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Is there a future for Islamic Finance in Morocco?

Islamic finance in Morocco: Right tool to meet economic challenges?

While no one is claiming that Islamic finance will change the business face of Morocco, experience elsewhere indicates that it can generate important vehicles for improving access to financing resources. To the uninitiated, Islamic finance is based on two key principles, the prohibition of interest (riba) on the use of money, and conformity with other principles of Sharia law that regulate profit and loss. Islamic finance has had its fits and starts over the past two decades due to its weak competitive position vis-à-vis traditional modes of financing. The global financial crisis of the last decade has focused attention on Islamic financial instruments since they prohibit the speculation inherent in derivatives and other instruments that led to the collapse of banks and financial sectors worldwide.

In 2012, it is estimated that more than a trillion dollars is circulating in Islamic financial instruments. Yet there is no international authority that governs how these products are generated and regulated. In order to provide a “Sharia compliant” product, the originator must have a religious ruling (fatwa) by recognized Islamic authorities that approves the product. Although the roots of Islamic finance are in the Levant, the first significant growth occurred in Malaysia and was copied a decade later by Bahrain, Qatar and the Emirates of Dubai and Ras Al-Khaimah. Many international banks have set up sukuk (Islamic bonds) departments to tap into this quickly growing market.

Morocco is a good case study in why Islamic finance is growing at a time when the global financial system is struggling. Soon after the Moroccan government coalition led by an Islamic party was installed in 2012, Prime Minister Abdelilah Benkirane played host to the leader of Qatar International Islamic Bank (QIIB) who proposed both an Islamic bank and insurance company. Since that time, the government has been busy preparing the necessary laws to submit to parliament but the date has not yet been set. It is not simply a matter of setting up guidelines. While the licensing process is the first step, the challenges of getting products approved by Islamic authorities and getting the appropriate regulations vary from market to market. Moroccan officials have to decide which practices are best suited to their economy. The process then moves on to ensuring proper training of staff to sell and manage sukuk offerings. In the meantime, if European markets start to recover, there will be increased competition for investment dollars/euros that might otherwise be invested in sukuk.Islamic instruments are financially and psychologically attractive. Risk is controlled by limiting products to those tied to assets so that there is virtually no secondary or derivative market for speculators. In general, assets must be held for the duration of the contract/bond at a fixed value guaranteed by the asset holder so that there is greater stability in the transaction. In high risk environments, such as today’s, Islamic bonds have a higher valuation due to the controlled risk factor. Psychologically, Muslims have a higher confidence level in Sharia-compliant financial instruments and believe that the investments are reliable, conservative, aligned with their religious beliefs, and support the financial health of the community. So how would this help Morocco?

As Elhassan Eddez, deputy director of the Treasury at the Financial Ministry said, selling Islamic bonds helps issuers “reach conventional debt investors and sukuk investors at the same time…The sukuk market has a wider investor base.” It is also an international base, which means that Morocco could be attracting funds from throughout the Muslim world, including the Gulf States, Africa, and Asia. Hakim Azaiez, who heads investment at GCA Asset Management, noted, “A Moroccan sukuk bond will allow the government to potentially reduce its borrowing cost and tap new frontier markets…The demand is there for sovereign sukuk issues.” Given the large amount of capital intensive projects needed in Morocco, from social housing and education and health services facilities to transportation infrastructure, lower borrowing costs means more gets done with fewer dirhams – no surprise why this is attractive to a non-energy driven economy.

The key, as in any market, is to have a level competitive field between traditional and Islamic banks so that the country benefits from the choices it makes that best serve the Moroccan people. If Islamic finance can encourage a higher rate of personal savings, increase capital available in the market at reasonable rates, and promote greater transparency in government financial transactions, then it can have a significant impact on how Morocco does business and its support from the Moroccan people.

Breaking the cycle of “educating for unemployment” in MENA

The Audit Court (Cours des Comptes) in Morocco recently issued a critical report on the country’s vocational training system. At the same time, the World Economic Forum was focusing on youth under/unemployment at its annual conference in Davos. This is no coincidence, as the demographic realities in emerging markets create a demand for very high levels of job growth in the next decade to absorb high school and university graduates.

