VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #0039/01 0151658
ZNR UUUUU ZZH
R 151658Z JAN 09
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9537
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS RABAT 000039 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT PLEASE PASS TO USTR FOR PAUL BURKHEAD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID EAGR MO
SUBJECT: MOROCCO: UPDATE ON THE EFFECTS OF THE GLOBAL 
ECONOMIC CRISIS 
 
REF: A. 08 STATE 134905 
     ¶B. 08 STATE 134459 
     ¶C. 08 RABAT 1084 
     ¶D. 08 RABAT 1002 
     ¶E. 08 RABAT 0893 
     ¶F. 08 RABAT 0853 
 
Sensitive but unclassified - not for internet distribution. 
 
¶1.  (SBU) SUMMARY:  Morocco awaits the domestic impact of the 
global economic slowdown with trepidation.  Government 
officials have tempered their earlier comments about how 
Morocco is sheltered from the crisis, conceding that while 
not exposed to "direct contagion" from "toxic assets," the 
country's increasingly open economy cannot escape the impact 
of a slowdown among its principal trading partners. 
"Vigilance" has thus become the watchword of the day. 
Officials express confidence, however, that the Morocco that 
must face these follow-on effects does so from a position of 
strength.  The country's budget position is strong; 
international reserves are stable; and despite a chronic 
trade deficit, the country has enjoyed a balance of payments 
surplus in recent years.  In addition, mother nature appears 
to be smiling on Morocco, and officials hold out hope that 
plentiful rains will bring a bumper harvest that can help 
cushion expected downturns in tourism, investment and 
transfers from Moroccans abroad.  END SUMMARY. 
 
¶2.  (SBU) While little has changed in the underlying analysis 
of Morocco's vulnerabilities since our last reporting in late 
November, there has been a slight but significant movement in 
the tone of Moroccan official statements about the country's 
position.  Emphasis has shifted from the country's "immunity" 
from the crisis to the fact that in a global economy, all 
will be impacted to one degree or another.  While officials 
continue to insist that Morocco is in a strong position to 
confront the crisis, they also emphasize "vigilance" is the 
order of the day. 
 
¶3.  (SBU) Analysts continue to predict that the global 
economic crisis will primarily impact Morocco through its 
follow-on effect on the real economy.  They identify Europe's 
economic slowdown as the key transmission channel, as that 
continent remains Morocco's primary trading partner and the 
source of most of the country's tourists and transfers. 
Particularly vulnerable on the manufacturing side, in most 
observers' eyes, are the textile and automobile industry. 
Already in November, auto industry officials in Tangier 
signaled that parts manufacturers were experiencing a 20 
percent decline in production, and were resorting to 
temporary furloughs to address reduced demand.  The textile 
industry has also sounded the alarm, and organized a 
symposium in Rabat on January 14 to outline its predicament 
and appeal for urgent government assistance.  Without 
increased government support for exports, industry leaders 
argue, the sector will continue to wither away in the face of 
declining demand and low-price competition from China. 
 
¶4.  (SBU) Also at risk is continuation of the high level of 
foreign direct investment that Morocco has enjoyed in recent 
years.  Investment rose from 4.5 percent of GDP to 6.2 
percent in 2007 (and totaled over USD 4.5 billion), but 
appears to have slipped in 2008.  Much of that investment 
flowed into the real estate sector, which has been 
particularly hard hit, especially at the higher end in 
popular European weekend destinations such as Tangier and 
Marrakech.  Gulf, Spanish, and other investors are putting a 
number of large projects on hold, and Moroccan companies are 
re-orienting themselves away from higher end developments 
toward lower-income and "social" housing, market segments to 
which they earlier gave a cold shoulder. 
 
¶5.  (SBU) Additional Moroccan vulnerabilities include other 
elements in the country's balance of payments that have 
enabled Morocco to enjoy a balance of payments surplus, even 
as it has run a significant (and growing) trade deficit. 
Officials expect a sharp drop in tourism receipts:  weakness 
is already evident in tourist arrivals in recent months. 
Similarly, with the economic slowdown in Europe, officials 
are braced for a decline in transfers from Moroccans resident 
abroad, another significant positive entry in the balance of 
payments ledger.  Tourism officials are meeting the week of 
January 12 in Marrakech to map their strategy to respond to 
the crisis.  Some continue to express hope that proximity and 
affordability can moderate the downturn, and even permit 
Morocco to attract value-oriented tourists who prefer a 
destination that is lower cost than nearby European 
 
alternatives.  Given that Morocco has never been 
characterized by the mass low-cost tourism that exists in a 
number of its Mediterranean rivals, this hope appears 
exaggerated. 
 
