VZCZCXRO5146
PP RUEHBC RUEHDE RUEHDH RUEHKUK RUEHROV RUEHTRO
DE RUEHCL #0230/01 3581236
ZNR UUUUU ZZH
P 241236Z DEC 09
FM AMCONSUL CASABLANCA
TO RUEHC/SECSTATE WASHDC PRIORITY 8580
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMGH/MAGHREB COLLECTIVE
RUEHRB/AMEMBASSY RABAT 0015

UNCLAS SECTION 01 OF 03 CASABLANCA 000230 
 
SIPDIS 
SENSITIVE 
 
STATE FOR S/P, NEA/MAG AND EB/IFD/OIA 
STATE PLS PASS TO USTR 
COMMERCE FOR NATHANIEL MASON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EAID PREL ETRD PGOV MO
SUBJECT: AMBASSADOR ENGAGES SOME OF MOROCCO'S 
LEADING RISK TAKERS 
 
REF: STATE 112468 
 
¶1.  (SBU) Summary:  In the lead up to the White 
House Entrepreneurial Summit, the Ambassador met 
with some of Morocco's leading business 
entrepreneurs, academics and investors in Casablanca 
on December 17.  The group highlighted three major 
constraints to the growth of entrepreneurship in 
Morocco:  the lack of access to finance, the 
government's prohibitive fiscal policy and a risk- 
averse culture.  According to the participants, 
Morocco's entrepreneurs need credit guarantee 
schemes, similar to those offered by the U.S. Small 
Business Administration, in order to support the 
development of small businesses.  The interlocutors 
further suggested that private and public programs 
targeting young people (both in and out of school) 
could help create the next generation of 
"calculating risk takers."  End Summary. 
 
----------------- 
Access to Finance 
----------------- 
 
¶2.  (SBU) Inadequate access to finance is a major 
constraint to the development of entrepreneurship in 
Morocco, agreed some of the country's leading 
business entrepreneurs, academics and investors. 
Small to medium-sized enterprises (SMEs), accounting 
for 90 percent of businesses in Morocco, face 
considerable difficulty in obtaining the necessary 
financial resources to effectively start up and grow 
their businesses, former Minister of Tourism and 
venture capitalist Adil Douiri told the Ambassador. 
As a result, the large majority of SMEs find it 
difficult to find financing beyond the initial loans 
from family and friends.  Access to institutional 
capital is often prohibitively costly, due to 
unfavorable legal and regulatory policies and 
underdeveloped financial markets, added Douri.  His 
emphasis is well placed, as recent UN and World Bank 
studies highlight Morocco's shortcomings in this 
area, indicating that the inadequacies (and uneven 
implementation) of the country's judicial system 
have made some clientele increasingly skittish about 
investment and business transactions. 
 
¶3.  (SBU) According to Nezha Hayat, an executive 
with the Societe Generale bank, commercial banks in 
Morocco are reluctant to lend to SMEs because of the 
inherently higher risks associated with small 
businesses.  This risk is due in part to the fact 
that SMEs, the majority of which are one-person 
enterprises, operate in a more competitive 
environment and are ess likely to withstand adverse 
developments than large companies, she pointed out. 
The high collateral demanded by lenders to mitigate 
such risks is the most widely cited obstacle 
encountered by SMEs in Morocco. 
 
¶4.  (SBU) Commercial banks do not accept new 
enterprises without a long track record of success 
as credible borrowers, even those already in 
business and sometimes operating profitably, opined 
Younes Benjelloun, the founder of one of 
Casablanca's leading private equity firms.  At the 
same time, Benjelloun explained, the majority of 
venture capitalists consider the potential profits 
from SMEs to be too small to justify the high 
transaction costs associated with such investments. 
In addition, the paucity of exit mechanisms for 
venture capitalists or business angels restricts 
financial resources for entrepreneurs.  While 
initial public offerings are by far the preferred 
exit mechanism for investors, Morocco's stock market 
is still thinly traded and SME stocks are largely 
absent, said Mohamed Al Mandjra, the CEO of Meditel, 
the country's second largest telecommunications 
firm. 
 
----------------------- 
A Burdensome Tax System 
----------------------- 
 
 
CASABLANCA 00000230  002 OF 003 
 
 
¶5.  (SBU) The roundtable participants also cited the 
country's prohibitive fiscal policy, specifically 
its imposition of high marginal tax rates on start- 
up capital, as a challenge for Morocco's 
entrepreneurs.  According to the CEO of the 
Casablanca Stock Exchange, Karim Hajji, the 
country's elevated tax rates are a significant 
barrier to greater involvement of venture capital 
funds and business angels in the financing of small 
companies in Morocco.  Transaction related to the 
preparation, due diligence, and negotiation phases 
are heavily taxed, discouraging deals below the USD 
500,000 benchmark, said Hajji. 
 
--------------------- 
A Risk-Averse Climate 
--------------------- 
 
¶6.  (SBU) The risk-averse attitude of Morocco's 
youth is yet another obstacle to the development of 
entrepreneurship, participants said.  As a result of 
the lack of experience and expertise, among other 
factors, potential young entrepreneurs are more 
inclined to be risk averse, said Nabila Freidji, a 
Western Union Executive.  Coca Cola Morocco CEO Imad 
Benmoussa agreed, complaining that today's 
university graduates lack both the financial 
literacy and entrepreneurial spirit to create 
successful businesses in Morocco's increasingly 
globalized market.  "What Morocco needs is more of 
its population to build companies, not to work for 
them," Benmoussa declared.  Elaborating on this 
point, Rachid M'Rabet, the dean of the country's 
most prominent business school, argued that 
Moroccans' inability to translate sound ideas into 
feasible business plans may be a greater obstacle 
than access to capital. 
 
--------------- 
Recommendations 
--------------- 
 
¶7.  (SBU) In the participants' view, addressing the 
challenges facing Morocco's entrepreneurs will 
require innovative public-private partnerships.  For 
instance, in order to increase the volume of 
financing available to smaller companies, the 
leading CEOs and academics proposed the development 
of a private/public guarantee scheme aimed at 
mitigating the risks associated with early-stage 
deals.  A program similar to the U.S. Small Business 
Administration's, which makes loans directly to 
businesses and acts as a guarantor on bank loans, 
would go a long way in addressing the lack of access 
to finance, said Al Mandjra to the nods of others. 
 
¶8.  (SBU) While the government's efforts to promote 
entrepreneurship have yielded mixed results, the 
participants told the Ambassador, the Government 
must consider amending its prohibitive tax policy. 
Moreover, in order to expand the population of 
"calculating risk takers," the country needs private 
and public programs to help young people (both in 
and outside of schools) establish their own 
businesses by providing low interest loans, 
training, and mentoring support. 
 
------- 
Comment 
------- 
 
¶9.  (SBU) Greater entrepreneurship, specifically 
among the country's SMEs, will be critical to 
maintaining the six percent GDP growth needed to 
absorb the country's active population.  Enterprise 
promotion programs targeting young people, such as 
business incubators, would fill a significant gap in 
Morocco's economic reforms and might be a promising 
area for future activities supported by the Middle 
East Partnership Initiative (MEPI) and/or USAID. 
Moreover, reforming the country's commercial legal 
framework will be essential in promoting the growth 
of entrepreneurship in Morocco.  Success will depend 
on the creation of both a culture of 
 
CASABLANCA 00000230  003 OF 003 
 
 
entrepreneurship and the legal, regulatory and 
financial institutions and practices to support it, 
a responsibility that will implicate the Government, 
public development institutions, civil society and 
the private sector.  End Comment. 
 
MILLARD