In fact, key demands emanating from the Arab uprisings are for jobs, greater transparency in employment practices, and sufficient resources for market-oriented training and education.

Jamie McAuliffe, president of Education for Employment summarized the challenge quite accurately: “But it is much easier to describe the problem than to advance concrete solutions. Both within the Middle East and North Africa (MENA) and beyond, there are still few examples of large companies and national governments putting the necessary muscle and resources behind solving the problem.”

Effective program management, qualified human resources, and sufficient budgets will provide a baseline for developing and delivering solutions to reverse the complacency and ineffectiveness that characterize training programs in the region. Looking at the Audit Court’s report helps provides a starting point to discuss the challenges to technical/vocational training in the MENA region.

The Moroccan Office of Vocational Training and Employment Promotion (OFPPT) is charged with orientation, education, and placement of students, as well as providing opportunities for continuing education for adults who wish to change career paths. Ideally, OFPPT maintains relationships with potential employers since it has the critical responsibility to be familiar with the needs of the workforce and adapt curricula and training to meet those needs.

OFPPT has its equivalents throughout the MENA region, some of which focus specifically on vocational and technical skills training for recent middle school and high school graduates, while others are similar to community colleges that provide “white-collar” education and training programs for the services industries. Whatever the agency’s mission, the goal is the same—to graduate employable young people for the workforce.

After decades of acquiring academic degrees that held out little prospect of jobs and careers, young people recognized that their educational systems did not make them employable, and governments are scrambling to respond.

It is too soon to tell how the new programs will turn out, but observations of actions over the past two years raise several critical issues. Let me say, from the outset, that this is a lifelong issue for me. I have been working on training programs in the Middle East since the late 70s, starting in Iran, moving then to the Arab Gulf countries, and continue today providing services to both US employees assigned to the MENA as well as to Arab trainees at all skills levels across a broad range of sectors. So while youth employment has become a regional priority due to the Arab uprisings, there are experienced professionals and best practices available that can help guide the determination of flexible yet accountable solution options.

One of the key concerns that I have is the quick fix notion of turning Arabs into entrepreneurs. Yes, Western mercantilism and international trade definitely had its roots in the Mediterranean, as Phoenicians (from Lebanon, of course) were the pioneers in sea-borne trade throughout the region. But that does not mean that one’s DNA equates with modern day commercial success; in fact there are many obstacles to ensuring an enabling environment for entrepreneurs.

A country’s legal, financial, regulatory, and cultural norms, among others, must be coordinated in order for enterprises to succeed. As this “eco-system” advances, concurrent efforts are needed to enable companies at all levels to expand their capacities to compete in the contemporary marketplace. And of course, the point of this enterprise is to develop the human resources to lead, manage, and staff the companies of today and tomorrow.

In my assessment, there are six “demand” factors that should shape the “supply” of labor generated by vocational/technical training programs.

  1. The skill/labor needs of the market today and projected for a decade.
  2. The interests/aspirations of youth and how this matches #1, and how to close the gaps that exist.
  3. Flexible and targeted curricula that provide core technical, language, and soft skills, as well as specific skill sets linked to jobs, with a strong emphasis on practical training based on partnerships with potential employers. Courses should reflect local demand and opportunities.
  4. The careful allocation of funding so that training programs are sustainable rather than becoming unsustainable subsidies.
  5. Government policies that take a holistic approach to job growth, involving a broad range of stakeholders and supporting outcomes based on results.
  6. Ensuring that entrepreneurship programs are balanced with efforts to enlarge the competitive capabilities of medium and large-sized firms.

With these “demands” in mind, a concerted, coordinated, strategic campaign involving various groups of stakeholders will go a long way in meeting the challenges not met by previous vocational/technical training regimes.

Breaking the cycle of “education for unemployment” in the MENA

The Audit Court (Cours des Comptes) in Morocco recently issued a critical report on the country’s vocational training system. At the same time, the World Economic Forum was focusing on youth under/unemployment at its annual conference in Davos. This is no coincidence, as the demographic realities in emerging markets create a demand for very high levels of job growth in the next decade to absorb high school and university graduates.