¶6.  (SBU) The financial sector itself remains in a relatively 
good position.  As last year's IMF Financial System Stability 
Assessment concluded, the sector is "stable, adequately 
capitalized, profitable, and resilient to shocks."  Continued 
restrictions on the capital account precluded Moroccan 
institutions from investing in "toxic assets," while neither 
banks nor corporations have significant external financing. 
Foreign participation in the Casablanca stock exchange is 
limited, so analysts see little risk that a withdrawal by 
foreigners can severely destabilize the market.  The exchange 
has declined in recent months, however, as investors have 
taken profits after a long bull run, and at least in part 
from the psychological impact of widespread declines 
elsewhere.  As for the banks, liquidity is no longer as 
abundant as it was up until the end of 2006, but the Bank 
al-Maghrib (central bank) continues to inject liquidity into 
the market, and has adjusted its monetary reserve requirement 
from 16.5 percent to 15 percent to give the banks additional 
breathing room.  Treasury officials note that this 
"conservative" level can be tweaked further, if necessary, to 
free up additional bank capital.  Officials concede that real 
economy developments will inevitably have some impact on the 
banks, but note that with a lower level of non-performing 
assets (down three percent to 7.9 percent in 2007), the banks 
are better able to meet such challenges. 
 
¶7.  (SBU) Yet to be determined is the impact on Moroccan 
government finances.  The government's budget is relatively 
conservative, foreseeing a diminishing increase in tax 
revenues and an oil price of USD 100/barrel.  While that tax 
increase margin is usually comfortably exceeded (in 2008 tax 
receipts rose over 28 percent, and the average increase has 
been above 20 percent since 2005), few expect that 
performance to be matched this year.  Analysts note, however, 
that the economic slowdown has had some positive impacts for 
Morocco, notably in the diminishing price pressure on oil and 
other primary commodities.  Government subsidy spending, 
important to keep inflation under control and thereby assure 
social stability, will ease this year, and that has permitted 
the government to ramp up investment spending. 
 
¶8.  (SBU) In addition to the stimulus this spending will 
provide, Moroccan officials also hold out hope that 
exceptionally abundant rains this year will permit a bumper 
agricultural harvest.  Given that agriculture remains between 
16 and 20 percent of Moroccan GDP, a significant increase 
there offers the potential to balance the expected weakness 
in exports and tourism.  Finance Ministry officials also 
remind us that internal demand remains a principal motor of 
Moroccan growth, and given that much of it is for basic 
consumption, they anticipate that it will hold up well next 
year.  Government officials will closely monitor aid levels, 
but appear confident that in the short run they will also 
hold steady.  To date, none of Morocco's principal donors 
have announced plans to scale back their programs here. 
 
¶9.  (SBU) In sum, even officials who caution that the economy 
will slow in 2009, believe that it can be at or near 5 
percent growth for the year, down from predictions of 6 
percent six months ago.  In predicting this level of growth, 
Morocco's Director of the Treasury and External Financing, 
Zouhair Chorfi, noted recently that if last year's run-up in 
commodity prices required that Morocco develop new 
agricultural and energy strategies, this year's troubled 
world economy requires that it "accelerate and enlarge its 
reform effort."  If the crisis has this impact, which is far 
from certain, this would constitute the silver lining of the 
global downturn.  In a meeting with the Consul General in 
Casablanca, the new head of Morocco's electricity office 
pointed out that he plans to accelerate reform efforts in the 
energy sector, and is already working to actualize natural 
gas and other energy projects.  Even absent such 
reinforcement of the reform effort, however, it appears 
likely that agriculture will permit Morocco to experience 
positive growth this year.  The challenges will increase 
significantly, however, if the recession in Europe continues 
into 2010. 
 
 
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Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
 
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Riley