VZCZCXYZ0423
RR RUEHWEB

DE RUEHRB #0212/01 0671819
ZNR UUUUU ZZH
R 071819Z MAR 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 8240
INFO RUEHAS/AMEMBASSY ALGIERS 4708
RUEHAM/AMEMBASSY AMMAN 0600
RUEHEG/AMEMBASSY CAIRO 2309
RUEHTU/AMEMBASSY TUNIS 9546
RUEHCL/AMCONSUL CASABLANCA 3944

UNCLAS RABAT 000212 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV MO
SUBJECT: BUSINESS ASSOCIATION PRESSES FOR URGENT REFORM 
 
 
Sensitive but unclassified.  Not for internet distribution. 
 
¶1. (SBU)  Summary: In recent weeks, Morocco's chief business 
lobbying group, the Confederation Generale des Entreprises du 
Maroc (CGEM), has added its voice to those calling on the 
government to adopt urgent reforms in areas ranging from 
taxation to the judiciary to enable Moroccan companies to 
compete internationally.  The group identifies five critical 
priorities: vocational training, support for small and 
medium-sized enterprises, judicial reform, tax reform, and 
modification of the Moroccan labor code.  If previous such 
exercises have usually not resulted in tangible improvements, 
representatives of the Casablanca-based organization tell us 
that they hope that this time will be different, with 
government agreement to meet regularly and set up commissions 
to examine the recommendations.  End Summary. 
 
¶2. (SBU) A Comprehensive Roadmap: The fifty page CGEM white 
paper, based in part on a 2007 Monitor Group study that 
benchmarked Morocco's corporate tax regime against that of 
its competitors, was originally destined for release in the 
pre-election period last year.  In its consultations with 
political parties, however, the group was "agreeably 
surprised" to find that parties had already elaborated a 
number of economic priorities.  This led CGEM to hold back 
the document for further review, and to ultimately present it 
to the government at the end of January.  In recent 
interviews, CGEM President Moulay Hafid Elalamy has 
characterized the white paper as an effort to ensure that the 
voice of the confederation was heard as the new Moroccan 
government works through its economic priorities. 
 
¶3. (SBU) The five chapters of the report highlight what 
Morocco's most influential business association believes to 
be the key constraints that inhibit business that can be 
addressed in the short term.  Elalamy himself as 
characterized them as "a realistic vision rather than a set 
of pious wishes that are totally disconnected from reality." 
The group's "realist" slant is most evident in its approach 
in the field of education.  The group decided not to tackle 
the sector's overall problems head on, Elalamy's deputy 
Mohammed El Idrissi recently told us, because that was a sure 
recipe for ensuring that the report was "filed away and 
forgotten."  It chose instead to focus on achievable changes 
in Morocco's vocational training regime, suggesting a new 
centralized entity to oversee special training contracts and 
to replace the multiple agencies that currently participate 
in the process.  Overall education reform is needed, El 
Idrissi admitted, but in the short term the needs of business 
can be addressed by this "remedial" approach. 
 
¶4. (SBU) In other areas, however, the group saw no option but 
to confront difficult and long-standing problems head-on. 
Perhaps the most ambitious of its targets is the Moroccan 
justice system.  In an indictment that one leading business 
paper characterized as the "consummation of the divorce" 
between the business world and the judicial system, the paper 
puts forward a broad indictment of Morocco's judiciary.  It 
includes corruption, lack of training, lack of 
specialization, failure to utilize alternative means of 
dispute resolution, and failure to disseminate jurisprudence 
generally, with the result that judicial decisions display 
little consistency between regions.  To begin the process of 
reform CGEM suggests increasing the budget of the Justice 
Ministry to increase judicial salaries, and also setting 
quotas for judicial training to ensure that judges have the 
background that will enable them to adjudicate complicated 
commercial disputes. 
 