In fact, key demands emanating from the Arab uprisings are for jobs, greater transparency in employment practices, and sufficient resources for market-oriented training and education.

Jamie McAuliffe, president of Education for Employment summarized the challenge quite accurately: “But it is much easier to describe the problem than to advance concrete solutions. Both within the Middle East and North Africa (MENA) and beyond, there are still few examples of large companies and national governments putting the necessary muscle and resources behind solving the problem.”

Effective program management, qualified human resources, and sufficient budgets will provide a baseline for developing and delivering solutions to reverse the complacency and ineffectiveness that characterize training programs in the region. Looking at the Audit Court’s report helps provides a starting point to discuss the challenges to technical/vocational training in the MENA region.

The Moroccan Office of Vocational Training and Employment Promotion (OFPPT) is charged with orientation, education, and placement of students, as well as providing opportunities for continuing education for adults who wish to change career paths. Ideally, OFPPT maintains relationships with potential employers since it has the critical responsibility to be familiar with the needs of the workforce and adapt curricula and training to meet those needs.

OFPPT has its equivalents throughout the MENA region, some of which focus specifically on vocational and technical skills training for recent middle school and high school graduates, while others are similar to community colleges that provide “white-collar” education and training programs for the services industries. Whatever the agency’s mission, the goal is the same—to graduate employable young people for the workforce.

After decades of acquiring academic degrees that held out little prospect of jobs and careers, young people recognized that their educational systems did not make them employable, and governments are scrambling to respond.

It is too soon to tell how the new programs will turn out, but observations of actions over the past two years raise several critical issues. Let me say, from the outset, that this is a lifelong issue for me. I have been working on training programs in the Middle East since the late 70s, starting in Iran, moving then to the Arab Gulf countries, and continue today providing services to both US employees assigned to the MENA as well as to Arab trainees at all skills levels across a broad range of sectors. So while youth employment has become a regional priority due to the Arab uprisings, there are experienced professionals and best practices available that can help guide the determination of flexible yet accountable solution options.

One of the key concerns that I have is the quick fix notion of turning Arabs into entrepreneurs. Yes, Western mercantilism and international trade definitely had its roots in the Mediterranean, as Phoenicians (from Lebanon, of course) were the pioneers in sea-borne trade throughout the region. But that does not mean that one’s DNA equates with modern day commercial success; in fact there are many obstacles to ensuring an enabling environment for entrepreneurs.

A country’s legal, financial, regulatory, and cultural norms, among others, must be coordinated in order for enterprises to succeed. As this “eco-system” advances, concurrent efforts are needed to enable companies at all levels to expand their capacities to compete in the contemporary marketplace. And of course, the point of this enterprise is to develop the human resources to lead, manage, and staff the companies of today and tomorrow.

In my assessment, there are six “demand” factors that should shape the “supply” of labor generated by vocational/technical training programs.

  1. The skill/labor needs of the market today and projected for a decade.
  2. The interests/aspirations of youth and how this matches #1, and how to close the gaps that exist.
  3. Flexible and targeted curricula that provide core technical, language, and soft skills, as well as specific skill sets linked to jobs, with a strong emphasis on practical training based on partnerships with potential employers. Courses should reflect local demand and opportunities.
  4. The careful allocation of funding so that training programs are sustainable rather than becoming unsustainable subsidies.
  5. Government policies that take a holistic approach to job growth, involving a broad range of stakeholders and supporting outcomes based on results.
  6. Ensuring that entrepreneurship programs are balanced with efforts to enlarge the competitive capabilities of medium and large-sized firms.

With these “demands” in mind, a concerted, coordinated, strategic campaign involving various groups of stakeholders will go a long way in meeting the challenges not met by previous vocational/technical training regimes.

Moving Maghreb Economic Integration Forward – Hopefully

Blog: Beating the drum for regional integration–again

This past week, yet another regional conference was held promoting economic integration in the Maghreb/North Africa. Despite all of the splintering tendencies emerging from the Arab uprisings, there is still a strong pull among leaders for greater cooperation and coordination that goes beyond security arrangements to attack the root causes of economic stagnation.

