Economic studies
Morocco

Morocco

Population 35.2 million
GDP per capita 3,366 US$
B
Country risk assessment
A4
Business Climate
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 4.2 3.0 2.6 3.1
Inflation (yearly average, %) 0.8 1.9 0.3 1.1
Budget balance (% GDP) -3.5 -3.7 -3.6 -3.7
Current account balance (% GDP) -3.4 -5.5 -5.0 -5.1
Public debt (% GDP) 65.1 65.3 65.3 65.4

(e): Estimate. (f): Forecast.

STRENGTHS

  • Favourable geographical position, close to the European market
  • Strategy to move to high-end market and diversify industrial production
  • Political stability and commitment to reform
  • Growing integration in African market

WEAKNESSES

  • Economy highly dependent on the performances of the agricultural sector and the European Union
  • Significant social and regional disparities. Although decreasing, the poverty rate remains high
  • Weak productivity and low competitiveness
  • High unemployment and low female participation in the labour market
  • Political tension with regional neighbours

RISK ASSESSMENT

A rebound hampered by sluggish European activity

After declining due to a downturn in agricultural production in 2019, growth is expected to recover in 2020, following the fortunes of the sector. However, the rebound will likely be constrained by weak growth prospects for the euro area. Since about 60% of Moroccan exports head towards Europe - mainly to France, Italy and Spain - the contribution of the trade balance is set to suffer. Automotive exports, which have doubled since 2012 to become the largest source of export revenue, could thus slow down. Tourism revenues are also expected to be affected by the unfavourable external environment. With about 85% of expatriate remittances coming from this region, the European slowdown could also have an impact on private consumption. However, it may benefit from better agricultural prospects (more than a third of households depend on the sector’s revenues) and more accommodative fiscal and monetary policies. The reduction in the reserve ratio and the amnesty for the repatriation of assets and cash held abroad should alleviate the pressure on bank liquidity and lower the cost of credit. Private investment stands to benefit from this and should also continue to be buttressed by FDI, particularly in the automotive sector. Private investment is expected to get support from public investment through the new legal framework for PPPs. Likewise, socially-focused budget measures should support public consumption.

 

Social measures as a priority

In 2020, the budget deficit is expected to remain stable. The increase in revenues should be driven by further privatisation. Measures to regularise the fiscal situation, including the new amnesty for assets and cash held abroad, and efforts to broaden the tax base should improve collection. On the expenditure side, the 2020 Budget will keep the focus on social aspects, with a particular emphasis on the education and health sectors, which is expected to account for 46% of the new civil service jobs created. Recruitment will also contribute to the increase in defence spending. Capital expenditure will be revised upwards as well but is to be financed through the new PPP legal framework. Efforts to control the budget deficit should keep the debt ratio stable.

In 2020, the current account deficit is set to remain virtually unchanged. Slightly weaker domestic demand and lower oil prices are expected to contain the increase in imports, mitigating the impact of the less supportive external environment on the trade deficit. The services surplus will likely shrink, reflecting developments in the tourism sector. Investment profit repatriation will contribute to the small income deficit. Negative economic developments in Spain and France – the source of most expatriate remittances – are expected to affect the surplus in the transfer account. Inflows into the financial account, mainly through FDI, are expected to finance the current account deficit. Foreign exchange reserves, which cover more than five months of imports, provide room for manoeuvre in the event of an external shock. These reserves have not declined since the Moroccan dirham’s floating band was widened in January 2018 from ±0.3% to ±2.5%. Measures to gradually make the dirham more flexible may continue. The USD 3 billion precautionary and liquidity line concluded with the IMF in December 2018 for two years also mitigates external risk.