¶5. (U)  The group's other recommendations fall into three 
broad categories: improving the access of small and 
medium-sized enterprises to finance, reforming Morocco's 2004 
labor code, and reforming the country's onerous fiscal 
regime.  A short synthesis of key elements in these areas 
follows: 
 
¶6. (U) Fiscal regime: the group praises the government's 
initiative to lower taxation from 35 to 30 percent in the 
2008 budget, but drawing on the Monitor Group study argues 
that this level remains too high in comparison to Morocco's 
peers.  The group also argues that lowering the rate alone is 
insufficient-- procedures must be simplified as well, given 
that an average business devotes 468 hours to fulfilling its 
tax obligations, nearly twice the average in the MENA region. 
 Specific proposals thus include reduction of this 
bureaucratic load and continued reduction in rates towards 
the average of Morocco's peer group, including particularly 
through setting a lower rate of 20 percent for small and 
medium-sized enterprises.  Such a tiered approach, CGEM 
argues, would go far towards reducing the size of Morocco's 
informal or parallel economy.  Longer term, the group also 
urges reform of the value added tax and income tax, to 
increase the public's purchasing power. 
 
¶7. (U) Labor Code: The white paper highlights long-standing 
business complaints about shortcomings in the revised 2004 
labor code, arguing that its "interventionist spirit" limits 
managers' authority and marginalizes labor contracts. 
Certain provisions are impossible to implement, others are 
contradictory and open to judicial interpretation, while many 
seriously handicap business competitiveness (such as the 
requirement that retiring workers be replaced, an edict that 
CGEM notes essentially rules out business restructuring). 
CGEM also criticizes the government's continued failure to 
adopt legislation governing workers' right to strike (a right 
enshrined in the constitutions since 1962), arguing that the 
anarchic manner in which strikes proceed currently is a 
serious threat to business. 
 
¶8. (U) SME Finance: As in the area of vocational training, 
CGEM argues that the multiplicity of government initiatives 
seeking to aid small and medium-sized enterprises have lacked 
coherence and done little to assist them.  Instead the sector 
has stagnated at between 35 and 39 percent of industrial 
production and 10 percent of value added over the last twenty 
years, even with the government's three global initiatives, 
six sectoral initiatives, and four thematic initiatives. 
What is needed, CGEM argues, is not to adopt new measures, 
but to optimize and better coordinate those which already 
exist.  Companies need to be screened in order to focus on 
those that have the best chance of success, a promised fund 
for the support of small enterprise should be implemented, 
and most importantly, in CGEM's view, the fiscal system needs 
to be modified to ease the burden on smaller firms. 
 
¶9. (SBU) Process: CGEM presented these detailed proposals to 
Prime Minister El Fassi at the end of January, and he 
directed the government to set up commissions to meet monthly 
on the issues the group raised.  Those sessions feed into a 
quarterly session with the Prime Minister himself.  CGEM 
President El Alamy put a positive spin on the process in a 
March interview, arguing that "our objectives have been 
attained in the sense that our voice has been heard by the 
authorities."   Earlier, the group's Secretary General, 
Mohammed El Idrissi, also accentuated the positive in a 
conversation with us, noting that many ministers come from a 
business background, and understand the urgency of the 
issues.  "The diagnosis is not new," he said, what CGEM has 
attempted to contribute are "concrete" solutions that can be 
achieved in the short term. 
 
¶8. (SBU) Comment: While in many areas it echoes the views of 
other observers, including those of the World Bank, the CGEM 
White Paper is an impressive summary of what Morocco's 
business elite believes needs to be done on an urgent basis 
to enable the private sector to fulfill its role as the 
"motor" of Moroccan economic growth.  Not all proposals will 
be palatable to all audiences, particularly on taxation and 
labor regulation, but the government's willingness to engage 
with the organization highlights the seriousness of the 
proposal and its success in avoiding "pie in the sky" 
formulations.  The real tests will come in the months ahead, 
as the two sides engage on detailed labor, judicial, and tax 
proposals that in many instances go beyond what the 
government has up to now been willing to accept.  End 
Comment. 
 
 
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Riley