Global economic crisis triggers bear market in Morocco

09/10/2008

Despite efforts by the government and banking officials to downplay the country's risk of impact from the current global economic crisis, Morocco's stock market has suffered a hit in recent weeks.

By Mawassi Lahcen for Magharebia in Casablanca – 09/10/08

[Getty Images] The Casablanca Stock Exchange is down by more than 86 billion dirhams since September 1st, based on fluctuations in global markets.

Despite a low rate of foreign investment in the Casablanca Stock Exchange – estimated at just 5% – Moroccan stocks proved this week that they are not impervious to the financial crisis currently shaking up world markets.

The Moroccan stock market has actually been in decline since mid-March, with the outbreak of the mortgage crisis in the United States. However, real deterioration began in September with the start of US banking problems and their effects on the global financial system.

Total losses in the Moroccan stock market since March amount to 112 billion dirhams, or some 18% of the nation's GDP in 2007. More than 86 billion dirhams have been lost since early September as a result of the shocks in global stock markets, reducing the total capital of the stock exchange from 666.73 billion dirhams on September 1st to 580.5 billion on Tuesday (October 7th).

Moroccan officials have been careful to deny any link between the global financial crisis and the Moroccan financial system. Jaloul Ayad, Director General of the Moroccan External Trade Bank (BMCE), is of the opinion that the collapse of Moroccan stocks was due to psychological factors.

"What took place here in the stock market in recent weeks was a case of panic among dealers in Moroccan stocks," he said. "[They] were influenced by what they saw on TV as a result of the Wall Street collapse and its implications across the world."

Ayad maintained that Moroccan banks are immunised against upheavals in the global banking system because of their weak foreign links. "Although our financial system is open and liberal, our banks depend on local resources – especially client deposits – in re-financing their assets," he said, "unlike in some countries, where banks depend on foreign funds to re-finance their assets".

Attijariwafa Bank Chairman Mohammed Kettani also defended the solidity of Morocco's banking system. "The global financial crisis is limited to very advanced financial instruments such as mortgages and derived financial products. These products don't even exist here in Morocco, where banking services are still simple and basic," he said.

As to the state of mortgage loans in Morocco, Kettani said, "Moroccan banks grant mortgage loans based on strict criteria that are based on families' ability to save. The approved rule is that the debt instalments don't exceed 40% of family income. Therefore, I don't see any risks in this respect as long as we control the rate of inflation and interest rates."

Morocco will be more affected by reductions in trade and foreign investment than by financial decline because of the limited nature of the Moroccan stock market, said Ahmed Abboudi, Director of the Moroccan Centre for Business Conditions (Centre Marocain de Conjoncture, or CMC).

According to Abboudi, the CMC expects the global crisis will lead to a 1.5 to 2% decline in short-term growth. The group also expects a related increase in inflation, to break 4.5% for the first time in several years.

"I don't think Morocco will face any trouble in strict financial terms," he said. "However, the aggravation of the global financial crisis, the speed of its spread and its move from finance to the economic circle will undoubtedly lead to shrinking world demand for Moroccan industrial products and services."