The Moorish Wanderer

Who’s Next?

I did not get elected. That was expected, though I was disappointed I did not get enough votes for the MBAs. Never mind, perhaps next year, and a great thank you to those who supported me throughout. I will nonetheless continue in my folly, those who appreciate it can be assured of that.

Yesterday, late at night, after one too many Jack Daniel’s & Vodka shots (at a birthday party, mainly mingling about), I was staring at television, watching news from Egypt. I dare say it gets pretty hard to impress me, but the pictures of demonstrators on a tank (alive and joyfully chanting ‘Down With Mubarak !‘) took me aback. Drunkenness only just amplifies the sense of amazement that, if something is happening in Egypt, it might not be the same as the Tunisian uprising, it remains a historical day, and a memorable month.

Central Cairo. Demonstrations are genuinely popular and demand ousting Moubarak (Guardian Picture)

If dices keep rolling, the whole MENA region’s geopolitics might be profoundly altered: perhaps my analogy is wrong and misplaced, but it feels quite like the late 1980’s behind the iron curtain: the GDR, the most trustworthy ally to the Soviets, went down as the Berlin Wall was joyfully torn apart by enthusiastic demonstrators. In Poland, Czechoslovakia and Hungary, oppressive Stalinist regimes faded away like houses of cards. If the analogy is far-fetched, the symbolism of iron curtain can be considered to be relevant: in MENA, there is indeed an iron curtain, between the oppressed denizens and their rights, whatever basic they are, between the oppressed and squeezed poor-working classes and the apparatchik, greedy, rapacious cronies. An iron curtain between eternal, sometimes senile rulers and youthful, healthy ruled. In every sense of the word, there is a huge asymmetry between the body politics and the body citizens. Truly, we live in interesting times, and this is not a curse.

Humour me: is there is country where a part of the population desperately rallies behind the ruler, re-affirms its love and devotion for Him, and reiterates the line “we are different”? Hint: It’s most westerner one in North Africa. Moroccan policy-makers are watching carefully, and delivering even more careful statements, trying to anticipate what was already managed but was yet to get worse.

I think why I did not get enough votes for the MBAs. Perhaps I was too critical of the ruler(s) of the land. Perhaps I should have watered down with some lauding comments, or perhaps by expressing understanding sympathy to a Regal will for reform. Cheap lines, as it were, that, even in real life, are of little help: the policy-maker works better when facing opposition, and the more the latter is involved in real debate, enjoying a say on matters of state, then the very epitome of democracy are there for citizens to enjoy. In time of crisis, hurriedly rallying behind His Majesty looks at best sheepish, if not entirely lick-spittle behaviour. What, are all Moroccans -especially on the web- eager to show their monarchical sympathies like a badge of honour? Is there is some greema for every spine-less, herd-minded fool enough to change their profile picture on social networks, start posting fulsome praises to the King, and worse, stifle those questioning their sanity. That, dear readers, is a fit of panic. And with it, the shadows of doubt, indecisiveness begin to close on Morocco’s future.

The next Lego Ad, Perhaps?

It is true Morocco is different. This is such a tautology, considering that all countries are different one from the other when considered globally. Egypt was different from Tunisia, and yet there is an ongoing successful, large-scale protest against the incumbent ruler. What is meant by ‘difference’ is that the reasons why Egyptians, Tunisians and Yemenis took to the street differ, although there can be found some pattern, which can be found in Morocco too. Now, we should address two questions: is Morocco’s profile risk bound to deliver some large scale protests, and what is the ongoing reaction among officials.

First, Morocco shares common features with Tunisia and Egypt, and up to a point, these indicators are even worse concerning Morocco. Their respective economies grew at comparatively high rates, but failed to benefit all but a few members of oligarchy. While the three countries signed free-trade agreements with each other and with other major economies, they commit to free markets and limited state intervention, and yet the economic structures is either monopolistic (private monopolies, that is) or oligopolistic; Furthermore, there are numerous records of opaque relationships between some state officials -some quite close to the rulers’ inner circle- and the largest economic players. In a word, all these countries -and others in the region- are, as far as economics is concerned, crony capitalism. With respect to economic structures, and regardless of regional variations, each countries has a concentrated distribution of wealth. In social and human rights terms however, the differences are more acute: Benali’s Tunisia was considered the ‘Mother Of All Oppressive North African Regimes‘, while Egypt and Morocco, mainly because of their large population -compared to Tunisia- did not crack down on Human Right activists and bloggers with the same viciousness as in Tunisia, but still, both regimes exercise a watchful -and sometimes vengeful- eye on dissidence. Morocco however, has a more liberal dealing with dissidence, though it remains highly repressive.

