The Moorish Wanderer

Born with a Foot in his Mouth

Posted in Flash News, Moroccan Politics & Economics, Moroccanology, Morocco, Read & Heard by Zouhair ABH on June 18, 2014

Mr Benkirane’s latest speech betrayed his deep reactionary prejudice, though it certainly is not the first time his own Weltanschauung goes off the rail:

or two years earlier:

While praising gender-based government policies for the past two decades, and reaffirming his government’s commitment de jure in achieving gender equality, particularly on the labour market, the Head of Government touched upon a subject worthy of debate, though his speech was factually wrong. Families do not hurt because women go out for work. In fact, there is little evidence to suggest that families are in crisis. It is true on the other hand that they have matured and transformed beyond the comfort zone of reactionaries like Mr. Benkirane.

Active women in Morocco are a minority, both in the workforce and in the total female population: for the past five years, the gender ratio in the workforce was 3:1 in favour of Men. There has been an actual decline in female labour participation in fact, and the graph below shows it is the primary reason behind the drop in overall labour participation:

gender-based analysis of labour participation confirm that women are a minority in the labour force, and rarely recover from a decline.

gender-based analysis of labour participation confirm that women are a minority in the labour force, and rarely recover from a decline.

Since 1998-1999, there has been a sharp decrease in labour participation, particularly so among active female workers, whose levels have not been yet reached. It could be estimated that for every percentage point lost to labour participation, there are two for the female population, and less than one for the male workforce. If anything, female labour participation has fared worse in the past 15 years. As a result, there are more, and not less inactive women. This would mean, in Mr Benkirane’s view, more eligible stay-at-home moms.

There is a cost to this decline however: since 2000, and assuming women maintained their pre-1998 levels of participation, GDP would have benefited from 5 Billion dirhams on average for the past decade. Similar computations put the benefits of a full gender equality on labour participation (around 72%) to a full percentage point in growth, enhancing the 4.76% average of 2000-2011, to 5.55%.

Mr Benkirane’s point about the supposedly adverse effect on family cohesion does not stand scrutiny as well: the percentage of young Moroccan women, from 15 to 24 has actually declined in the past 15 years: in 1999, one young Moroccan woman was active, in 2013, only 1 in three was out on the job market. A remarkable figure that concludes to a decline in the number of this particular cohort: there are fewer working young Moroccan women. This cohort is critical as it coincides with the tail end of the average age at first pregnancy in Morocco. In short, there are more young women, in percentage of total population and absolute numbers, with no work constraints to conceive and raise a family. This fact is at stark odds with Mr Benkirane’s assertion that working women are a threat to family stability.

Year 15-24 Pop 15-24 Female Working Female
1999 5 754 514 3 016 227 1 453 821
2013 6 222 000 3 173 220 1 028 123
% Change 7,81% 5,07% -34,65%

This suggests the causes of any hypothetical family crisis in Morocco are not due to female labour participation. If anything, it makes good economic sense to have as many women out on the job market as possible: first, as many have access to eduction (at least primary) it and given the secular downward trend in female fertility, women should have as many opportunities as possible to go out and get a job, part or full-time; indeed, a rough estimation of market counterpart to household activities suggests educated but inactive women cost an average of 1.32 percentage point of GDP; this means that stay-at-home moms with even a primary education certificate are a gross waste of government resources, even if they decide to have a lot more children, which they don’t.

Second, what Mr Benkirane decries is not a disintegration of families per se, but rather the gradual disappearance of a lionized traditional structure at odds with the changes the Moroccan society continuously undergoes. It also illustrates the irreconcilable trade-off PJD faces on social policies: on the one hand, they cannot renounce official slogans of gender equality, but on the other, their electoral powerhouse is primarily based on the idea of an activist social conservative State.

The setbacks for women’s economic rights are bad enough such as they are: education without an occupation is an economic waste to be sure, but it also subverts the central goal of public education, particularly so for women.

Labour Market Engineering

Very short post about the peculiarities of Moroccan labour market: the active population has never been so low: the latest figures from HCP show a declining trend with fewer than 50% of the total population made up of the active population. Since fertility rates have been going down for quite a while, it means many potentially active individuals prefer (or are made) to stay out of the labour market: students with longer academic curricula, stay-at-home housewives, retirees and ultimately the unemployed.

