Previous Quarterly Editions
Expropriation Risk: 41 45 45 48 ▲Political Violence Risk:48 48 57 57 ►Terrorism Risk:50 50 48 46 ▼Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:57 47 57 57 ►
TREND ►
Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3.5 4 5 West
Degree of contestationSettled 1 2 3 Contested
Morocco has a transactional approach in its foreign policy, based to a great extent on how much traction it can achieve on the Western Sahara sovereignty controversy. The other main element in this approach is economic self-interest. This means that although Morocco appears to be closely aligned with Europe and the U.S., it has also sought to develop good relations with Russia and China.
One aspect of this is to use the cultivation of ties with Russia and China to vent displeasure with some European governments and the European Union over their positions on the Western Sahara issue and on human rights in Morocco. Another is to take advantage of China’s interest in establishing an Africa-focused investment hub in Morocco, in particular regarding logistics and technology. The main limitation on this policy is Morocco’s heavy reliance on the U.S., France, Italy, and Spain for military equipment.
An example of this transactional approach was Morocco’s decision not to take part in the March UN General Assembly vote on a resolution condemning Russia for invading Ukraine in February 2022. This refusal to condemn Russia was widely interpreted as a signal of Morocco’s displeasure with European policies on the Western Sahara. Russia and China have a neutral position on this issue, partly reflecting their interests in Algeria. However, Morocco perceives this as ‘positive neutrality’, as evidenced by Russia and China blocking Western attempts to introduce human rights considerations into the mandate of the UN monitoring force, the United Nations Mission for the Referendum in Western Sahara (MINURSO).
Russia is an important market for Moroccan exports of citrus fruit and phosphates. Russians also make up a significant portion of tourist arrivals. Several Russian oligarchs have invested in high-end property in Morocco, and it is a convenient transit point for Russians looking after assets in Caribbean tax havens. Morocco is looking to develop barter arrangements, exchanging citrus and phosphate exports for imports of Russian fuel and wheat, to get around Western financial sanctions on Russia that have followed Russia/Ukraine crisis.
Several accords have been signed with China since 2015 placing Morocco on the new ‘Silk Road’. A massively ambitious project was launched for a technology city
outside Tangiers. The original Chinese partner, Haite Group, fell by the wayside in 2017. The project was later revived in 2019 with new Chinese partners, led by China Communications Construction Corporation, taking a total 35% stake, with Moroccan partners holding the remainder. The aim is to establish a cluster of Chinese investments, along the lines of similar developments involving Western companies outside Rabat and Casablanca. The Chinese investment would extend into the Tanger-Med port region. One aspect likely to be of concern for Western governments will be the risk this development could incorporate a digital surveillance centre. As yet, there has been little progress with the actual construction, however.
TREND ▲
Morocco has successfully courted foreign investment for years, including incentives such as preferential taxes and special investment zones. Foreign investors are typically induced to establish partnerships with interests connected to the palace. There are no restrictions on companies divesting and selling their stakes to third parties.
Businesses can run into difficulties during periods of political tension between their home government and Morocco, usually over the Western Sahara sovereignty controversy. However, disputes arising between the Moroccan authorities and foreign investors have tended to be based on commercial rather than political issues.
Western Sahara is the main source of political violence. Tensions have risen including as Morocco has increased its diplomatic efforts to resolve the sovereignty issue in its favour and deployed troops within a buffer zone along the Mauritania border. Also problematic was a deal struck in December 2020 by the Trump administration to recognise Morocco’s claims over Western Sahara in exchange for Morocco establishing diplomatic relations with Israel. The Biden administration has refused to rescind this recognition.
Morocco’s decision not to vote on the March UN General Assembly resolution denouncing Russia’s invasion of Ukraine may reflect political sensitivity over Western Sahara, as Morocco’s critics argue the absorption of the territory amounts to an internationally prohibited use of force to change borders.
Within Morocco, there have been sporadic popular protests against corruption, police brutality, and deprivation. Disaffection continues to bubble in Morocco’s large informal sector. The authorities’ fears of destabilising protests are reflected in a highly oppressive system of surveillance and tight media controls.
TREND ▼
Morocco was one of the main sources in North Africa of fighters that joined Islamic State (IS) in Syria in 2013-17. An estimated 3,000 Moroccans joined IS, most coming from areas in the north known for Islamist militancy. There have been concerns many of these fighters would return to Morocco and become involved in terrorist activity. However, there have been only a handful instances of Islamist terrorism in Morocco since Al-Qaeda carried out a major assault in 2003 and the risk of terrorism remains low. This is partly because of setbacks for IS and Al-Qaeda but also effective Moroccan intelligence services.
There are no significant restrictions on exchange transfers in Morocco. Access to foreign exchange through the banking system is straightforward, although the central bank does maintain some capital controls.
The exchange rate is pegged to a basket weighted 60% to the euro and 40% to the U.S. dollar. The band within which the rate may fluctuate was widened to 2.5% in 2018, and to 5% in March 2020, as part of the COVID-19 response. The International Monetary Fund (IMF) repeatedly urges Morocco to shift to a more flexible system. The central bank has agreed in principle, but there appears to be a residual reluctance to give up control.
The risk of trade sanctions applies mainly to goods exported from Western Sahara. The European Court of Justice is involved in prolonged deliberations over a Polisario suit against the European Union, including exports from the territory and its waters in its trade preference accords.
Morocco in October 2020 imposed various restrictions and tariffs on goods imported from Turkey, claiming Turkish exporters had abused concessions provided under a 2016 free trade agreement.
Morocco’s debt has increased due to COVID-19, but is not particularly burdensome by regional standards, and the risk of sovereign default is low thanks to historically high reserves. Gross public debt has risen to 80% of GDP, from about 65% in recent years, while external debt has climbed from about 32% of GDP to 40%.
The Russia/Ukraine crisis has put pressure on Morocco’s external finances through increasing costs of importing fuel and wheat. This has been offset to some extent by the surge in revenue from phosphate exports, and a solid recovery for automotive exports. Tourism has bounced back after the pandemic, but there has been a dip in remittances.
Morocco faces a testing debt repayment schedule, with about USD4 billion falling due in 2022, including a USD1.5 billion Eurobond. The next hump in repayments is in 2024, when about USD2.5 billion is due.
In March 2020, the government drew down the entire USD3 billion available from the IMF’s precautionary and liquidity line (PLL), given COVID-19. The government issued EUR1 billion (USD987 million) in Eurobonds in September, followed by a successful USD3 billion bond issue in December. This has brought Morocco’s stock of sovereign bonds to about USD12 billion. The government used part of the proceeds of the most recent bond issue to repurchase about one-third of the PLL. Meanwhile foreign exchange reserves stand at about USD32 billion, sufficient to cover six months of imports.
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