Second, Morocco witnesses quasi-everyday protests: the unemployed graduates in front of Parliament alley in Rabat, or in the hinterlands, the so-called “Maroc Inutile” the ‘useless Morocco’, where denizens have access to basic services, but only just: reliance on rain barometer, high unemployment, arrogant, corrupt and rapacious local administration are but a few items that sometimes lead these parts of the realm to social resentment, and ultimately, popular protests that are either  put down by use of police force, or defused with usually empty promises. Compared to Tunisia, Egypt, Syria, Yemen and other countries, Moroccans are more willing to take to the streets, but only to protest for Palestine, and sometimes, just sometimes, against rising prices. When local demonstrations are staged, they do not usually target anyone in particular, and political claims are watered down by claims for more affordable cost of living. My theory is that by tolerating some minor, localized demonstrations, officials provide the people with an air-valve to defuse their frustrations and neutralize any possibility of a larger, more dangerous uprising. If that happens, there are thousands of unknowns to be determined: if the police is not enough, they might wheel-in the army. Are soldiers going to shoot live rounds to demonstrators? Who will give the ultimate order of ‘fire at will’? what part political powers are likely to play? Is the Regal institution going to be gainsaid too? All of this makes any prediction one way or the other most blurry, most difficult to estimate.
One thing for sure: these idiotic gesticulations about ‘love march’ and ‘we heart the King’ betray an increasing unease about the prospect that, after all, Moroccan people are not so fond of their Sovereign. It’ high time we faced the eventuality of such outcome.

What is to be made out of calls to stage a pro-monarchy demonstration on February 6th? Not much in fact. It could look like a makhzenian demonstration, but things could also turn sour with the police and security forces butting in. And before they know it, the brass would find themselves with a de facto revolt: riots, injured, possibly dead, worldwide TV cameras and bad publicity for a regime dying to distance themselves from the turmoil and marketing its institutions as an isle of democracy and freedom of speech.

The Unknown Lurks in the shadow of sudden twists in History.

So far, theses calls for ostentatious monarchism look at best laughable. It does not make sense, or it looks like a staged coup to reassure the policy-makers: “look Your Majesty, your Regal picture is all over Facebook and Twitter. Your subjects love you, sire”.

As a monarchy, we have a court. Favourites and courtesans prance about, trying to catch the Sovereign’s good graces. It could indeed be a re-enactment of a millennium-old ritual: when the Sultan visits a contumacious province, the local governor lines up the men and women, chanting and dancing for the pleasure of His Imperial Majesty the Sultan, providing such Thespian skills to provide for a façade of submission, good will and undying loyalty to the ruler of the day.

The trouble is, our governance modus operandi is so opaque, so esoteric that whatever event cannot, and will not be considered at its face value. Sane commentators and fair-minded citizens will ultimately see an anxious regime, trying to re-assure themselves that, no, the Moroccans are not Tunisians or Egyptians, and love their King genuinely. As far as things are, the angry mob would direct their frustration to other potentates: Wealthy families, essentially, with some figureheads as scapegoats (that the King might dismiss, when needs to be). But if old farts stick together, there will be a time, we’re no way near it, but still, were such fine nuances would be wiped out.

I hope the fine minds monitoring Morocco would take that into account, start defusing things by preparing real political reforms, and start addressing the economic weaknesses and shunning the fat cats they take to their bosom. Start pumping reforms, before the street takes you over !

(I can help the Royal Cabinet if they want me to. Please contact me for CV and Interview. MAD 80k entry salary, a car and an up-state house, opportunities to travel abroad)

Policy Proposals on Taxation

Posted in Flash News, Moroccan Politics & Economics, Morocco, Read & Heard, Tiny bit of Politics by Zouhair ABH on January 29, 2011

For some time I had to endure caustic comments -on virtual and real life- on how my speech can be bombastic, or indeed hollow at best. No policy proposals. No real, practical, measurable policies to back up the claims.

Constitutional Reforms? Sure, what’s next? There’s a Moroccan, left-wing radical government in charge. why not? What are the policies they are putting forward?” It has been my sorrow to read through, when available, every possible program manifesto on the whole political spectrum in Morocco (including the almighty one) and cannot find correct, policy-oriented programs. It’s either broad, stated principles, or insubstantial, eccentric numbers, or indeed  big policies, but free of concrete implications, presented to a gullible Moroccan public, McKinsey style.

I, small voice trying to be a good citizen -if that’s ever possible in a monarchy like Morocco- would like to talk real policies. Data out there is sometimes difficult to get, to extract and then trying to make sense out of it. But still, I hope it’s worth it and elicit some answers. Now, from a left-wing radical point of view, there are some policies that are hard to phase out and look for new things to consider. Taxation is one among others.

Government now takes away 11% of GDP. Is it a good or bad sign?

In Europe and in the US, where political organization had acquired a level of sophistication that would benefit to Moroccan democracy, liberals and radicals (not so much the radicals, save perhaps for political organizations such as Die Linke in Germany) are systematically labelled: ‘tax and spend‘. Do I sound suspiciously New-Labouresque? In a Western setting, perhaps. But in Morocco, that tax thing is yet to be addressed.