I was looking at the data and comparing it to my own models because there is a frightening story to tell here. Demographics in Morocco tend to be similar in many aspects to the ageing societies of Western Europe, with a falling youthful population (individuals aged 17 and less have reached their absolute peak in 1994) whereas the elderly are increasing their numbers substantially – 24% of the population by 2050 according to HCP projections. In essence, the present demographics allow at best for a total workforce of 4.5 Million individuals, less than 14.4% of the total population.

Elederly population is expected to make up 1/5 of the population by the mid-century, with no active population to match.

Elderly population is expected to make up 1/5 of the population by the mid-century, with no active population to match.

And there is an even smaller fraction of these: women make up for almost half of the 15-59 population, yet their occupation rate does not rise above 30%. I mean, the 70% are supposed to be dutiful housewives, yet they do not procreate enough. The traditional family model has collapsed a long time ago. Thanks to structural changes in gender-based division of labour as well as harsh economic realities, there are coexisting benchmarks for women to choose from. Yet even if the mainstream outcome remains that of stay-at-home mum, fertility has not follow suit. Perhaps it is time to switch gears and go for massive arrivals on the labour market, let these women leave their homes to earn a living too.
In absolute and relative terms, Moroccan families will procreate less and less: in 2039, there will be less than a Million newborns, and the young Moroccans (14 and less) by 2050 will make up less than 17% of the total population. I would argue the only viable pro-traditional (or even nuclear) family discourse is a higher fertility rate. Clearly it is not the case, so in order to improve our immediate and medium term economic position, there is a need of flooding the labour market with all these women, some educated, others not so much, but at least total productivity would increase.

Some predictions about this: as a general rule, structural shocks (changes in the economy that are not due to physical capital stock) tend to have a positive impact on wages, especially skilled labour wages, and only a marginal effect on total hours worked; the latter is due to the very inflexible Moroccan labour market: every 1% ‘positive shock’ increases wages immediately by an annual 6.1%, and generates a net annual social benefit of 2.3%. These massive arrivals on the labour market are likely to increase unemployment dramatically, but there is a need of increasing rapidly female occupation rates, or growth will be structurally sluggish in the next decades.

Inflation And Unemployment Conundrum

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on June 26, 2012

As I was browsing through my bookmarks, I bumped into that blogpost on the Citizen’s Watchdog, on unemployment and growth in Morocco. Just as he rightly pointed out, growth does not generate employment in Morocco. Or, to be precise, there is no direct correlation between growth in output and unemployment. Because the causal effect has to be investigated beyond the regular correlation device at hand. My interest in this post extends a little beyond mere output growth and unemployment; it looks into the other ingredient in the mix: inflation. And if I may add a fourth component, expected volatility.

perhaps a more suitable arrangement of Okun’s law can shed better light on the unemployment in Morocco.

The standard Philips curve (with or without the NAIRU rate) nor Okun’s law apply in Morocco, at any point of history, that is. Remember that Morocco has come a long way in fighting inflation. The second graph shows a steady decline in 10 and 15-years average in CPI inflation, a year-to-year decrease of .3% since 1989. However, the other end of the bargain has not come out exactly the way policy-makers would hope it would: unemployment has not dropped until the late 1990s, and for all the straight growth figures since 1999, an average GDP growth of 4.3% resulted only in a cut of 4 points in unemployment, even as the size of the labour force increased only 1,7 Million over the last decade. This means the economy grows only so much to post vacancies to new labour force, and only marginal openings to on incumbent unemployed. Obviously, we should be expecting some comprehensive study from the Labour ministry, but as far as aggregate data shows, I would bet growth in Morocco creates enough jobs for the new labour force only, and higher levels of growth do not automatically expand to tap into the unemployed population. Besides, Bank Al Maghrib did not provide a clear evidence as to how Okun’s law can apply to Morocco: their 2009 annual report stated the obvious with  (statistically) insignificant regression line drawn through a cloud pairs of GDP growth and unemployment rate (p.47) On the other hand, when one looks at lagged aggregates and their historical volatilities, the picture becomes perhaps a little clearer.