The twin economic shocks of the Arab uprisings driving away tourists and potential investors and the decline of customer markets in Europe have greatly affected rates of growth throughout the Maghreb. Greater economic cooperation, particularly to access new markets and achieve greater economies of scale, would appear to be obvious, but then intraregional politics excels at obfuscation, not innovation.

At the 4th Paris Economic Forum – Casablanca Round, Tunisia’s former finance minister, Jaloul Ayed said that the lack of a working Maghreb Union linking Mauritania, Morocco, Algeria, Tunisia, and Libya is costing each country between two and three percentage points of growth. “I stress once again the absolute need for the Maghreb Union… a Union which would facilitate shared prosperity for all peoples in the region.”

His remarks were echoed by Morocco’s finance minister, Nizar Baraka, who noted that in order to “seize opportunities in a time of crisis, efforts needed to be pooled at the regional level. The democratic enthusiasm in the region should be harnessed and consolidated as democracy can only be meaningful if it translates into job creation, the restoration of social mobility, and improvements in citizens’ lives.” Minister Baraka, who was named by The Banker as the “best Minister of Finance in the Middle East” and “Minister of Finance 2012-Global Award,” speaks from hard fought experience in steering fiscal policy through the turbulence that has buffeted Morocco over the past two years. “This is why, for us, economic integration is essential and could be achieved through a cross-Maghreb growth pact with a shared ambition and a unifying aim: shared prosperity for all and the creation of a society of trust in North Africa,” he said. Baraka added that a competitive bloc needed to be created, so that it could position itself as a partner to the European Union.

While the economic benefits from a robust Maghreb Union may be somewhat obvious, as important in the long run is the positive impact on job creation, foreign direct investment, coordination of commercial regimes across borders, and the strengthening of the productive capacities of small, medium, and large enterprises at various stages of the value chain through competition, integration, and greater focus on competitive advantages. It would also have a salubrious impact on workforces throughout the region, focusing skills and capacity-building within competitive sectors to increase available pools of talent. All of this would engender greater regional stability to complement what is happening in the security realm.

Former Managing Director of the International Monetary Fund Dominique Strauss-Kahn spoke about Morocco’s economic potential as well as the difficulties facing the region. “We have moments in history where we must make difficult decisions that allow us to locate and seize the positive,” Moroccan daily L’Economiste quoted Strauss-Khan as saying. A sharp warning was given by Claire Spencer, head of the Middle East and North Africa program at the UK think tank Chatham House. She pointed out that about 75 percent of the region’s population falls between 18 and 30, which provides challenges and opportunities for the region’s economic recovery as there is an accessible workforce in the Maghreb that is well positioned to provide growing services to its neighbors in Europe whose populations are ageing. The countries of the Maghreb must make full use of this asset, Spencer said, adding that it was essential for the aspirations of the youth to be realized.

One of the commentators at the conference, economist Mehdi Zariri, highlighted the fact that the countries of the Maghreb are experiencing the same social and economic problems and must therefore come together to establish common strategies. “It’s vital to capitalize on the ways in which the economies of Maghreb nations complement one another, as they could form a strong economic unit in Africa,” he said.

It is this historic regional complementarity that holds the greatest promise for spearheading the economic growth critical to meeting the needs of the restive populations. Moving beyond rhetoric to concrete agreements that result in regional projects across key sectors—IT, transportation, value-added agricultural products, banking, specialty manufacturing, and renewable energies—is energizing private sectors to challenge business practices that under serve the needs of the Maghreb. The drums are beating.

"Business as usual" means lost opportunity in Maghreb

“Business as usual” means lost opportunity in Maghreb

We know there’s a deficit in private sector investment the Maghreb. Will the newly launched AMU investment fund make a difference?

An Elusive Target: Inclusive Economic Growth in the Maghreb

 Some of the governments in the Maghreb are facing a dilemma: how do they balance the demands from their citizens for more jobs, services, transparency, and training, when they don’t have the budgets to address short term needs without mortgaging their futures. They are caught in a bind; on the one hand, economic growth has stagnated due to decreased trade and investment with their major partners in Europe. This leads to contracting markets, decreasing FDI, and fiscal policies directed at cutting costs.

