The Moorish Wanderer

The Sideshow Consensus

Government to the Right of it, Opposition and Civil Society to the Left of it; into the valley of superficial debates rode the lonely real issues of the economy. Or perhaps it serves both parties well to focus their energy on the debate on executive oversight over the public media network. It suits the conservative government fine because economic news and the (rare) forecasts aren’t predicting rosy years ahead, and the opposition, scattered within and outside the institutions, is left to clinch on purely secondary, or narrowly defined interest-related issues;

Anything to get the public distracted.

Don’t get me wrong, human right abuses and predatory behaviour from high up are not to be disparaged, and even the Football stuff going around is worthy of consideration – although I cannot recall an instance with an interest (even passion) as strong as that displayed whenever the FLP Derby were up. Colonial alienation, moi?

And yes, even the farcical (at this point) trial of #Feb20 figurehead rapper Mouad can be a noble cause to take up and fight for. But why is there so little attention devoted to the economic issues?

To the media’s defence, there were some pieces run in major newspapers about how the government’s coffers were replenished at a higher level compared to 2011. But these were just reports copied straight from official documents released by the Finance Ministry. No particularly insightful comments were made about the worsening state of public finances, the debt or the deficit. And what about the government’s bravado on the Compensation fund reform and their boast on how they’d curb economic special interests. No one to call the conservative PJD on their empty promises, but then again, parliamentary opposition is just as feckless as the ‘civil society’ platform’s vain interest in an agenda that ranks far behind pocketbook issues.

No one is calling Ministers Boulif, Azami, Baraka or even the Head of Government for their handling on their economy, and their bluff on how they can keep up with the Government’s pledge to restore a 5.5% average growth by 2016, or the subsidies allocated by the Compensation Fund. The opposition, notably Ahmed ‘Wonderboy’ Reda Chami writing a full (Facebook) post denouncing the Communications Ministry’s handling of public media, instead of doing a meaningful job at the Budget and Finances committee.

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.

Morocco’s Growth Potential

First (real) post in 2011. I wish I could get more people read me, but apparently the posts are too long and too tedious to read. On a totally non-related subject,  I also discovered I am a bad writer, in the sense that I cannot convey my ideas in the way I want them to be. To my regular readers (and the bots that occasionally drop by) I say, thank you again -in your dozens- for taking the time to read some bits. As for Ibn Kafka’s challenge, I had the thought of writing more compact pieces (with other lengthy ones when I have free time). I’ll do my best in keeping up with a weekly posting.

Growth rate and Real GDp experience different rates: cumulative real GDP is exponential and convex, Real growth is logarithmic and concave

I wish economic debate in Morocco rose to higher standards. I mean, I’m reading columns on l’Economiste, or La Vie Eco, or even Economia, they don’t get to the bottom of things. I want to contribute.

Never wondered why the Moroccan economy never took off above a certain level of GDP growth?

Historically, the average real GDP growth per capita over the last 60 years was 5.51%, which is the nominal growth rate Morocco is experimenting for the last 5 years. A good figure, when compared to the average growth countries like the US was experiencing over a longer time series. Then again, it has been proven that poorer countries ten d to have a faster growth -at least in terms of capital productivity- due to their lower initial capital stock. This however, does not give much information about how the economy is doing compared to its potential. And the figures I display below show that our  economic potential has been systematically underused, and even the current trend shows that we are weakly catching up with the potential growth.

First, why focus on growth rate? Because, among others, growth is wealth creation, it means additional income for Moroccan agents , albeit in unequal fashion, it also means lower unemployment -although with unsubstantial results. Since we are not set on immediate institutional reforms getting better wealth redistribution, it is better to start on getting growth, and not only so: growth that gets the best out of potential GDP, so as to trigger these much needed structural reforms. Let me clear up this statement: the idea is that for the time being, our growth is erratic, because of the volatility of its origin, either due to seasonality issues, or because of their inherent weaknesses, like our exports. On the other hand, if growth was based on healthy economic dealing, i.e. on an economy that does not rely on rent, or speculation, or private monopolies to that matter, then not only structural and institutional reforms would have good basis to be implemented, but also, the urge for reform would be such that the incumbent policy makers would feel compelled to get them on tracks.