Morocco has an abnormal record in taxation policy: for the last decade, the inland revenue was a locked-in department, privy only to the King and quite autonomous from the Finance Minister (until very recently, a former Royal classmate was in charge of de facto most powerful administration within the Moroccan civil service, far more than the Interior Ministry) and its policy was blatantly ineffective: high levels of taxes, and yet poor return with respect to GDP growth. A legislation obsessive with minutia, and yet loopholes that made fortunes for those smart enough to exploit them.

It is public knowledge that the public finances rely heavily on taxes. Indirect taxes usually, like VAT. And it is also a consensus among economists that VAT is an ‘unfair’ tax. Perhaps I should clarify things up: the VAT tax is unfair because it is not discriminatory towards higher-valuation individuals. In plain terms, the tax is relatively higher on someone earning less than MAD 84.000 than the top 5% earners. The effect bifurcates into a consumption effect and an income effect. HCP figures do show that poorer households have a higher propensity to consumption, and so, the total VAT levy on these populations is much higher. Let us deal with a numerical example: assume individual A, earns MAD 4.000 a month, and buys a product with a 20% VAT. Individual B, earns MAD 40.000 and buys the same product. Individual A has a consumption propensity of 70% and B, 40%. The result is, VAT  extraction on A is 14%, but on B, it’s 8%. This simple example conveys the idea that VAT is fundamentally unfair on low earner. It is a punitive tax on individuals that consume not because they are spendthrift, but because their low income compels them to consume it all, or a substantial part of it. There’s even evidence buttressing the claim that poorer individuals actually subsidize richer ones (mainly because of the consumer surplus differential).

Let us have a look at the Income Tax: it is quite astonishing to record the low contribution direct taxes yield for the budget: and from all the measures introduced -such as tax cuts, tax re-definition, dispensations and so one- the net contribution of income tax remained the same, and increased in absolute terms. While direct taxes represented 30% of total resources, income tax benefit amounted to MAD 29Bn. that is 12% of total resources. Even though that represented an annual increase of 5.04% compared to 2008, this growth was dwarfed by increases in customs taxes (8.45%) and VAT (17.45%). Let us consider the regulations as specified by the Code Général des Impôts on tax rates:

Exempted Income……………………………….. lower than MAD 30.000
10% For Income………………………… Between MAD 30.001 & 50.000
20% For Income……………………………………..MAD 50.001 & 60.000
30% For Income……………………………………..MAD 60.001 & 80.000
34% For Income……………………………………MAD 80.001 & 180.000
38% For Income…………………………………..MAD 180.000 and above

Less than 3 million Moroccans pay less additional income tax than 26 million of their fellow citizen.

The first thing to notice is that the applied grid for income tax is regressive: the higher the income one earns, the lower the marginal rate: The 10% most affluent actually benefit from a negative marginal tax rate (about 3%) while the remaining 80% are charged on average a marginal rate of 3%. If it wasn’t for their numbers or their respective income, it would seem as though the middle ‘class’ (those earning less than MAD 70.000 per annum) actually subsidize, in effect, a tax cut for the 10% wealthy at about 72% (population weighted).

As a matter of principle, I would advocate the levy of a wealth tax. Nothing new of course, but in Morocco, it is a breakthrough. It’s also worth mentioning that in the 2007 general elections, only one political party proposed that (and still stand by it, to my recollection). Now, for anyone trying to start some criticism, I should say that the wealth tax enables the government to prepare for tax cuts to the benefit of hard-working middle and lower classes, or to finance some public projects. Not necessarily highways or dams and certainly not to buy up cheap support from the unions by increasing civil service payroll, but by building more schools and hospitals, by promoting scientific research. And there can be found enough resources to pay for a progressive unemployment benefits scheme, or benefits for the most vulnerable categories of our society: elderly unable to live. The tax cuts promised for 2009 and 2010 benefited mainly to real-estate, in an attempt to help household to accede to property. However, experience shows that in rent-style profit yielding sectors, these tax cuts benefit to established institutions, and not the individuals.

The following is going to require a bit of extrapolation, because of the lack of information I have. Basically, it is going to match the national income distribution with the current tax grid. The idea is to prove that a wealth tax, even with low marginal rates, would yield incommensurable revenues that would largely offset any hypothetical tax cuts for middle earners.