On the other hand, governments, energy and non-energy producers alike, are under pressure to generate economic expansion that either stimulates growth through exports or benefits from increased external monies from tourism and remittances. Governments from Mauritania to Libya are struggling to implement policies that both build stronger, more transparent and robust economies, while providing at least some relief to citizens with high expectations for jobs and services.

On June 13, The Center for Strategic and International Studies (CSIS) hosted, “Building Stability through Inclusive Economic Growth in the Maghreb,” which brought together experts and a senior US government official to offer their insights on the prospects for development that will benefit the broadest range of stakeholders. This notion of “inclusive economic growth” is the latest buzzword for describing the new social contracts that are emerging, albeit with some difficulty, between government and its people.

My takeaways from the presentations are that we have both learned a lot and understand a little, and that is especially true for the new governments struggling to meet rising expectations that are rapidly becoming demands. While, in hindsight, we saw everything coming, the dilemma for those countries experiencing the greatest change, i.e., Tunisia and Libya, is the lack of certain assumptions about how to proceed.

The conference focused on “political-economic factors shaping economic growth strategies,” which basically means “what do governments want to do and what tools do they have to make it happen,” and the proposition of greater regional trade and investment as an effective option for growth.

While there was agreement on the long term need for jobs, reducing wealth disparity, reforming business regulations and the financial sector, and better integration with the global economy, it is the short-terms fixes that are generating concerns. Mohsin Khan of the Atlantic Council called them a “populist economic model” that promotes government employment programs, food and fuel subsidies, cash transfers, increases in direct taxes, expansionary low interest rates, and other immediate remedies.

The obvious consequences of these actions are that governments are increasing their debt in the short and medium term without a clear formula for how to pay for these expenses down the road. The impact is broadly felt across the region’s economies in terms of decreased value of the local currency, higher inflation offset by government subsidies for basic goods, budget deficits, and deferred reforms.

Over the longer term, Maghreb countries need to reduce the role of state owned enterprises, build friendlier and more transparent business environment, strengthen robust financial sectors, and figure out how to operationalize “inclusive growth.” Conference participants did not have any magic bullets as to how to balance the short term consequences with long term imperatives.

Yet there is a case to be made for greater regional trade and investment as a vehicle for growth. The often-quoted statistics about the low level of intra-regional trade make it obvious that any real growth will be beneficial. The ground-breaking Peterson Institute study in late 2008, the IMF series on the Maghreb private sector, and the latest World Bank study on the growth potential of regional integration, all point to the benefits of greater cooperation. In his remarks, Geoff Porter concluded that more economic integration is inevitable, that businesses across the region are optimistic about cooperating for the future, and that regional political obstacles are fading in importance for the private sector.

Given the still transitory nature of most of the Maghrebi governments, Morocco and Mauritania being the only exceptions, another expert source underscored how “much has changed and has not changed,” citing concerns that a populist economic model may impede the needed reforms to spur domestic investment and hopes that subsidies over time would lead to a new, more targeted social safety net strategy for each country.

The presentations mirrored the reality on the ground…no startling breakthroughs in how to satisfy citizens weary of politicians’ promises and impatient with policies that seem to benefit only those already in power. Most of the panelists were complimentary to Morocco for its stable transition under a new constitution, but its new government faces the same demands as the others.

Conflicting perceptions of what needs to be done and what can be done by governments and the private sector do not make it clear how the benefits of the short term solutions will play out over time. Since, with the advent of the Arab uprisings, it is clear that economic and political reforms are two sides of the same coin, the path forward is neither obvious nor readily accessible for most decision-makers who must craft effective solutions that do more than buy time.

Words into Actions: Theme and Challenge for NAPEO conf. on Economic Growth

It’s hard to form a simple conclusion about the second day of the second regional NAPEO conference in Marrakech. Based on quality of presentations/discussions and strong and effective presenters and participants, the overall program merits a strong A. Those who attended last year’s launch in Algeria were struck at how much had been achieved in one year. And to hear the list of project launches announced during the day, next year’s conference in Tunisia should be even more stimulating and productive.