The idea of measuring our GDP potential growth gives a fair assessment of how good the economy is doing with respect to its level of inputs. Why so? Because, following the results, Morocco needs to be either on that level of output, or indeed any possibility that would not lead to a negative gap, deemed to destroy part of the capital stock. Potential GDP is the possible result that could have been obtained if workforce was at full employment, as well as capital stock used at maximum capacity with respect to the frontier of output production function (that is, in microeconomic setting, a production function). For purposes of simplifications -without loosing much sense of proportion- the Cobb-Douglas function does just fine (in facts, it is quite reasonable to use it, as indeed the HCP papers did consider the function as a realist proxy for output production.

It has also been assumed that for this Cobb Douglas, labour contribution is 2/3 and capital 1/3 (these are the parameters β and α). The levels of Capital and Labour are computed as the optimized GDP per labour, and the return of investment per GDP (meaning that FDIs were included as well). Numbers of such long time series are extracted from the U-Penn table, and have the benefit of being expressed in real terms.

Output gap (red line) and raw cumulated output gap (white line) over the last half a century. the Moroccan economy is barely touching the potential output these last years, a handicap due to that fact that output gap has been substantial for the last two decades.

Now that the potential GDP has been computed (and roughly estimated) it is quite puzzling to note that for all these many years, our GDP has been lagging behind its potential. En in the instances when the gap was positive, it was purely artificial, or short-lived. And on the other hand, it is worth pointing out that the cumulative gap had indeed deepened, especially right from the 1990’s, at a time when the under-used assets (among which, the dams the late King Hassan II was so proud of) needed to be replaced, or their high depreciation rate to be financed. This is nothing compared to the important investments that need to be undertaken for Morocco’s capital stock, as global trade and racing technological innovation compel us to do so. The fact that the Moroccan economy sustained a volatile, mostly negative output gap shows that the short term blunders the successive governments and policy-makers are guilty of, became gradually structural weaknesses. It is not only high time to address these handicaps, but it is going to be painful, long and unpopular with large scores of the Moroccan societies, not only vested interests.

What is quite strange is that institutions like Bank Al Maghrib do not take that into account in their reports. The output gap does not seem to be of prime interest (as far as the monetary policy is concerned) and it does not appear on the official reports. This casts great doubts on how relevant the policy is carried out. Next piece will deal with how relevant output gap is to the monetary policy.

Morocco: Economic Outlook 2009-2010

The holidays are up. My academic obligations will start off shortly, and I will be off for a couple of weeks. I will do my best to come back with some interesting pieces when time allows for it.

a week ago, the BAM’s governor, Abedellatif Jouahri presented His Majesty the King with the Bank’s Annual Report for 2009.

A. Jouhari, The Central Banker

I guess the team in charge of this piece had to work some extra hours, because the report came in a little late (late July instead of late August), but it was overall first class as usual. My aim here is not only to provide you with a digest, but also bring its figures together with those other facts and figures the HCP uploaded recently too.The two would ultimately give us an insight of how the Moroccan economy is likely to perform for this year.

First, the Bank’s report has a different “flavour”, if I may say so, from the other reports. 2009 was indeed a year of recession and economic difficulties, but I couldn’t help but feel a bit of ambivalence when I read the following lines about the national economy’s performance: “Cette évolution reflète la forte contraction de la demande extérieure, notamment de la zone euro, adressée à certaines branches industrielles, ainsi que le ralentissement dans le secteur du tourisme et du transport”. The evolution here is that of non-Agricultural GDP (a near-zero growth of 1.4% over the year) Then, there was this: “la nécessité d’accompagner un atterrissage en douceur de notre économie en 2009 […]” This seemingly harmless sentence hides some pretty tough economic conjecture and even thougher future policies for the months to come. A soft landing is usually an euphemism for a recession, or, in our case, a very low economic growth, something we cannot afford in the present circumstances, I shall explain why.

That was the first impression on the preface. The dominant mood suggests that our economy is already unable to sustain the present global economic downturn, and the indicators show that we are quite vulnerable in terms of economic resilience. However, before we go any further, it must be pointed out that our overall growth for 2009 stood at a good level (BAM estimates are 6.9%, something about 5% of real growth) and inflation is in the process of being maintained to low and stable levels over a certain period of time. These are good news of course, but as shown later on, no one can claim credit for them.