Let us assume for the moment that there’s an extra 40% wealth tax on the 5% -or less- wealthiest in Morocco. Because information is scarce and secretive, the mere assumption of linearity -a very, very conservative estimate- yields a base tax of a little less than MAD 134 bn. A flat levy of 40% on earned billions can yield as high as 52 billion additional revenues. And the good news is, when the inland revenue will collect these taxes, they would look at financial statements of very few people. Under conditions I would briefly discuss later on, it is quite feasible. The argument following which a wealth tax would have a deterrent effect on work or investment are wrong: sectors where multimillionaires prosper are all part of the rent economy: real-estate, mass distribution, agri-business. And it is also worth mentioning that most of them own companies, and it is notorious that MASI and MADEX companies yield considerable levels of dividends. The worst case scenario would be that these individuals would prefer to put their money in their companies rather than cash it, which is the best expected result: non-cashable dividends are better used when intangible assets are created or purchased, with all the benefits on job creation and economic growth.

Income distribution is one of the main justifications for Wealth taxes.

A windfall revenue of 52 Billion would also help decrease the tax rates on the middle and lower classes for about 20% and still leave MAD 26 Bn to spend on projects or further tax cuts, again under some conditions, the most important being the abolition of the opaque computations of deductibles. Alternatively,  it can fund for the long and medium term debt, wipe out the current deficit, or even double the public investment expenses.

Another breakthrough in tax income would be to abolish altogether administrative requirements, red tape as it were -which is a smokescreen justification for large numbers of civil servants-. It would be good for the administration and the taxpayers to introduce tax credit. There are indeed trust issues, but it has the benefit of outsourcing some computations out from the civil service -thus giving room to reduce the number of tax inspectors- and encourage tax payers to have a closer look at their taxes. Tax credits can even be used to help them deduct donations -a benevolent loophole for multimillionaires to avoid paying wealth tax- and help even further young starters, vulnerable households and benefit to the few taxpayers on the tax rate borders to make up for the marginal loss on their earnings.

Next piece on taxation will try and address the issue of VAT in-depth.

Wandering Thoughts Vol.6

Apparently 13.000 votes have been registered for the MBA. That’s a huge number, and I am sure there’s some 9% that voted for me (the competition on my award class allows me for some support effect, to my benefit). I’ve just realized that the last piece might scare off the less politically engaged voters, so, for the sake of triangulation and bland, tasteless non-political blogging, I shall devote this piece to a benign subject, well not too benign -for I might alienate the likes of me-… well, I suppose this is excellent training for would-be politicians: how to reach out to the crowd by taking centrist views without alienating the hardcore base vote; sell-out, I call that.

A year ago, I read Mounir Bensalah’s fascinating account of Moroccan philosopher Abdellah Laroui, ‘من ديوان السياسة’ (Min Diwan Assyassa). The account in question was very documented, much more documented than the present one, albeit the criticism it bore was, to my opinion, a bit unfair, especially when one bears in mind that Laroui is one of the very few original thinkers Morocco can still claim its own. After El Jabri‘s death, the Moroccan intellectuals’ club is shrinking to depressing proportions.

Abdellah Laroui (Aujourd'hui Le Maroc Picture)

The book is not really a substantial work, not when compared to other Laroui’s production, like the ‘Origines Sociales Et Culturelles du Nationalisme Marocain‘ or ‘Islam & Histoire‘ to name but a few. The book is more of a dictionary, a glossary of concepts Laroui delienates but not too much, and as a former sociology student, I can vouch for the educational benefits for the fledging political sciences student, or the honest citizen trying to make sense of politics and its history in Morocco. Other than that, there is no luminaries to be found, no ground-breaking revelations. Contrary to Mounir, I do not find the book explicitly discussing current politics: there are a few references to the late King Hassan II, when he mentioned the first Constitution (rightfully denoted the granted constitution) and I think current politics was his main subject. If anything, he had plenty of opportunities; The entry on the  ‘آل الذمة’ (traditionally Jewish or Christian subjects living under Islamic rule with a status involving paying special taxes) the recent troubles with MALI, or the fact that AMDH human rights organization put secularism top of their political agenda did not elicit him into making some kind of comparison with the tradition dimmi status non-Muslims enjoyed (the word is inappropriate, for the Jewish denizens in ghettos, mellahs, were frequently subject to pogroms)

Laroui does not attempt any formal lecturing of our officials into the intellectual and philosophical foundations of our present regime. At best, some helpful reminders of post-1956 Moroccan history are referenced once a while, as well as the almost common-place, definitely banal references of Islam, initial Salafism and other concepts he details in more academic books. The book looked to me as though it was more of a cross-breed between Nietzsche’s quotes and an introduction to Moroccan Political Sociology. I can still remember last summer, touring the prominent bookshops in Rabat and Casablanca, well, I can tell that book production is dying. It’s only a matter of time, the Philistines are putting the final touches to a complete intellectual comatose. And for this, whatever Laroui’s short-sighted actions and quotes, he remains worthy of respect (I am sure Mounir did not intend to offend his intellectual stature, or gainsay any of his academic contributions)

I wanted also to write something about British politics. Since the May 2010 elections and the coalition agreements between the Conservatives and the Liberal-Democrats, and especially since George -The Human Chainsaw- Osborne prepared his emergency budget, and the subsequent ‘swinging cuts’. (the coalition agreement signs the death warrant of left-wing lib-dem influence, and Vince Cable had to curb his liberal tendencies…)

Gideon Georges Osborne, Conservative Chancellor: the return of nasty economic policies

But the appointment of Ed Balls as Shadow Chancellor Of the Exchequer in lieu of a resigning Alan Johnson just prompted me to write some lines about it.

