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Morocco

Morocco

Population 35.2 million
GDP 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 2.2 -5.1
Inflation (yearly average, %) 0.8 1.9 0.3 0.7
Budget balance (% GDP) -3.5 -3.7 -4.1 -6.9
Current account balance (% GDP) -3.4 -5.4 -5.1 -7.8
Public debt (% GDP) 65.1 65.0 65.0 75.2

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

STRENGTHS

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

WEAKNESSES

  • Economy highly dependent on the performance of the agricultural sector, therefore on the climate and water availability, as well as on the European Union
  • Economy strongly impacted by the Covid-19 crisis
  • Significant social and regional disparities. Although decreasing, the poverty rate remains high
  • High unemployment rate, especially among young people, and low participation of women in the labour market
  • Weak productivity and low competitiveness
  • Political tensions with regional neighbours

RISK ASSESSMENT

A dive into deep recession following COVID-19

The health crisis has had a strong impact on the country's economic growth. The first cases of Covid-19 were reported on 2 March, and health emergency was declared on 20 March, two days before the announcement of a national lockdown. Containment measures were extended in some cities, and the state of public health emergency will be maintained until 10 September. As of 13 August, Morocco reports 37,895 confirmed cases with 584 deaths and 26,687 recoveries. Morocco is affected by both external and internal shocks.  Highly dependent on  European economies, themselves impacted by the crisis, exports of goods and services, which accounted for 39% of GDP in 2019, have collapsed and fell by 18% year-on-year in H1 2020. The European automotive market, leading source of exports, is struggling to emerge from the abyss into which it has fallen. Exports of rock phosphate and derived products have also fallen sharply due to lower Indian imports, which accounted for almost half of total exports in 2018-2019. Imports, on the other hand, declined by 17.5% in the first half of 2020 compared to the same period in the previous year. Despite this decline in imports because of falling domestic demand, the current account deficit is expected to widen. This results from the larger decline in exports, as well as the fall in tourism receipts and the decline in expatriate remittances. The direct contribution of tourism to Morocco's GDP was about 12% in 2019 and is one of the sectors hardest hit by the health crisis. Containment measures, as well as the closure of borders with Europe, the main source of visitors, have caused a sudden halt in activity and thus considerable losses that cannot be compensated, even if the sector recovers quickly, which is doubtful. Moreover, remittances from the Moroccan diaspora (6.2% of GDP in 2018), on which a large number of families depend, have fallen sharply, affecting household consumption. Furthermore, the unemployment rate is increasing and is expected to reach 12.7% in 2020, from 9.8% in 2019. However, the most significant job losses are in the informal sector, suggesting a higher unemployment rate than projected.

 

Increased public deficit through proactive government response

King Mohamed VI reacted quickly to the pandemic by adopting social distancing measures, in order to limit its impact on the economy. A special fund to combat Covid-19 was implemented, with the participation of private individuals, enabling Morocco to increase its intensive care capacity and rapidly acquire 100,000 tests. The fund, which represents 2.7% of GDP, provides income to workers in the formal sector who have lost their jobs because of the crisis, as well as to households in the informal sector, which account for about 12% of GDP and concern 36% of the working population who are particularly vulnerable. These measures also aim to support SMEs that have been badly affected by the crisis, more than half of which have declared a definitive stop of activity because of Covid-19. On 29 June, the King announced that USD 12.9 billion would be devoted to boosting the economy. Part of that amount, around USD 4.9 billion, could be allocated to a new strategic fund aimed at supporting production activities and financing public-private investments across all sectors. Two-thirds of this fund would be provided by various private funding funds and one-third by the government. The Interministerial Investment Commission has also approved a USD 2.5 billion package to support 45 draft conventions and amendments. These investments aim to create over 3,000 direct jobs and approximately 5,500 indirect jobs. The Covid-19 crisis led to a large number of additional expenditures while reducing revenues. The drop in net ordinary revenues is estimated at 10.5% year-on-year in H1 2020, thus increasing the public deficit, which should return to its pre-crisis level in 2021. Public debt is projected to increase to 75.2% of GDP, with external debt projected to reach 50.3% of GDP at the end of 2020.

 

Political and social stability tested by the crisis

In 2019, the decision of the Party of Progress and Socialism (PPS) - a socialist party - to withdraw from the majority slightly weakened the ruling coalition that emerged from the 2016 parliamentary elections and led by the Justice and Development Party (JDP), a conservative Islamist party. However, it can still rely on a comfortable majority (229 seats out of 395). The departure of the PPS was followed by the announcement by King Mohammed VI of a cabinet reshuffle, which resulted in a tight cabinet around Prime Minister Saaddin El Othmani. The crisis is likely to exacerbate political and social fragilities. Parliamentary elections are scheduled for October 2021, but doubts remain as to the timetable. Some parties consider that it would be wiser to postpone them and to transfer the funds from the election campaign (about 3 billion DH) to the special Covid-19 fund, so they can be used for economic and social purposes. Despite the measures to support households, the drastic rise in unemployment and the loss of household income point to an increase in social risk. The high weight of the informal sector, particularly in trade, construction and food processing, which are sectors that have been strongly affected, does not facilitate the payment of aid, thus increasing inequalities. Lack of employment opportunities, especially for young people, the vulnerability of rural populations to climate change, perceptions of corruption and restrictions on certain freedoms could fuel frustrations.

 

Last updated: August 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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