Let us now take a closer look to the figures laid in the documents. The consensus is that the Moroccan economy, though it has somewhat successfully dealt with the global economic recession, remains quite weak in case another exogenous negative shock comes along. And even though the public authorities invested large sums of money to support and consolidate the economy, there remains structural hardships that are yet to be addressed. Why would one talk of economic weaknesses? Well, for instance, the report points out -and this is strictly about national economics- that financial markets are far too over-valued: “[des] fortes hausses, en décalage par rapport aux fondementaux, qu’ont connus certains compartiments du marché des actifs et de celui du crédit”. It is understandable why foreign investors were a bit averse to put their money in the Casablanca Stock Exchange (CSE), mainly because the financial assets were over-valued. It spared us the painful effect of a financial meltdown (because of the toxic assets), but the speed foreign in which investments dropped down surely led to a climate of indecision and ultimately, doubts over the real values of bonds and shares on Casablanca stock exchange.

The essential thing to focus on was that it prevented the financial sector from being drown up by toxic assets, thus proving the Moroccan banks’ resilience: “Concernant le secteur bancaire, qui a fait preuve d’une grande résilience, il a vu ses indicateurs poursuivre leur orientation à la hausse en 2009. Le retour graduel de la progression du crédit à un rythme compatible avec la croissance économique n’a pas impacté la rentabilité des banques.” But it certainly has put a strain on the available liquidities: “Les évolutions monétaires et financières se sont caractérisées, dans un contexte de fonctionnement normal des différents marchés, par le ralentissement de la progression de la monnaie et du crédit“, something that prompted the Central Bank to lower the main rates and loosen a bit the required reserves: “S’agissant de la gestion de la liquidité, le Conseil a réduit le taux de la réserve monétaire à trois reprises, le ramenant à 8%, permettant ainsi aux banques de continuer à assurer un financement approprié de l’économie. Bank Al-Maghrib a, par ailleurs, mis à la disposition des banques sur le marché monétaire toutes les ressources requises et a mobilisé tous les instruments de politique monétaire disponibles, pour leur assurer un refinancement adéquat.

I. The Economic Growth for 2009. The bank admits it in its own words: the economy remained stable and relatively strong because of a remarkable harvest. And many, if not all foreign exchange-oriented sectors suffered severe repercussions from the economic difficulties our foreign markets had to deal with. The total 2009 economic growth breakdown looked as following in the graph proves the eminent role Agricultural GDP played.

GDP contribution. Agriculture saved the day for 2009

There is no need to point out that the agricultural output is subject to none of the devised policies, as it is mainly function of the current climate. Therefore one can assert that no government body whatsoever can claim credit for those 5% growth. It is however quite alarming that the industry sector should suffer so much from a contraction in foreign demand. As indeed it was pointed out, export-oriented industries suffered from the present conjecture, such as chemical and para-chemical industry (-1,4% YoY) and electric/electronic industry (-0.8% YoY) and leather (-4.3% YoY).

The other sector that suffered from recession was construction. While domestic demand remained quite strong, it did not though sustain the drain on liquidities 2009 saw, therefore bringing to an end a constant growth for the past years (construction credit growth went down from 45.6% YoY to 12.8%). I am quite appreciative that our economy did quite good in terms of resilience and growth, but the intrinsic factors that made it so were unfortunately not the result of any policy, but rather the lucky coincidence of good harvest. In terms of consumption, growth was mainly of domestic nature, something our whole economic structure does not admit as such. As the reader might know, our economy is mainly, if not entirely export-oriented: we need foreign currencies for the huge projects the policy-makers are undertaking, for our imports and to fuel up our growth with larger exports, not to mention its role as a security pillow as it were, in case of unexpected changes in commodities’ prices. But now that foreign markets had shrunk to concerning proportions, domestic demand successfully got behind the national economy. That’s how it contributed in terms of GDP growth points:

GDP Growth Contribution In Terms Of Consumption 2006-2009

II. The endogenous variables: workforce and productivity. It is true unemployment decreased a bit in 2009. But surely the present growth does not contribute in abating unemployment a bit, something that should be obvious yet does not compute in Moroccan reality. There is something else that bothers me about our own productivity. Before I go on about it, productivity is, as far as I am concerned, productivity remains one of the best indicators of how an economy is doing in terms of competitiveness and innovation. Plus it allows for scale economies, thus enabling wage rises with virtually no inflation. Morocco has quite bizzare characteristics in terms of productivity. the average relative labour cost has risen over the year. That’s a statistics that is akin to measure marginal labour productivity, something that the Bank did, and it turned out that in the last quarters of 2009, labour cost has risen beyond apparent labour productivity. That effectively means real destruction of wealth, but oddly enough did not contribute to inflation. Do let me explain: demand-driven inflation is fuelled up whenever a general or substantially located rise of wages is effective, without any form of increased productivity.