First, I cannot exhaust my enthusiasm for the political system in the United Kingdom: The highest ambition I would ever have for my country is, within my lifetime, to bear witness to the establishment of a constitutional monarchy where the King is revered by his subjects as a symbol of national unity (not out of fear or venal expectation for a grima), and where politicians do the politics. A parliament with genuine powers able to hold government accountable, and a free press, whatever trashy or politically skewed its content may be, ensuring the elected representatives of the people keep on behaving like good chaps in a club. An image d’épinal, I must admit, of British politics, but their constitutional monarchy has this aura I feel words are not enough to describe. (Anas is of that opinion too…)

Now, why would I mention British politics? Because Ed Balls is back to front-line politics. His similarity to Piers Fletcher-Dervich belies a very combative spirit, some would describe as divisive, cliquish and retort. A former henchman of Gordon Brown, he is certainly a change from Alan Johnson. Before I elaborate on that, a couple of praising lines on the system of shadow cabinet: the idea that opposition needs to act as if it was in government gives its media communication, and its own behaviour at question time quite responsible. the Labour party, between 1992 and 1997 perfected the art to unattainable proportions. I’m just saying, political parties back home would benefit tremendously by appointing spokespersons on specific subjects (and large parties could go further by appoint shadow ministers). A matter of organization, I would say. Ed Balls is back to the department he considers -rightfully- his: when Gordon Brown finally took over from Tony Blair in summer 2007 (and I still remember watching Blair’s farewell speech at the Manchester conference), Balls assumed, and was tipped by the press to be the next Chancellor. Brown however had second thoughts about what might look like cronyism or favouritism, which left him disappointed and frustrated. Ed Milliband, after a successful leadership bid in September 2010 also denied Balls promotion, and instead confided him to the Shadow Home Office (Balls’ wife, Yvette Cooper, was given the Shadow FCO portfolio). It can be expected that the new shadow chancellor will put public debate into perspective: the conservative chancellor with no rigourous training in Economics, will have a tough time answering questions from someone with a decade of experience, the training, the wit and intellect to take on the government spending cuts. Looking forwards to PMQs and other parliamentary questions.

Johnson's out. Enter balls, fightin' politics in.

It also avoids Labour media blunders when Johnson admitted he had no idea how and when to cut deficits; Balls was prevented from n°2 in shadow cabinet because he disagreed with Alistair Darling’s deficit reduction plan (Balls deemed it to be too fast and dangerous for growth recovery). Milliband shouldn’t worry about his leadership  -if he ever does; It’s a matter of winning economic argument, i.e. the conservatives will mess up the economy.that usually goes down well with ‘middle England’, or indeed the ‘squeezed middle’.

Last thing I adore about British politics: scandals. Not the expenses scandal, but the current one, involving Lord Strathclyde, leader of the House of Lords and cabinet minister, whom affair with a single mother rocks the boat of the conservative government, and their pledge for family values. I love it, I love it, it has a flavour of ‘back to basis‘, Major-style !

Joke aside, the more I get interested British politics, the more distant I feel from mainstream politics in Morocco: we are so bogged down on trivial issues we should have long got past by, and yet here we are, still trying to promote the idea that elected institutions need to be trusted and given more power, and the same old argument, the same tantrum hammering back that we are not up to it, that the Royal circle has better to be in charge… deeply distressing, I can tell you.

All in all, do not forget to vote for me for the Maroc Blog Award. And for my friends in the other categories: TalkMorocco, Anas Alaoui, Rimerrante, Agharass & Lbadikho.


Jed Bartlet's endorsement: "Leo was ok with me taking over from that foul-mouthed Scotsman Malcolm Tucker. Do vote for my candidate. We share similar tastes, see, we're wearing the same tie." This advertisement has been paid for by 'Bartlet For Moorish Wanderer' (CNN Picture)

Tallyho Politics, The Reign of Amateur Policy-makers

The Political apparatus in Morocco is a shambles. I say shoot the old lot, bring the young and let them make mistakes. Sounds radical, doesn’t it?
Joke aside, it’s been a long time since the political parties in Morocco failed to devise policies, and when they do sketch some feeble argument, it is so diluted that if it ever was put into practise, they wouldn’t know where to start first. On the other hand, policy-makers in Morocco lead the charge with formidable support from McKinsey-style consultancy firms. The trouble is, a country like Morocco cannot be run like a corporation. And even if it is so in the minds of the young fellows at the Royal Cabinet (which I expect to join any moment now. There’s always hope, isn’t there?) the corporation is certainly not run in the best interest of its shareholders, only to the board’s benefit.