I would however direct the reader’s attention to the more intricate relationship between output, inflation and unemployment: in fact, I contend it is wrong to compare a long-term aggregate variable -unemployment- to the more cyclical aggregates that are GDP and inflation. By now, we can safely assume much of Morocco’s unemployment is structural for many reasons, among others labour legislation and collective bargaining mechanism designs. Again, some study has to show if the unions are helping, or if workers are protected in their rights. So, annual unemployment rate should not be compared to annual CPI or growth: respective correlations over 1976-2010 are -.194 and -.079, too weak a result to tell any meaningful story. On the other hand, when annual unemployment is compared to say, the 10-year growth GDP, correlation is much strong (-.47) and equally the 15 years average CPI inflation observes tighter correlation with unemployment (.608) which tells a story: an effective policy designed to fight unemployment cannot expect to yield immediate results. In that the current government can be reasonably excused if they fail to cut unemployment to 7% by 2016 as they promised. On the other hand, a steady policy aimed at keeping both inflation and growth within the long-term figures do contribute more effectively seem to do better in bringing down unemployment.

The “Great Moderation” of the early 2000s shows a steady decline in unemployment, but at a lower rated compared to inflation and output volatility

In fact, two elements seem to display large correlations with unemployment: 3-years average output volatility and 15-years average inflation are both tightly linked to unemployment: lower medium-term output volatility and long-term inflation rate. The relationship is initially described in linear terms such u_t = \alpha.CPI_{15y} + \beta.\Delta_{3y_t} + \bar{u} + \epsilon_t where \alpha \in ]0,1[ is a weighting parameter for inflation on unemployment, and \beta the premium put on GDP volatility, and \bar{u} the NAIRU. At a 95% confidence, the formula above provides good indications the benefit of cutting GDP volatility: every 1% subtracted from GDP volatility with respect to the 3-year average yields a 2.01% decrease in unemployment. Admittedly, it is very hard to control GDP volatility over 3 years, but if the right policies are devised, a sustained decreasing output volatility all the way to 2016 can bring unemployment as low as 7.2%, and 6% by 2021, i.e. Morocco’s full employment. In that respect, it is not the level of output growth that matters, but rather how stable it is with respect to medium term targets. (incidentally, estimated values for \alpha and \beta are respectively .41 and 2.01 (The formula itself can be adapted to encompass target levels similar to the Taylor rule) (results are pretty much the same) but this is a body of evidence reliable enough to observe that stability in output and inflation, more than higher levels of growth can help to bring down unemployment. We thus consider more institutional arrangements to reduce volatility, chiefly by reducing uncertainty, which calls for large institutional transparency in setting official targets, for instance.

These computations suffer three major shortcomings: first, they do not account for all the cyclical fluctuations in the considered aggregates; because only annual data is available to me, the analysis undoubtedly misses out on quarterly fluctuations especially (perhaps primarily) on inflation. Second, the formula downplays a pretty significant correlation between long-term inflation and GDP volatility, which indicates some additional endogenous effects that remain to be capture in a more specific model; Third, employment dynamics are significantly different in the agricultural sector, which may value output stability differently.

These caveat however would not fundamentally contradict the initial assertion behind these figures: economic stability both in expected inflation and output serves Morocco better than high levels of growth.

Do We Need Unemployment Benefits?

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

What a bold question! Well, I assume it is. Because the following will sound pretty strange from a self-confessed left-wing radical, who belongs to a political side that is known to be keen on supporting the unemployed, and in the Moroccan case, very close to the unemployed graduate movement. Therefore, do allow me to put in a disclaimer: I absolutely feel sympathy towards the unemployed movement, but I disagree with their almost fetishist obsession with jobs in the civil service. Indeed, constitutional rights allow for any citizen to apply for a job in the public sector. However, this right is narrowed down by the law, then by administrative regulations. It seems that even the idea of an entrance exam is too much for the most extreme of them to bear.

Now that this matter is settled, let us turn to the idea itself; Why would Morocco need an unemployed benefits program? First, because the bulk of our unemployed population is not voluntary on the dole. They are genuinely looking for a job, and for many of them, the underground economy is providing for their living. Benefits, when properly designed and applied would allow them to live in dignity, and look for proper jobs. The way I see it, the benefits are there not to disturb some market mechanisms that are yet to be defined and enforced, but to set the standards for better labour-management relationship, and for the public authorities to encourage individuals to move from underground to legal, ‘official’ economy.

Let us first consider the figures on unemployment and inflation. The relationship is considered to be cardinal in mainstream academia. The well-known NAIRU (non accelerating inflation rate of unemployment) is a good start for us to estimate how deep involuntary unemployment is, and thus provide the public authorities with the financial means to deal with it.

