The Moorish Wanderer

Milking The Cow – How A Happy Few Get To Cash 60 Billion

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on December 7, 2011

… Even as MASI and MADEX take a dive.

At times of uncertainty (from my perspective) or forced optimism (from official point of view) we should be expecting companies in Morocco saving money, spending on tangible assets and investments: build factories, buy machines, expand productive capacity. But instead, they are not. It seems that, instead, large companies listed on Casablanca Stock Exchange are just keeping on racking up cash for their shareholders and sending up large sums of potential dividends in their pockets, instead of saving up for investment and expanding their productive capacity.

Now, perhaps these companies have a a better read of their data, and a more intimate understanding of how the economy works, or how it is likely to behave in the next quarters. Still and all, it makes no sense from a macroeconomic perspective, so I submit the following:

1/ if corporate Morocco wants to expand its business, it has to invest, and thus build on its potential cash-flow.

2/ if corporate Morocco keeps on yielding dividends even as it does not do very well, they operate in a rent-seeking universe; it does not matter how the big company performs, you will get a dividend.

3/ the Moroccan economy does not tolerate “national champions” just to allow a handful of wealthy (and foreign) elite to capture profits regardless of what’s in their financial statements

4/ The community and the public finances lose to this corporate strategy: operating profits are subject to taxation. Dividends are not (or shall we say, to to a much lower scale)

"synthetic" dividends index beats MASI even though 2011 has not been a good year for CSE

But beforehand, let us have a look to how the biggest and (supposedly) most dynamic Moroccan companies have done over the last two years; first, MASI took a hit: though it has grown 8% between late 2009 and 2011, MASI lost 14% of its value over 2011 since its value peaked late January, a daily 0.1% wipe-out over 2011 (which means a daily loss of about MAD 286Mln) On the other hand, while the dividend index also decreased in 2011 (by 6% only) it has, however, picked up pace quicker; first, because it has increased 29% over two years when MASI picked up only 8%, and second, starting from mid-2011 (around July 2011) dividends index resumed an upward trend, while MASI just continued its journey down reaching levels recorded early in 2010.

In monetary terms, that’s potentially 61Bn in dividends collected at the end of the year even though MASI lost some 66.8Bn of its value over 2011. Corporate Morocco basically pays out the same amount of potential dividends to its shareholders while it performs equally bad – and there is no reason to believe they will not pay them these billions; in 2010, total value of dividends paid for was 30Bn, about the same amount MASI Dividend Index gained over the same year.

But not all companies listed on CSE have messed up. In facts, the market structure allows to claim with little risk of error that not only do a handful of companies condition market variations, but their ownership is incredibly concentrated. I mentioned this in an earlier post: the stock market, which is supposed to be atomistic and driven by random dynamics, is no different than a rent-generating activity.

First, it would be interesting to consider how larger CSE-listed companies influence the overall performance of the stock market – this would be prime evidence to buttress the claim of concentrated, thus biased financial markets. Second, and because company ownership has to be disclosed, evidence also confirms that a happy and rich few get to enjoy not only high incomes from financial markets, but get to pay very little in taxation. And finally, it seems that even though Casablanca Stock Exchange doesn’t seem to do well, shareholders don’t get to see their earnings reduced, and companies have already made up their minds in the trade-off between investing in the future and keeping the shareholders happy. Paying dividends, in this particular case, doesn’t benefit ordinary households; they only benefit holdings and wealthy individuals.

Very close correlation between Big Business and MASI/MADEX indices

There are some 66 companies listed on Casablanca Stock Exchange, and as far as market capitalization goes, the top 10 businesses account for 88% of all shares; the top 5 gather 77% of total market capitalization; that’s Maroc Telecom, Addoha, BMCE, BCP, Atlanta, Auto Hall, Delta Holdings, Lesieur Cristal and CIH.  These top businesses will be therefore used to compute a rudimentary Big Business Index, weighted per their capitalization size. while a fixed-weighted index may seem too simplistic to explain how larger companies perform relative to market indices, we consider an additional element that would give more weight to the dividend policy of these companies: consider computing weights not on market capitalization alone, but on detached dividends yielded last year 2010. The results seem to back the underlying assumption: Corporate Morocco does better than the market, even when its value is going down.

Two things: first, BBI performs systematically better than both mainstream indices; or shall we say, Big Business does not do as bad as MASI or MADEX: it is still 12% knocked off their value, even if MASI and MADEX lost 15% YoY. But the bottom line is that investors in big business are expecting to do better, whatever the outcome, and on top of it, expect some hefty dividend down the road.

This does not say much about shareholders; after all, it is only right that anyone investing their money in otherwise riskier assets should be rewarded with a premium. This would only hold if indeed shareholders were atomistic, i.e. a multitude of small individuals or companies with little or no concentration in stock market holdings; sadly however, this is not the case: Casablanca Bourse is still controlled by a small group of businesses and individuals, who are the main, if not the sole beneficiary of these dividends.

As of early December 2011, about 40% of all circulated shares on the Stock Market are owned by 5 entities alone. They can count on almost 15Bn in dividends, a net cash of at least 14.4Bn (since nominal dividend taxation on residing individuals is only 10%) a third of it goes directly to a couple of individuals and their household- chiefly, real estate tycoon Anas Sefrioui (Addoha), financier Othmane Benjelloun (BMCE) and the Fahim family (Delta). Good year or bad year, Big Business yields big dividends, and a very small group of billionaires get to cash it.

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