Policy and social engineering are worked out under the assumption that the objective is to maximize the country’s welfare. There remains a great deal of blur in defining what one might mean by that word: “welfare“. In fiscal matters, it may come to the idea of taxing individuals and companies more than others, while in social policy, it also means helping some social classes more than others. There’s also a great deal of ideology in policy-making, even among the high-brow circles of consultants: under the veneer of technocracy, there’s a political motivation behind strategic thinking like the ‘Plan Maroc Vert‘, ‘Halieutis and the INDH or indeed anything of the sort like the high-speed network.

Perhaps I am over-rating the Palace’s task force. It has been a question I often ask myself: how are decisions taken up there? Whether on economic policy, or on-the-spot decision crisis like the Aminatou Haidar case, or the issue of protest camps in Agdim Izik, how are decisions made up there? Do they meet in a war-room, delineating scenarii then discussing the likelihood of each one until they reach the best decision?  Because we know, we all know it’s not some old-fashioned fool that takes the decisions in Morocco (even global institutions like rating agencies know that) so it must be that the Royal Cabinet has some kind of modus operandi I assume to be ultra-rational (given the high proportion of  engineer and business graduate from the French Grandes Ecoles). And yet, it looks as though only fools and incompetents are in charge. Please allow me to expatiate; and ad absurdo reasoning would be best. Let’s consider the ONA-SNI case: if the firm is really set on pulling the country out of poverty and into prosperity, how come its dividend policy never shows it?

I mentioned before an opinion that has been formed on the economy front: there is, among other things, a consensus that the private business of His Majesty can pull the economy. The idea is that we need the Moroccan equivalent of Chaebol, the Korean conglomerate of Banks and Industries that played significant part in making South Korea what it is today: a first-class country that is now considered to be member of the G20 club, when, 50 years ago, its GDP per capita was lower than Morocco’s, and the best thing they could have ever manufactured at the time was T-shirts. The idea was therefore to imitate, as it were, the Korean experience with companies like SNI-ONA, or indeed Attijari Wafabank and other national heavyweights. The economic model sounds good: at the price of domestic monopoly, Morocco fields a first-class holding able to operate on global markets with the required size to win us some surplus that would be redistributed. In other words, the private monopoly captures the common surplus in order to expand, and then redistribute it through pay rise or investment in intangible assets. This is the semi-official line. The financial statements tell otherwise, though.

ONA Shareholders per share. the only public fund -CDG- has a ridiculous 2.73%

Now, doesn’t it strike you as odd that the fleuron of our largest firms should invest so little and distribute these high levels of dividends to the shareholders? Between 2004 and 2010 -prior to the smoke screen withdrawal of ONA SNI shares- the holding distributed an average of about 3/4 of its benefits (which reached the billion of Dirhams at least);

while the rare investments they undertook where mainly about mergers and real estate speculation. The Chaebols, on the other hand, had a gargantuan appetite for asset acquisition (which also meant that they favoured a rigorous dividend discipline, translated into high levels of savings – something that did not prevent them from using audacious financial structuring) and are, at the end of the day, radically different from our own sketchy, greedy, money-grabbing beloved conglomerate. So much for the economic new era

Even the ‘Grand Workshops’ our 8.00 o’clock news are so keen to laud, the fulsome praises elude the main question of: ‘who benefits from what’. Plan Maroc Vert is a favourite: the official line states that small farmers would benefit from cutting-edge policies like ‘aggregation’. For those who are not familiar with the plan, it has two main implementation strategies: the first one is export-oriented, very monopolistic that favours already existing large domains, industrial-like farms (among which [drum rolls…] the Royal Domains) the other one, which looks like it was hurriedly put together, is designed to help ‘directly’ the small farmers. Cooperatives, micro-credit, etc… just enough to keep their heads above the water. How could Plan Maroc vert be helpful when funding is so biased towards large, wealthy farmers?  Do we need to remind the readers of the figures? Yes we do, it’s always beneficial to  put things in prospective: MAD 80 billion is made available for 961 projects with only 562.000 farmers and 545 projects for 855.000 farmers (Those that should be helped and supported) get no more than MAD 20 billion.  In other terms, and under the provision all farmers benefit from the Plan Maroc Vert, 39% of the farmers (most of whom are quite wealthy) get 80% of the funding.

In economic terms, the policies are not, to say the least, caring about the majority. Unless they take the view that the common welfare is that of a privileged minority, the 10% sort that has 40% of the total national income, the sort of passengers able to pay for the TGV between Tangiers and Casablanca. Perhaps the idea is that already rich people would get richer and richer, till they reach a point of satiety such that they would spend money, to the benefit of the less-off. If that’s the view, this kind of rapacious capitalism is bound engender serious resentment from the excluded. Oh, wait it’s already happening !

