The Moorish Wanderer

The Middle Class Rip Off

Posted in Moroccan Politics & Economics, Moroccanology, Morocco, Read & Heard, The Wanderer by Zouhair Baghough on October 17, 2011

Much has been made of the Feb20 demonstrations, mainly as a sign of middle class unrest and discontent with perceived unfair distribution of wealth and political power. While it is understood only too many citizens have been excluded from, or ruled themselves out of,political representation – because of the generally corrupt and inadequate partisan political apparatus, the same argument cannot be made as easily about economic retribution;

The middle class in Morocco is both a political and economic maze to the observer, remain a tricky and elusive set of individuals, and any proposed criterion to determine the broad characteristics of such population is bound to trigger gainsay and recriminations for its arbitrary, almost deterministic approach. And yet, these are the people that may well hold the key to appease social and economic resentment, drive forward both the political process and the economic transition away from its current quagmire and into genuine prosperity.

The middle income as we define it.

My proposed definition of “Middle Class” does not stray from HCP established nomenclature; first because my own back-of-the-envelope computations tend to be vindicated by HCP findings, and second because the less controversial course is to settle for the Median Income as an indicator of the economic characteristics. The modus operandi is pretty straightforward: households are ranked per income, and then broken down into uniform quintile group (that is, per 20% sub-groups). The median quintile is therefore the third 20% -as it leaves as many households on its left as it does on its right. Then, we consider each quintile’s respective share in gross national income (GNI). Unfortunately, consistency isn’t HCP forte, and the IMF world data fields only 5 dates for the income distribution, further completed with some punctual HCP late figures on the matter: 1985, 1991, 1999, 2001 and 2007.

As we set in to track the median national income between 1999 and 2007, the findings point out a marked decrease in median share, down from 14.97% in 1999, to 14.54% in 2007, and the trend is to be confirmed by subsequent surveys. This dent in median wealth (-2.87%) almost mirrors the average GNI per capita growth over the same period (+2.83%) In simple words, the median income share has gone down at almost the same rate GNI per capita has gone up. And it seems all other quintiles but one have experienced similar trends. The only quintile households with a healthy 3.41% improvement were the top 20%, that is, those earning more than MAD 207,000 per annum (2007 figures).

But let us dig deeper in the “Middle Class malaise”; while it is understood their share in income has fell over time (a tale-telling sign of income concentration in this country) their real income has also gone down. The stated implication is not necessarily true: the share pie per person has grown some 3% a year, so even though it has grown smaller with respect to the whole pie, it may have grown in absolute terms nonetheless. But sadly for the Middle Class, that did not happen; quite the opposite.

But what about real income?

Between 1999 and 2007, median income per household has grown 1.48% in nominal terms. However, when adjusted for average (CPI) inflation,the real income has been steadily decreasing at 0.18%. This means the median households have accumulated a real loss in purchasing power of MAD 13,000 over the considered period. What does this tell us about all these economic policies carried ever since 1999?

And it is not like the median households are the only ones who bore the brunt of economic inequity; again, the top 20% are the only ones who actually improved their real income by MAD 11,000 overtime.The bottom 20% have increased their real income though: an accumulated MAD 51 over the considered 8 years – the top 20% improved their real income 215 times more than the bottom 20%. This is worse than a zero-sum game, it is, quite simply, a game heavily skewed towards the affluent, and public redistributive policies (i.e. fiscal policies) have done nothing to allay the inequity; it has only made it worse.

What holds in 2007 holds equally true for 2011 (even by the most optimistic projections of a stabilized income share with respect to the 2008 survey) as the median 20% saw their income share fall further to 13.2%.

... The Middle Class have been screwed up. In real terms.

A country with a weak middle class who cannot enjoy the proper benefits of growth, cannot sustain itself without serious risks of social unrest and discontent. What is worse, these subsidies the government has been so generously putting on the table only beat the inequity further in, as they benefit those with the highest absolute consumption levels.

Now that these numbers have put in perspective the ailing of our Middle Class, the guileless observer would now understand why a deep, structural change within our institutions and the economics of wealth redistribution need to be thoroughly reviewed.

And yes, Middle Class IS radical.

Of the One, by the One… for the 1%

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard, Tiny bit of Politics by Zouhair Baghough on October 14, 2011

Protests in the United States against the plutocracy (the “99% movement”) are truly an unprecedented thing to observe. #OccupyWallStreet, as Dailykos contributor @Unaspencer (whom I had the opportunity to meet during the Netroots Nation at Minneapolis) explained it has to do with more than just unfair taxation, and I assumed she was referring to a demand for fairer society with more social justice. Given the quasi-impunity many bankers enjoyed after the ’08 credit crunch, the swift downgrade of US debt credit rating could be seen as double standards -although the same document pointed out that the blame was to be laid on the Republicans congress for their stalwart refusal to “continue to resist any measure that would raise revenues”.

In Morocco, we do not have these problems; after all, stock markets do not contribute a lot to GDP, and banks remain a lot more regulated under domestic regulations; furthermore, it is a well-known fact Moroccan assets are over-valued, and so remain unattractive to foreign investors. And yet, we have a small minority of wealthy households, with an average income well above MAD 200,000 per annum (and I have restricted myself to the top 10% only).

+32% over the year. And a full recovery since the early 2009 dip.

Those incomes earned on Casablanca Stock Exchange are even heftier, and benefit to an handful of privileged few.

