In his presentation before the Government Council on September 18th, 2008, Mr. Mezouar, Minister of Economy and Finance, gave an overview of current developments on the national and international economic scene.
He explained that after several years of significant growth, the international economy is now facing big challenges in terms of sustaining previous levels of expansion, and handling global macroeconomic dislocations, as well as financial upheavals occasioned by the soaring prices of oil and basic foodstuffs.
Mr. Mezouar also highlighted the impact of the housing mortgage crisis and other financial troubles in the USA, on other developed economies. This impact was evident in the slump at major stock exchanges around the world.
Mr. Mezouar reassured the council that Morocco would not be affected by the subprime crisis for several reasons. The country`s financial sector actors doe not hold bonds or stocks or investment funds at the financial institutions that have suffered a serious crash following the subprime crisis. Moreover, housing mortgages in Morocco have been, for the most part, granted at fixed interest rates. Even mortgages granted at variable interest rates can be reviewed and set at regulated and predictable fixed rates.
Over the past few years, a noticeable improvement in the financial standing of Moroccan banks has been achieved, following the consolidation of control procedures and the stabilization of the public financial sector.
Mr. Mezouar indicated that it is true that the increase in energy prices and basic foodstuffs has affected our balance of payments and public finances. However, thanks to the state subsidy of these products, such an increase impacted neither spending power nor production factors.
In fact, real GDP has increased by 7% and 6.7% on a yearly slide for the first two terms of 2008, which would translate in a 6.8% growth rate by the end of the year (2008). This trend is the outcome of several positive developments that are witnessed through a sound control of the fundamentals of our national economy.
To illustrate the upturn in the national economy, Mr. Mezouar pointed to other factors, such as improvement of wheat production, sound export strategy of mining products and good streaming of energy activities, follow up on public works policy, sustained growth in processing industries and upward trend in the telecommunications sector.
Investment has maintained a sustained pace following the increase in the importation of goods for industrial equipment, and the approval of 23 investment projects by the inter-ministerial commission for investment. These projects amount to MD 16.1 billion. The FBCF is expected to increase by 12%, thereby bringing the rate of investment to 32% in 2008. Given these positive developments, the drop witnessed at the Casablanca Stock Exchange at the beginning of this week, does not in any way reflect the fundamentals of the national economy.
The downturn at the Casablanca Stock Exchange should in no way suggest a spillover of the crisis witnessed by international stock exchanges. Fundamentals of the national economy, as well as those of companies floating on the local stock exchange, are solid and intact. In fact, companies floating on the stock exchange made a net profit in 2007 and, with an average increase of 30%. A further 20% increase is anticipated for the year 2008. Therefore, the 12% adjustment made in September 2008 remains insignificant compared to accumulated market performance.
Mr. Mezouar reported that similar adjustments had been made at the Casablanca Stock Exchange. Adjustments made in May 2007 accounted for 16.5%, while those made in May 2006 for 19%. In his opinion, a market that is constantly following an upward trend is not necessarily a sound market. The downturn that appeared after a series of increases reflects the maturity of a market that keeps adjusting according to supply and demand. Mr. Mezouar also informed the Council that no case of disengagement on the part of a foreign investor had been reported. In fact, most portfolio investments made by non-residents are strategic, and the floating capital held by foreign investors or Moroccan citizens residing abroad accounted for only 1.8% of share capital market value at the end of 2007.
Mr. Mezouar expected our stock market to react positively, following the adjustment made at the beginning of the week. In fact, the market was stabilized on September 17th and absorbed a significant volume of transactions which reached MD 1.3 billion. This time, the market involved institutional investors. From another side, the stock market indexes are expected to increase at a rate of 10 to 15%.