Labour Cost vs Productivity Growth. Moroccan competitivity outranged by that of countries like Poland and Bulgaria

The figures here do not show any specific growth in terms of output per capita (something below 1% in 2009 YoY) but they do suggest that labour cost has risen (about 4%). However, it does not seem to have a sizeable impact on inflation (as shown later on). It does however show that we are losing ground to much more competitive countries in terms of labour productivity.

In other terms, we are dangerously losing the ground to international competition much more productive and less costly than our own labour force. It might have something to do with unions’ wage claims, but that remains to be proven. The report does not point it out, so the real source of the trouble is somewhere else. In any case, any wage rise in nominal terms is quickly blended and its effects swiftly abated. In facts, every time the minimum wage (SMIG) has been updated, real wage increased, but gradually declined until the next pay rise comes in. And remarkably enough, real minimum wage stood at a near-stationary level, as the graph suggests.

Real Minimum Wage increases by Lump intervals, but gradually decreases to its original level if not below

This proves that, even though labour cost handicapped our foreign exchange, minimum wage, the classic target of laissez-faire partisans, had had nothing to do with. Out of contradiction though, the Bank points: “[…]Parallèlement, les coûts salariaux ont connu un accroissement, suite notamment à la deuxième revalorisation du SMIG[…]“.

III. Inflation and Unemployment: I already mentioned in an earlier post that Morocco dealt successfully with inflation (although only the core one is maintained to low levels) but that has come to the expenses of unemployment. the 2009 YtD inflation has even been made into a deflation, with CPI going as far as -5%, for an overall annual inflation rate of 1%. This has to do with the fact that commodity prices dramatically fell during the year (or in other terms, future prices went down, thus allowing Morocco to buy strategic commodities at a lower-than-expected price) and of course the positive impact agricultural output has on CPI. “Le ralentissement de l’inflation est également attribuable, dans une moindre mesure, aux prix des carburants et lubrifiants. En effet, leurs tarifs ont connu une première baisse mensuelle de 5% en février 2009, en raison de la révision des prix de certains carburants, puis une deuxième de 1,4% en avril suite à l’alignement du prix du gasoil 50 ppm sur celui du gasoil ordinaire auquel il s’est substitué.” As for unemployement, I was a bit disappointed with the way they presented it. Basically, the graph shows a trend pointing to a possible negative correlation between unemployement and economic growth. ze3ma all we need is to increase output, and somehow unemployment will decrease. It is true there is a negative correlation between non-Agricultural GDP and unemployement (F-Test shows a probability of 11% both variances would be independent. Chi-2 test shows a 98% likelihood of statistical relation between both variables) but surely a linear regression cannot capture the exact relation between both variables. The regression’s R-Square is only 10.08%, i.e about only 1 out of 10 statistical couples (xi,yi) has been taken into account. In any case, the Bank admits implicitely a weak link between unemployement and economic growth: “Malgré le recul de la croissance non agricole, le taux de chômage urbain s’est replié de 0,9 point de pourcentage pour se situer à 13,8%. Parallèlement, l’essor de l’activité agricole n’a pas entraîné de baisse du taux de chômage rural, lequel a stagné à 4%. La baisse du taux de chômage a concerné essentiellement la tranche d’âge 25-34 ans et les diplômés, dont le taux a fléchi respectivement de 1 et de 1,4 point de pourcentage. Toutefois, le taux de chômage de ces catégories de la population demeure relativement élevé, se situant autour de 20%.” On a different but related subject, I read something interesting in a digest the HCP published on poverty (I can’t recall the weblink, but you can find it here): “En effet, si un point de croissance économique s’accompagnait, entre 1985 et 2001, d’une augmentation des inégalités de 0,13% et donnait lieu à une réduction de la pauvreté qui ne dépassait pas 1,7%, entre 2001 et 2007, une croissance économique équivalente (de 1 point) n’affectait que marginalement les inégalités (moins de 0,01%), et réduisait, de ce fait, la pauvreté de 2,7% […]Il convient cependant de noter que cette dynamique de l’ensemble ‘Croissance, inégalité et pauvreté’ ne s’est pas opérée, dans les mêmes proportions, au niveau local, voire régional, provincial ou communal“. The good news are, we have less and less people living below or on the threshold of poverty, and the figures are encouraging indeed, but it has a drawback too: economic growth brings inequality too, and following these figures, every GDP growth point increases income inequality by more than just 0.01%. The HCP itself shows the figures: the 10% well-off get about 40% of the national income. This kind of income inequality does not allow for everyone to get a fair share of GDP growth, surely.