 

The El Othmani II government facing social challenges

In 2019, the decision of the Party of Progress and Socialism (PPS) to withdraw from the majority weakened the coalition that was formed after the 2016 parliamentary elections and that is led by the Justice and Development Party (PJD). However, the coalition still has a comfortable majority (229 seats out of 395). The PPS’s departure was followed by the announcement by King Mohammed VI of a ministerial reshuffle, which resulted in a smaller cabinet still led by Prime Minister Saâdeddine El Othmani. While the social climate remains tense, social issues are expected to dominate the government’s roadmap. The question of social and territorial disparities remains a source of tension. The May 2018 boycott of several large corporate groups and the many demonstrations, including teacher protests, which took place in 2019, testify to high expectations for progress in living standards. The lack of job opportunities, especially for young people, the vulnerability of rural populations to climate change, the perception of corruption and restrictions on certain freedoms could fuel frustrations. The new government is expected to pursue its efforts to improve the business climate. After jumping nine ranks in the 2019 edition, the country has moved up seven additional ranks in the 2020 Doing Business ranking thanks to measures to develop regulatory frameworks for business and cut red tape (53rd out of 190). However, long payment periods, particularly in the public sector, remain a major constraint for the business environment.

 

Last update : May 2020

Payment

 

Bank transfers are becoming the most popular means of payment for both domestic and international transactions. Cheques are still commonly used as instrument of payment and also constitute efficient debt recognition titles: debtors may be prosecuted if they fail to pay the amount owed. Bills of exchange also constitute an attractive means of payment, because they are a source of short-term financing by means of discounting, instalment, or transfer. Promissory notes are used to record the financial details of personal debts, business debts and real estate transactions. They are legally binding contracts that can be used in a court of law if the debtor defaults. A promissory note acts as solid evidence of an agreed payment, and subsequently debt in case of dispute.

 

Debt collection

Amicable phase

Debt collection must begin with an attempt to reach an amicable settlement. Creditors attempt to contact their debtors through different means (telephone calls, written reminders such as formal letters, emails or extrajudicial notifications, etc.). Amicable settlement negotiations can be intense, and cover aspects such as the number of payment instalments, write-offs, guarantees/collateral, and grace period interest. Moroccan law states that a lawyer can acknowledge the signature of the debtor via payment plans, which are signed, certified, and legalized by the competent authorities in Morocco. The creditors’ lawyer can subsequently use this payment agreement as debt recognition in case of legal action.

 

Legal proceedings

Morocco has a dual legal system that consists of secular courts based on French legal tradition and courts based on Islamic traditions. Secular courts includes proximity courts (juridictions de proximité) in charge of settling disputes between individuals, Courts of First Instance (tribunaux de première instance) dealing with all civil matters, Commercial Courts dealing with business disputes, Appellate Courts (cours d’appel) dealing with civil and administrative matters, and a Court of Cassation (Cour de cassation). There are 27 Sadad Courts, which are courts of first instance for Muslim and Jewish personal law.

 

Fast-track proceedings

The order to pay is available when the debt has a contractual cause or the obligation is of a statutory origin. It is characterized by a petition form sent to the relevant clerk of the court. The debt must be certain, liquid (i.e. clean and clear), due, and uncontested. An enforceable order to pay is obtained within an average delivery time of six months, unless the defendant lodges an opposition against the ruling. In the defendant opposes the order within one month of being served, the case is referred to ordinary proceedings.

 

Ordinary proceedings

A writ of summons is sent by the creditor’s representative to the relevant court and served by a bailiff to the debtor, who may subsequently obtain legal representation in the period prescribed by the judge and file a counter claim. Several hearings may be required for the exchange of written submissions, transmissions of documents and to produce the relevant evidence.

The main hearing is set by the judge to hear the presentation of the pleadings. Discussions and pleadings are conducted by the judge during the public hearing. The case is then taken under deliberation to allow judges to discuss the means, grounds, and pronouncement that make up the content of the judgment. After the sitting of the judgers, a reasoned judgment is rendered. It can usually be obtained within an average delivery time of one year.

 

Enforcement of a court decision

Once all appeal venues have been exhausted, a judgment becomes final and enforceable. Garnishee orders are normally efficient for seizing and selling the debtor’s assets.

According to Moroccan law, commercial courts are obliged to recognize judgments rendered abroad, even if there is no convention signed for this purposes with the issuing country. In order to be recognized and enforced, the original copy of the foreign judgment must be provided to the court with a certificate of non-appeal. When a foreigner gets final judgment that they want to enforce in Morocco and, if not, when seeking enforcement of a Moroccan judgment abroad, they must follow exequatur proceedings. There are two enforcement procedures. The first is uniquely Moroccan, whereas the second is fixed by judicial bilateral agreement between Morocco and other countries, including Germany, Belgium, the United States of America, the United Arab Emirates, Spain, France, Italy and Libya.