(Credits to Al Wandida for circulating the video)

Now that the economic model proved its shortcomings, social and political strategies prove to be at best coy, and in any case dangerously hegemonic. Say the Moudouwana was a great improvement (although one can cast doubts whether it was just a return to the 1957 square) it was a show that was full of symbolism: to the liberal side, it was a clear signal that His Majesty is the one calling the shots, and their liberal agenda prospers as long as His pleasure allows it to. To the conservatives, he proved he could block whenever he wanted the perceived westernalization of Morocco, and  confirmed his role as the sole source of religous legitimacy. On this issue and on may others, His Majesty made his King Louis XIV’s apocryphal quote: ‘l’Etat, C’est Moi‘. And all the policies the little helping hand and the shadow army are not, in the long term, to His, or Morocco’s best interest.

FAEH: The Architect of His Majesty's political project.

The PAM project, on the other hand, is the only old-school trick: the infamous Front de Défense des Institutions Constitutionelles, Rassemblement National des Indépendants, Union Constitutionnelle or Parti Justice et Développement (Among Others) all roved to be temporary rough patches when the opposition was resolute in its stand. the PAM is a patch against the abnormal high abstention rate the 2007 general elections recorded; A motley of activists, a bizarre amalgam of renegade left-wingers, rural and Mafioso-like notables and hungry young opportunists. Does it restore confidence in partisan politics? The PAM designers are in for a shock, I dare say.

Events in Tunisia -to which I must confess my complete astonishment, why, a regime like Ben Ali’s to fold like a house of cards!- proved that an excessive concentration of wealth, power and legitimacy is, on the long run, a disastrous fuite en avant.

In these conditions, why should anyone try and give additional credit to a regime so stubbornly greedy, and how long should it take them to realize that monopolising bright minds -and neutralizing their most valuable assets, i.e. ideas- is not going to help them further, and fuels a resentment that I warn might develop into a incommensurable social conflagration.

Inflation, Output Gap and Monetary Policy in Morocco

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on January 17, 2011

What is to be discussed about money in Morocco? First, perhaps an attempt to correct some misconceptions about currency, monetary base and inflation. Read on twitter: “If money supply doubles, prices will double as well, holding physical output fixed”. The statement is mathematical, in these sense that it appeals to only one outcome out of two: true or false. The statement also asserts the old-style quantitative theory of money. By the way, the author of such sentence is not to blame, and I am grateful to them for providing me the opportunity, ney, the inspiration to write about something.

There’s indeed a popular misconception, which partially-educated journalists and politicians like to spread, about the kind of relationship between money supply, GDP and level of inflation. As far as Morocco is concerned, the new monetary theories hold particular in favour of my case. Milton Friedman once stated that “Inflation is always and everywhere a monetary phenomenon”. He was right at the time. The global trend this last year does not support the evidence. In the 1970’s (at times of high inflation, as we will see later on), that was true. But then again, that was the case because monetary supply was, for the better or the worse, restricted to greater proportions compared to nowadays. In fact, it is foolish to mistake the inflation/money supply relationship as a ‘post hoc ergo propter hoc‘ one. Inflation was quite high (due to other parameters that are too numerous to delineate here) and some economists -as well as policy-makers– thought, with some reasons, that high level of inflation was to be lived with, and that the Philips curve being considered to be very flat, any anti-inflationist policies were too expensive in terms of social and labour cost.

Inflation trend in Industrialized and Emerging countries

As it turned out, late 1970’s and through out the 1980’s, policies were quite aggressive against inflation, and, at the price of durable recession (but not deflation) reversed the trend, and with the 1990’s, the great moderation, i.e. a sustained low level of inflation was such that OECD countries enjoyed near-uninterrupted growth over two decades. On the other hand, monetary base expanded substantially over the same period. Graphs are quite enough to prove that, after the Volcker-style policies in disciplining inflation expectations, the world never had it so good with low inflation rates, and at the same time, credit allowances and monetary base grew at near-exponential rates. At the end of the day, our day, doubling money supply does not double prices. (even in Morocco)

Credit & Monetary base, on the other hand, exploded to exponential proportions

I mentioned in a previous article something about output gap and potential output. There were some interesting comments about how the results were obtained, and on second thoughts, I wondered if they were that well-founded. These results were a rough estimate; and a bad one too, not least because I did not proceed properly with the computations (I’d keep it very superficial) as it turned out.