IV. Foreign Exchange:

a picture speaks more than a thousand words, doesn't it?

2009 was quite bad in for our terms of exchange: Not only did we notice a worsening deficit commercial balance, but there was a drain on liquidities too, for the deficit took its tool from our balance of payment. Indeed, “Les sorties nettes au titre des revenus des capitaux se sont établies à 7,4 milliards de dirhams, contre 4,1 milliards de dirhams en 2008. En effet, le solde négatif des revenus privés, passé de 6,7 milliards de dirhams à 9,4 milliards de dirhams, s’est alourdi de 40,6%, en raison de la hausse de 33,4% des sorties au titre de la rémunération d’investissements étrangers au Maroc“. That was the price to pay. Abdellatif Jouhari might have pointed out that our economy was resilient, however in times like these our foreign investors had to cash in their investments, and we need every hard currency dime we have. Why so? In 2009, our total national investments amounted to 265 billion MAD. ([…]“Compte tenu d’une variation positive des stocks de 38,8 milliards de dirhams, l’investissement global s’est chiffré à 264,8 milliards de dirhams, en quasi stagnation en termes nominaux, après une augmentation de 31,2% un an auparavant. Sa contribution à la croissance est revenue de 4,1 points de pourcentage en 2008 à 2,6 points en 2009 et le taux d’investissement brut s’est établi à 30,7%”.) Our national savings amounted to 228 billion MAD. It is clear that about 37 billion MAD need to be found in order to finance the huge investments our country is undertaking. That means 5% of our GDP, while the payment deficit amount to 20% of GDP. In other terms, Morocco needs to levy 195 billion MAD to a. finance its deficit, and b. to finance its investment. Perhaps the recent upgrade in Morocco’s sovereign debt could allow for new sources of finance, but again, in a time like this, and especially for the sort of investments we have, rates are going to be a bit steep I am afraid.

Now, I hope the picture made things clearer for 2009, so we can now move to the 2010 HCP figures.

Recovery signs for non-Agricultural GDP

These show signs of recovery, as it were: “La sortie de l’économie marocaine de sa phase de ralentissement conjoncturel se confirme de plus en plus en ce début d’année. Le redressement des activités non-agricoles s’est poursuivi au premier trimestre 2010, avec une croissance de 5,6%, en variation annuelle, après 5,4%, réalisée un trimestre auparavant. Cette performance a été confortée, en grande partie, par l’amélioration du secteur minier et, dans une moindre mesure, par celle de l’industrie et des branches annexes.” In other terms. the non-agricultural activities are recovering from the previous year. Domestic demand seems to be behind the green shoots: it grew about 4.7% Q1 2010, a bit low compared to Q1 2009, but nonetheless an important contributor to the expected GDP growth (3.6% for Q1 2010 so far). Things are on average going well.

There are however a few things that should be taken seriously: the present state in which public finances are is quite difficult, which might allow for cuts and austerity programs. Indeed, public income has fallen by 4.3% while expenditures rose by 13.4%. Public deficit is now 4% of GDP. Nothing urgently serious, but the forecast is that things will get rougher: because domestic demand is driving growth, there is an expectation of high levels of imports, an increase exports cannot match entirely. That means a further drain in our currency reserves as well as a worsening balance of commerce deficit. Finally, it seems the monetary market suffers from that as well: “Le marché monétaire est resté déficitaire au cours de la première moitié de l’année 2010. Les interventions instantanées de Bank Al-Maghrib ont pu atténuer, quelque peu, l’écart entre le taux d’intérêt interbancaire (3,31%) et le taux directeur de Bank Al- Maghrib (3,25%). Le marché bancaire subit les conséquences de plusieurs facteurs restrictifs de liquidité, en l’occurrence l’importance du déficit de la balance commerciale et la baisse des recettes des investissements directs étrangers.”

Foreign Investors are pulling fast, causing a drain on currency reserves

To sum up, the Moroccan economy did well in these troubled times, and those of its sectors that suffered from the global crisis are on their way to recovery. However, most of the good results are not the effects of policies, and the present structural hardships, while being addressed with various policies, remain hindering every efforts to get our economy off the valley of the shadows and into the sun. There can be no worthy growth while the present unemployement rate is 9%, nor with income inequality Gini index of 0.46. In short, the present growth still benefits to the few, and not to the many. More radical policies, that’s what we need.

Take care and enjoy what’s left of holidays.