Insolvency proceedings

Insolvency proceedings are regulated by Book V of the Commercial Code. It provides for prevention of difficulties (alert procedure and amicable settlement procedure) as well as formal insolvency procedures (judicial rehabilitation proceedings and judicial liquidation proceedings).

 

Alert procedure

The alert procedure is initiated by a business’ partners or auditors (external auditors hired by the company to rectify the financial situation), who are required to notify the company manager of any opportunities to redress the situation within eight days. If no steps are taken to remedy the situation within 15 days, a general assembly must be convened to take a decision on how to redress the situation based on the auditor’s report.

 

Amicable settlement procedure

Amicable settlement procedures can only be implemented by a commercial company, trader, or artisan, who is experiencing financial difficulties but is not yet cash flow insolvent. Once initiated, the debtor is placed under the supervision of the Court. The Court subsequently appoints an external mediator for a limited period of three months to assist the debtor in reaching an agreement with its creditors. A settlement can be reached with all creditors or the debtor’s “main creditors”. Creditors are entitled to their entire claim, but the mediator may propose an arrangement or creditors may assign a portion of the debt if they so wish. Once approved by the Court, all judicial proceedings relating to debts covered by the agreement are suspended for the duration of the amicable settlement agreement.

 

Safeguard procedure

This is mechanism is intended to allow a company to reorganize in order to continue to survive. To benefit from it, the company must establish that it is not in a state of cessation of payments. However, in the context of this procedure, it is still possible to negotiate with your creditors, in order to avoid arriving at to this cessation of payments, to the receivership proceedings. It is the company that seizes the court, which pronounces a judgment of opening of the safeguard procedure. The procedure starts with a six-month observation period (renewable once) during which the insolvency administrator, in collaboration with the manager, draws up a “economic and social balance sheet” (BES) for the company: an update on the origin of the difficulties, he current financial situation, the corrective measures to be envisaged and the resulting prospects. During this period, the company takes appropriate measures to correct the situation, and it helps the administrator to develop a backup plan. The adoption of such a plan by the court marks the end of the observation period and the beginning of the actual plan, which can last up to five years. Here again, the manager remains master aboard his company but, above all, the company will benefit from radical measures that the court can only impose:

  • suspension of maturities of debts;
  • stop individual prosecutions;
  • obligation for all creditors to declare their claims;
  • stop interest rate.

 

Judicial rehabilitation

This procedure is only available for debtors that have become insolvent (état de cessation de paiements), but whose financial situation is not irreparably compromised. An insolvency judge and an office holder (the person appointed by the court as part of an insolvency or liquidation; also acts as the syndicate) are appointed by the court. During the process, the debtor company and its management remain in possession of the company’s assets and the debtor continues its business. The rehabilitation procedure can result in either the reorganisation of the debtor’s business or its liquidation. The office holder is required to prepare a report on the situation of the company within four months from the opening of the proceedings. In his report, the office holder will either recommend a rehabilitation plan for the debtor, the sale of the business, or liquidation. The court is then required to reach a decision on the fate of the debtor, based on the report. There is no direct vote by the creditors on the options available to the debtor during the procedure.

Judicial liquidation

The judgment initiating the procedure makes all the debts immediately due and payable, the creditors within a period of two months must present their claims. Moroccan creditors have two months to submit their declarations; creditors residing abroad have a period of four months. Liquidation proceedings may terminate prematurely before a distribution in liquidation if the debtor has no more debt, the office holder has sufficient funds to pay all the creditors in their entirety, or the debtor does not have enough assets to cover the costs of the liquidation procedure.

Under Moroccan law, there are no specific rules on the priority of claims in the event of insolvency. Nevertheless, there are some privileged creditors such as: the employees, the public treasury, the social agencies, the creditors of a collective conciliation, finally the unsecured creditors.

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