What’s driving the participants is a hard to distill confidence that the economies of the Maghreb cannot go back to the largely opaque systems that benefited few and disappointed many. It was quite interesting to have a few minutes with Ambassador Stu Eizenstat, whose name graces the first program to promote regional economic integration – the Eizenstat Initiative of 1998. He finds some satisfaction in how quickly the vision of regional economic growth has mushroomed, driven hard by the realities of the Arab Spring. Now, thanks to the tenacious vision of former Fulbrighter Julie Egan and her cohorts at the State Department, along with the Aspen Institute and Partners for a New Beginning, ably staffed by Toni Verstandig and her PNB-NAPEO team, using the model of building local partnerships to take ownership of developing and delivering projects that create opportunities and jobs, you walk into a room full of North African entrepreneurs, advocates, business people, and aspirants who want to make a difference as soon as possible.

I moderated a discussion on cross-border opportunities and challenges in the hospitality and tourism sectors. It was quite telling that Algerians filled half of the room. While Tunisia and Morocco strongly endorse and support tourism as a national priority, Algeria still has rigid entry requirements and lacks sufficient infrastructure for broad-based tourism. This didn’t stifle any of the enthusiasm in the room for trading ideas, floating concepts, and engaging in thoughtful exchanges about how to promote regional as well as national tourism programs. Having worked on tourism promotion a generation ago in the Arab world, I too shared some of Ambassador Eizenstat’s satisfaction that the North Africans in the room really get it…and they’re going to make it work.

It was also quite interesting that the strongest applause during Ambassador Ed Gabriel’s group discussion on Cross Regional Business Opportunities was when presenters said that it was time for North Africa to be treated on its own merits, not as adjunct to the Middle East. Several people raised the difficulties of doing business in the region because of arcane transportation regulations and lack of transparency in business and legal codes. Yet, as Nawal Elaidaoui, the P&G Manager for NW Africa concluded, that doesn’t mean it isn’t worth the effort to keep banging on the door and building local partners to advocate for change. Regimes are calculating how to survive, and win-win economic growth may be the smart money option.

This article was originally published on Morocco on the Move.

US-backed program hopes to build youth employment opportunities

At Marrakech, the US and its regional partners are hosting the second “US-Maghreb Entrepreneurship Conference”to build the capacity of local entrepreneurs to meet demands for economic growth and jobs. And by ‘local’, they mean the countries of Algeria, Morocco, and Tunisia. With more than 400 people in attendance beginning on January 17, there is very strong interest to see if private sector values can emerge from people whose talents have often been submerged or limited within state-driven economic models of the past.

Before the conference started, there was a series of 11 “workshops” on topics ranging from a Startup Boot Camp and Becoming an Angel Investor to Venture Capital Best Practices and an Introduction to Google Advertising Networks & Tools. The organizers realized that the attendees needed fewer presentations and more hands-on opportunities to acquire skills to maximize their experience here.

The illluminati have arrived: former Secretary of State Madeleine Albright; Walter Isaacson of the Aspen Institute; Mostafa Terrab of OCP – the world’s largest producer of phosphates, based in Morocco; Ambassador Stuart Eisenstat; four former US Ambassadors to Morocco; brilliant economist Hernando de Soto; US Assistant Secretary of State Jose Fernandez; and the newly installed Moroccan Minister of Economy and Finance, Nizar Baraka.

Among the other 50 presenters and panelists are the three winners of last year’s TechTown incubator competition from Algeria, Morocco, and Tunisia. Whew. All of this before we even talk about how this is part of the US strategy to assist countries respond to economic issues by accelerating private-public sector partnerships to tackle employment and business development concerns to achieve specific and measurable results. While some have expressed concern about the costs of putting on such a conference, at the same time it brings home the message that probably the best tools that America has to convey to the Arab peoples are those same tools that helped the US become the world’s leading economy.

It all begins with instilling a set of operational principles about work, its value, its role in society, and the necessity of retooling throughout one’s life to respond to the shifting demands of the global economy. It also emphasizes the importance of recognizing and nurturing skills in everyone, not selecting out those who don’t meet certain social or ethno-cultural criteria. So this program is about giving people choices…about options for personal and professional growth, for understanding that job creation is as much about dignity as it is about compensation, and for integrating young people into economies in transition. BTW, the assumption is that this time governments are listening…

This article was originally published on Morocco on the Move.