Morocco is the latest Arab country to allow the establishment of Islamic or participation banks after the approving legislation for the new market. Zacarias Garcia /The National
Morocco is the latest Arab country to allow the establishment of Islamic or participation banks after the approving legislation for the new market. Zacarias Garcia /The National

Best-performing Arab economy baulks at currency plan



In five decades of importing steel wires, Zahar Benmoussa’s company never worried about currency risks - until Morocco announced plans to float the dirham.

“For the first time in our history, we started to hedge” in the currency market, said Mr Benmoussa, managing director at Casablanca-based Grillages Marocains. Across Morocco, fears of a weaker dirham triggered a rush for dollars and euros, causing a US$3 billion drop in its reserves in just three months this year.

Then in June, the government put its plans on hold again. It was at least the second time it stalled on a move supported by the IMF and a centrepiece of Morocco’s ambitions to become North Africa’s dominant financial hub. By delaying, it risks wasting a “perfect time” in terms of its economic health to loosen controls, according to Charles Robertson, the global chief economist at London-based Renaissance Capital.

“It’s fear of the unknown and pessimism on the corporates’ part,” Mr Robertson said after a research trip to Morocco in July. There is also the shadow cast by Egypt, he said, which saw its pound lose half of its value against the dollar after the government removed most controls in November to end a foreign-currency shortage.

While the central bank governor Abdellatif Jouahri has repeatedly insisted that the float would be gradually introduced starting in the second half of the year, it is now unclear when liberalisation will take place.The prime minister Saaddine El Otmani said on July 1 that the first phase will allow the currency to fluctuate within a daily range of 5 per cent, up from 0.6 per cent currently.

The dirham is pegged to a two-currency basket weighted 60 per cent to the euro and 40 per cent to the US dollar.

“The move to a more flexible exchange rate regime, not a float, is still in the cards but the roll-out will take place at the appropriate time,” government spokesman Mustapha El Khalfi told reporters on July 6. The premier wants to investigate what volatility or depreciation would mean not only for the purchasing power of Morocco’s 34 million people, but also for companies doing business abroad, he said.

Some see opportunities from a weaker currency. Abdelhai Bessa, the chief executive of the textile and garments producer Somitex, said he hoped for an “orderly depreciation” of the dirham that would help Moroccan products compete with Turkish and Chinese goods.

“The authorities say they want Moroccan companies to boost exports and expand in sub-Saharan Africa, but right now we’re simply not competitive enough," Mr Bessa said. “Currency reform might change that.”

Yet it could also aggravate unrest which has been building in Morocco since a fishmonger was crushed to death in a garbage compacter in October following a run-in with police. The incident became a focal point for a protest movement demanding political and economic reform.

The protests probably played a minor role in the decision to delay the float plans, according to Riccardo Fabiani, a North Africa analyst at the Eurasia Group in London. More significantly, he said, was political infighting and the need for Mr Otmani to assert his authority. He took office in March at the head of a six-faction coalition, ending a five-month political impasse that had forced King Mohamed VI to intervene.

The prime minister “had been bypassed by everyone”, with the unrest handled by the interior minister and the justice minister - both of whom are close to the monarchy, Mr Fabiani said. The central bank was relatively the easiest target for Otmani to show that he is in charge and “not ineffective,” he said.

Even so, analysts say Morocco’s economy is in good shape for removing restrictions on the dirham. Unlike Egypt prior to its float, Morocco has an investment-grade credit rating and an expanding private sector. With growth expected to average 4.1 percent in 2017 and 2018, it is set to outperform most Arab economies including Egypt and Tunisia, as well as Saudi Arabia and the United Arab Emirates.

Its budget deficit is forecast to drop to 3.1 percent this year from 4.2 percent in 2016, according to economist estimates compiled by Bloomberg. Inflation is under 2 percent.

“It’s not at all cut-and-dried whether the dirham will appreciate or depreciate when more flexibility is allowed,” said Mr Badr Fassi-Fihri, who trades currencies for Banque Centrale Populaire in Casablanca.

The postponement was easy for Mr Otmani because Morocco, unlike Egypt, is not facing a currency crisis that requires immediate action, according to Reham El Desoki, a senior economist at the regional investment bank Arqaam Capital.

Authorities are “thinking long about what could go wrong simply because they can afford to do so”, she said.

The repeated delays are exacerbating volatility, said Mr Benmoussa. “The way the authorities seem to be hesitating raises uncertainty," he said.

* Bloomberg

Living in...

This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.

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Rating: 4/5

COMPANY PROFILE

Company name: Klipit

Started: 2022

Founders: Venkat Reddy, Mohammed Al Bulooki, Bilal Merchant, Asif Ahmed, Ovais Merchant

Based: Dubai, UAE

Industry: Digital receipts, finance, blockchain

Funding: $4 million

Investors: Privately/self-funded

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Favourite country to visit: Italy

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Based: UAE with a subsidiary in the UK
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Investors: Elaine Jones
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Company profile

Company name: Fasset
Started: 2019
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Based: Dubai
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Current number of staff: 86
Investment stage: Pre-series B
Investors: Investcorp, Liberty City Ventures, Fatima Gobi Ventures, Primal Capital, Wealthwell Ventures, FHS Capital, VN2 Capital, local family offices

Company profile

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Founders: Saeid and Sami Hejazi
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Sector: FinTech
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Number of staff: 20
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