We consider the MASI (Moroccan All Shares Index) Gross and Net returns: as late as December 2010, the Market valuation for MASI dividends increased 32% over the year, and considering the MASI’s valuation at the same time (MAD 129,25 Bn) the dividend value for late 2010 was MAD 31Bn for all MASI shareholders. This figure is very close to the effective paid dividends for at the same period, thus vindicating the computation of a “MASI Dividend index” and the claim of a very favourable tax deductions system applied to financial assets.

31 Bn is not such a big deal, after all: that’s about 5.1% of total GNI. The figure in itself is ambiguous, in the sense that it translates the relatively weak penetration of financial assets in gross income formation, as well as the relatively stable requirement of required capital returns from an economy like Morocco’s. Alternatively, it is only too much to be shared by a small group of wealthy individuals who, basically, concentrate as much income as 20% of the population. The question remains: how many of these über-rich own it? Also, it is safe to assume the vast majority of shareholders are not small ones; by all means, as a matter of fact, two individuals and three companies alone own 83% of all shares listed on Casablanca Stock Exchange. That’s a lot.

Large companies in Morocco also have a certain habit to display concentrated shareholding (usually other companies and holdings, a bit like SNI, who controls between 44% and 57% of total market capitalization) which makes it both easier and more difficult to get a precise overview of how concentrated wealth is among the top 10%; it is easier because these companies are ultimately owned by a handful of individuals, and more difficult because one exhausts very quickly the information yielded in publicly available documents.

And so, even among the 10% wealthiest, concentration is insanely high; and that’s not even the “We are the 1%”, it actually goes down to a lot less than that, and they can get away with it, not least because of the generous fiscal regulations.

Fatcats: they make more than the Markets.

Makassib: The Government’s Record?

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Moroccanology, Morocco, Read & Heard by Zouhair Baghough on September 12, 2011

A couple of days ago, was activated on-line to publicize the government’s achievements over the last 4 years. A PR campaign supposedly designed to give a flattering record of what the government did for the Moroccan people during their tenure. It’s new, it’s colourful, and… sometimes economical with the truth, to say the least. Larbi opened the charge with a gambit on the half-truths over unemployment. I’d follow with something that has attracted my attention over inflation, real wages and minimum wage.

According to the website:

الرفع من الحد الأدنى للأجر في القطاع الخاص ب 25% (من 1936,74 درهم إلى 2337,84 درهم)؛

The minimum wage actually increased a little above 20% by the website’s own figures, so the remaining 5% are funny money, a 2012 projection in fact, for which the incumbent government cannot claim credit, since it is on its way out shortly. This increase translates the government’s effort in sustaining dialogue with unions and their willingness to improve minimum wage even though it supposedly put a strain on public finances or on the domestic economy. This caring government wants to show that their policy aimed at reducing wage and income inequality was successful by acting in favour of the bottom 10% households.

3.27% real increase between 2008-2011 compared to 5.2% between 2005-2007

But then again, the real data shows these very same households did not improve their standards of living in the proportions this PR campaign tries to put forward as the precise improvement of income. As a matter of fact, the government’s claim a 20% increase in minimum wage actually redistributed further growth gains is contradicted by official statistics: minimum wage recipients have improved their real income but its evolution has fallen short of overall GNI growth, which means in dynamic terms that their real income and real relative income decreased over time. So much for social-liberalism on behalf of Istiqlal and RNI economic team…

First off, the above-quoted simplistic statement fails to take into account inflation-adjusted minimum wage and even more so, a specific computed inflation for the lower income-earner households: indeed, nationwide inflation fails to take into account the more sensitive price-elasticity these consumers display when it comes to basic goods. Indeed, a higher average propensity to consume edible goods can lead to at least one-point additional inflation on the annual synthetic index. In these conditions, trumpeting that nominal minimum wage increased 20% (or 25%) is meaningless until it has been re-computed on real basis.

According to HCP figures, nationwide inflation increased some 6% between early 2008 and mid-2011.  This means that the 3-years real (and effective) increase in minimum wage was closer to 13%, or 3.27% annual real increase.

When the composite index is computed on the basis of a larger coefficient put on edibles (48.3% instead of 41.5%) the actual inflation poorer households need to take into account is 6% instead, and that means  actual improvement in real wages is closer to 12%, i.e. a 2.87% annual improvement, hardly a makssab to speak of, especially when these are compared to the higher rates of compensation minimum-wage recipients enjoyed during the late 1990s, some 5.23% annual increase, in real terms. As such, the ‘effort’ the government supposedly put to secure higher minimum wage level did not make up for the 2005-2007 freeze.

Real minimum wage decreased compared to GNI per Capita, even though nominal terms marginally improved in 2010

When compared with recorded GDP and GNI growth rates over the period, minimum wage has fallen behind. In economic terms, the argument goes any indexation mechanism might trigger inflationary pressures, something this government, Bank Al Maghrib and the IMF cannot contemplate.

But then again, that bombastic figure, the 25% announcement, tries to slip in the idea that minimum wage actually increased at a higher pace, which it did not all the way over the considered 3 years. True, nominal minimum wage caught up with GNI growth in 2010, a commendable figure- the government should have highlighted it instead of indulging in shabby deceptions. But then again, we are reasoning in nominal terms: when we look closely at real variables, it is obvious that yet again, standards of living have definitely not improved: 2010 was a bad year for real GNI per capita, but was even worse of minimum wage, with respectively 4.11% and 0.99% year-to-year.

Let us now indulge in some gleeful partisan comparison: the MASI Dividend index (computed as the daily difference between MASI gross and net return indices) shows some 35.27% increase in 2010, compared to 2.47% in nominal terms. Well, these are good news for hard-working poor households, to know that stock exchange tycoons have increased their profits 1.3 over one year when they have benefited from a marginal 2.47%.

Caring government.