So I will make it up to the reader by redoing the computations in a more rigorous way. The self-pride of a would-be economist is at stake. (it would also definitely deter me from following advices about writing short pieces…) The strict definition of potential output is : ‘the total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed’. Now the Cobb-Douglas function remains a reasonable starting point. There was a comment on how unlikely the parameters a and b are to remain constant, so that’s how we will proceed: a). We maintain the assumption GDP output is produced by means of Cobb-Douglas function, Capital and Labour are the main inputs, and Total productivity factor (also called Solow Residual) can be inferred from empirical data. Because of the discrepancies in available databases, we should focus on growth rates rather than actual figures. Used data is the World Bank Data.

b). Because we considered Cobb-Douglas, the logarithmic transformation is a good proxy for the growth rate of each component

ε term is there for statistical purposes, as it captures 'white noise'

its growth rate is the sum of labour and capital growth, and the growth rate in the Solow residual

When regression is run on output growth, labour and capital, results show that labour has a important part of output growth. Results also show that in facts, output production over the considered time period has increasing returns to scale, a result that is confirmed by academic papers on growth in emerging countries. There is therefore a residual of 2.2% accounting for growth that can be considered part of the Solow residual (the total productivity factor, or technical innovation). It must be pointed out however, that the estimation of the total productivity factors is less accurate than the coefficient α and β, but nonetheless, its quality is such that the coefficient can be trusted to render meaningful results. To sum up, the estimated parameters, while certainly not constant across time, do not change significantly too, and the obtained coefficients are significant, in the sense that future computations on that basis are going to deliver meaningful results as well.

The table shows the model to have a very high R², and estimated coefficients for both labour (l) and capital (k) show increasing return to scale (as 0.941+0.28>1)

Now, let us move to estimating the potential GDP. It is always difficult to estimate certain components of the potential output, so the method that suited us quite well in getting coefficients is going to be put to use, once more. Estimating Potential GDP, then.
so potential GDP is the level of output produced when the economy is at full employment, i.e. when the level of unemployment is at its feasible lowest (so-called natural unemployment rate) without triggering inflation (What is called NAIRU, or Non-accelerating inflation rate of unemployment). A much simpler way is to compute the growth rate of labour stock (which I did). Now that all the parameters have been computed to be of readable content (thanks to traditional econometric tools), we can therefore compute the output gap for the period, so as to move further in our quest for monetary policy.

As the graph shows, output gap in Morocco was quite hectic over the past two decades, and even though we did enjoy significant positive output (that are overall quite good for the economy) the volatility is such that benefits were immediately wiped out after a while. However, when recomputed into a normal frequence (i.e. fitted into a Gauss-Laplace distribution, regardless of time frame), the normalized  average over 20 years was -1.46 point of GDP (i.e., we lost, every year on average, 1.46 GDP growth because productivity was not full). Quite an indictment for the regime’s eulogist, considering that the loss of productivity could have taken the current GDP per capita from $ 2900 to $ 4400 (roughly the same wealth in Peru or Jamaica, and above Tunisia) and thus moves us from lower middle-income to middle income emerging markets.

Over the early 2000’s, output gap was positive on average, the trend next years is likely to be a period of negative output gap, which threatens with risk of recession

How could the monetary policy have accounted for such growth? First, it must be stated that the next batch of computations is even more sketchy, but that is due to the sparse information I have to scramble for. In monetary policy settings, it’s usually up to output and inflation targeting to define the announced rate. For the benefit of  the profane, the standard policy tool central bankers around the world is the Taylor Rule. J-B Taylor wrote in 1993 a paper assessing the Fed’s interest rate policy, and end up, by means of econometric computations, with an equation bringing together inflation targeting and output gap as follows:

Where the set interest rate is the real Hicksian interest rate and weighted gaps in expected inflation and output.

As I said before, it is difficult to verify the Taylor rule for Morocco, mainly because of patchy data on the targeted inflation rate (if there ever was, that is), but also because at the time there was little independence to be enjoyed from government (it is still the case, but the governor enjoys a wider margin). We can however get a good proxy of the equation as three-quarters of it is more or less within reach. Output gap has already been computed, there remains the equilibrium interest rate (for which a proxy can be found later on) Regular computations give the following results:

Starting from 2001, interest rates have been too low with the Taylor rate

The Taylor rule has limited effect here, mainly due to the abscence of inflation targeting for many years (to my knowledge, the Central Bank started only a couple of years ago)

I guess one of the exogenous reasons why there’s a wild discrepancy between computed and actual rates is due to the fact that we are not entirely free of our monetary policy, due to foreign trade. Morocco tries (or tried) to synchronize with significant European partners, and in order to get the best out of it, synchronized their interest rate with the ECB. That’s a good move, but then it makes us more dependent on France and Spain, at a time they are facing considerable challenge.

There’s also another danger to the current level of interest rates: it might sound very conservative, but there is a need for BAM to take interest rates to a higher level. I mentioned the conservatism cliché because left-wing economists in emerging countries tend to favour lower interest rates (for consumption stimulus purposes). But in this particular case, low rates profit to real estate speculators, and not the households struggling to buy their first home.