Anti-inflationary policies have been more successful. Unemployment however, not so much. Or is it because of anti-inflationary policies? (World Bank & RDH Figures)

When one considers the relatively recent historical series on inflation and unemployment, one is surprised to notice that there was a surprisingly effective effort put into taming inflation (and Morocco can pride itself to be in a full deflation mode without much damage to growth) while policies, when carried out, look despairingly ineffective in view of the near stable level of unemployment. The question remains: why does unemployment remain that high? In a precedent post, I mentioned data that ruled out any serious effect minimum wage might have. There is also little, if no evidence pointing to relationship between labour legislation and unemployment. If anything, it is favourable to the management, especially in the important economic sectors like textile, Telecom services and other outsourced services. I should elaborate on that later on.

When simple econometric computations are run on unemployment and inflation, results look a bit inconclusive. Indeed, the Moroccan Philips Curve does not look like the theoretical one, and if anything, any correlation is too low and too insignificant to be of use. Though it might be too early to tell, there seems to be no direct link between anti-inflationary policies and unemployment. It does however deny policy makers from such argument.

They failed in addressing the problem because they did not devise the proper policies, not because of the so-called necessary trade-off between inflation and unemployment. To their credit, it must be pointed out that a particular sub-population was not fully cooperative; in fact, it was adamant in its claim for public service recruitment.

Moving on. The current level of unemployment can be reduced. Why so? Because even with sketchy econometric models, there is a way to compute the level of unemployed people that can be put to jobs. If I may direct the reader’s attention to a post I wrote on estimating the output gap for the Moroccan economy, the computations reached the conclusion that, as late as 2009, the Moroccan factory is producing below its productive capacity. The terms of the equation are simple: because output gap is negative, the economy can take on more labour so as to lift-up real GDP until the potential GDP is reached. We know the existing level of labour stock, we know exactly (well, with a confidence interval of 95%) how much labour adds to GDP, there remains only to compute how much is needed from the unemployed to bridge that gap in labour force. Estimates are such that an additional 5 basis points to the workforce  –ceteris paribus, mainly the capital stock- are needed to bridge the output gap, and certainly much more if capital stock was expanded too. 5% looks a lot (that is, after all, about 53% of the unemployment rate) but then again, because convergence process (the so-called catching-up) with potential output takes time, it remains quite a reasonable target. In absolute terms, that means some 482.000 people would find new jobs. Before I go any further, I must apologize for the sketchy figures, which is mainly due to the data (and my own limited knowledge on the particular field of labour economics)

No particular correlation can be observed from the graph

Now that we know the current level of unemployment can be cured up to 5%, why bother about introducing benefits for those on the dole? First because, just like other vulnerable populations, the public authorities rely on family and tribal solidarity to look after the special needs, the divorcées, the underdogs and the misfits. The large-scale shift in values, the rising individualism (whatever has been said on the matter, RDH surveys can testify) all these changes that are breaking -or already did so- the traditional mould so many people long for (and you know what they are called? reactionaries, that right) and so there’s a need to implement nation-wide programs, like the employment or support benefits. The targeted  population, following the HCP figures, would be as follows: about 700.000 unemployed with little or no qualification, not so much a burden on the nation, considering benefits are usually lower than the minimum wage;

Now, I don’t have much time, nor data to elaborate on how these benefits should be defined (and I think legislation here plays a critical role) but under the assumption of average benefits of MAD 1100 per month per individual is not only workable, but provides invaluable teachings in order to expand the program and protect the left-behind, while encouraging them to fight back and return to work. Incidentally, the whole annual cost for such a scheme is approximately MAD 7 Billion, that is 13% of a wealth tax levy on the millionaires in Morocco (at the low rate of 40%). So in essence, a benefit scheme is perfectly workable, so long as it works as it serves a two-fold objective: first, as a temporary stipend for those unemployed (that would include training costs, job lookout, etc…) and as the nation’s solidarity with those definitely unable to contribute to society.

I should like to devote a piece on how these benefits should be designed so as to encourage rather than subdue work, but there it is: it is high time we grabbed the bull by the horn and start a debate on how efficient benefits schemes should be. Their introduction is now beyond debate, it is a necessity.

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.