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Cablegate: Ambassador Engages Some of Morocco's

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

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