserved medieval city in the world.Also its one big market.ANALYSISThe Role of IDB Group in PovertyAlleviation and ReducingUnemployment in Moroccoby Dr. Ismaeel Ibrahim Naiya (ERPD) & Dr. Rami Abdelkafi (CTY), IRTIMorocco is one of the founding member countries that established the IslamicDevelopment Bank (IDB) on August 12, 1974. The first IDB operation in Morocco wasapproved by the Board on September 9, 1977. To date IDB Group financing approvals forMorocco has cumulatively reached US$ 5.27 billion for various projects with concentration mainlyin energy (36%), transportation (35%), and water, sanitation and urban services (18%). The totalIDB-approved ordinary operations (excluding cancellation) in Morocco has reached 92 amountingto approximately US$ 2.4 billion. About 90% of the financing approved for the country has beennon-concessionary. In 2011, Morocco was the first among IDB member countries to receive dis-bursementswith an amount of US$ 288 million.Other IDB Group entities the International Islamic Trade Finance Corporation (ITFC) and theIslamic Corporation for the Insurance of Investment and Export Credit (ICIEC) have also madesignificant contributions to Morocco. Most recently Morocco joined the Islamic Corporation for492014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 48. IMLIL, MOROCCO - JULY 27: A Berber shop keeper poses for a photograph in the village of Tisgui Ntknt on July 27, 2007 in Imlil district, Morocco.Tisgui Ntknt is a village of around seventeen families in the High Atlas Mountains of Morocco. The Berber people of the Atlas have a strong sense offamily and each village will consist of a number of families ranging from five to around thirty or forty. Tisgui Ntknt does not have electricity but KingMohammed VI has pledged that the whole of Morocco will be electrified in six years time. (Photo by Chris Jackson/Getty Images)the Development of the Private Sector (ICD) in March 2011. Cumulative operations of the ITFC forMorocco stands at US$ 2.67 billion. ICIEC has also managed to insure exports and imports busi-nessesworth US$ 201.5 million.Economic growth and developmentThe Moroccan economy has made significant gains over the past decade with a sustained averagegrowth rate of 4.7% since 2000 compared to an average of 2.6% from 1990 to 1999, giving riseto higher GDP per capita (US$ 2,955.86) in 2012. Both inflation and external debts have signifi-cantlydeclined and external reserves have significantly increased. Private sector investment hasalso soared to a comparable level of the East Asian economies to reach 36.3% of GDP in 2008.Overall, unemployment rate was brought down to 9.1% in 2010 while the rate of poverty declinedfrom 16.3% in 1999 to 9% in 2010.However, despite all these achievements, the Moroccan economy still faces several challengesincluding a high rate of rural poverty and a high rate of youth unemployment especially amongeducated youth in the urban areas.Challenges: poverty and unemploymentPoverty in Morocco is a predominantly rural phenomenon; 70% of the poor live in rural areas, and75% of them depend on agriculture for their livelihood. Since poverty alleviation and human de-velopmentis the key strategic objective of the IDB Group, food security and rural development areat the center of the Banks operations.50MACRO-ECONOMIC FUNDAMENTALS 49. The IDB has financed several projects in Moroccos rural areas including electrification and agri-cultureand rural development. To date, IDB interventions in the agricultural sector has accountedfor US$ 147.8 million, which represents 8% of the IDB portfolio in Morocco. IDB interventions inother sectors including energy, water and sanitation and infrastructure have also focused on therural areas.Main cause of youth unemployment: Education-Labour Requirements MismatchAnother key challenge facing Morocco in recent years is high unemployment among educatedyouth especially in the urban areas. The overall unemployment rate stands at 17.9% among theyouth aged 15-24 and 32.2% among urban youth. It is estimated that 61% of young people withsecondary education or above are unemployed. The majority of the 1.5 million jobs created by theeconomy during the last two decades were in the construction sector which requires low skilledlabourers. An IDB study of the situation in the country has detected that a large skills mismatchis the major cause of the high unemployment among the young educated demographic. Thisreflects a disconnect between the education system and the major forces driving the economy.High unemployment rates among the educated also reflect the failure of the economy to ef-fectivelyallocate resources especially labour from the agricultural sector which is necessary forstructural transformation and sustainable growth of the economy.Meanwhile, the recent episodes of the Arab Spring in the MENA region which was triggeredto some extent by the problem of high youth unemployment in the region, has posed a greatchallenge to both the government and other development partners. In this context, the IDB hasdevoted a US$ 250 million facility to support youth employment in the affected Arab countries.The Bank is now considering approval of the Youth Employment Support Program in Morocco.Recently, the IDB Group finalised the Member Country Partnership Strategy (MCPS) for Moroccofor the period 2013 2016. The strategy is based on extensive consultations with main stakehold-ersin the country. The MCPS has identified four pillars for IDB Group interventions in Morocco: (i)Enhancing Trade Competitiveness and (ii) Integrated Rural Development and two CrosscuttingThemes: (iii) Private Sector Development and (iv) Reverse Linkages. All target at improving efficiencyin the economy, thereby creating more job opportunities especially for the youth.Dr. Ismaeel Ibrahim Naiya previously worked as a lecturer in the Department ofEconomics, Bayero University and joined the Economic Research and Policy Department,Islamic Development Bank (IsDB) in 2007 as an Assistant Researcher. He was educated inhis native Nigeria, as well as in Saudi Arabia and Malaysia. He obtained his Ph.D. from theInternational Islamic University Malaysia, in 2012.Dr. Rami Abdelkafi joined the Islamic Development Bank in 2008 as an economicresearcher and currently serves as a Senior Country Program Manager in the CountryPrograms Department. He obtained his PhD from the University of Nice Sophia Antipolis,France, in 2002.512014 ISLAMIC FINANCE COUNTRY REPORT | Morocco 50. GENERAL BUSINES ENVIRONMENTCorruption continues to be a serious problem despiteefforts to combat it. The government established theCentral Authority for Corruption Prevention (official name Instance Centrale de Prevention de la Corruption, ICPC)in 2008 to coordinate, supervise and monitor corruptionprevention policies. The new government post-2011 hasalso addressed the need to combat corruption and increasetransparency. It has passed a law to protect whistle-blowersas well as trial witnesses and experts, and in December2012 it launched an anti-corruption awareness campaign.Mediterranean Governance Indicators2743 4132Egypt Morocco Tunisia Turkey Algeria121651 49 503631 2953 5146573936615865 65184435251129918C ontrol of Corruption Rule o f Law Regulatory Quality GovernmentEffectivenessPolitical Stabilityand Absence ofViolenceVoice andAccountabilitySource: The World Bank Worldwide Governance Indicators 2012.52MACRO-ECONOMIC FUNDAMENTALS 51. Despite national efforts, the kingdoms rankingon Transparency Internationals CorruptionPerceptions Index has not improved for the lastcouple of years, and only time will tell if nationalefforts will bear fruit. While the countrys scoreof 37 remained unchanged for 2012 and 2013its ranking dropped from 88th in 2012 to 91stin 2013. Comparatively for 2013 (2012) Tunisiawas 77th (75th), Algeria 94th (105th), andEgypt 114th (118th). South Africa also slipped,from 69th in 2012 to 72nd in 2013.Improved position in global rankingsand indexesa. The World Economic Forums GlobalCompetitiveness Report 2013-2014 ranksMorocco 70 out of 148 countries. Thekingdom remains ahead of its fellow NorthAfrican countries Egypt (118), Algeria (100),and Libya (108).b. Morocco is ranked 87 out of 185 countriesin the 2014 World Bank Doing Business(DB) Report. The kingdom has the mostimproved business regulation (on the easeof starting a business) compared to other re-gionaleconomies, ranking 39 compared tothe regional average (MENA) of 112. Moroccohas started eliminating the minimum capitalrequirement for limited liability companies,simplifying the construction permittingprocess, easing the administrative burden oftax compliance, and providing greater pro-tectionsto minority shareholders. HoweverMorocco has made registering propertymore expensive by increasing property reg-istrationfees.c. The Economist Intelligence Units Businessenvironment rankings place Morocco 69 outof 82. According to the EIUs 2012 index ofeconomic freedom Morocco scores 60.2 outof 100, making its economy the 87th out of186 freest countries in the 2012 Index. Its2012 score is 0.6 points better than 2011s asa result of modest improvements in most ofthe categories of economic freedom. Moroccois ranked 9th out of 17 countries in the MiddleEast/North Africa region, and its overall scoreis just above the world average.d. The World Bank Knowledge Economy Indexranks Morocco 102 out of 1