International Business Climate in Morocco and 2014 Finance Law: Confidence or Distrust?
11 February 2014
Read by 2193 persons
In Morocco, the 2014 Finance Law comes at a time of turbulent national and international economic conditions. This requires the Benkirane government to produce a budget that improves visibility for businesses. What about this 2014 budget? Does it inspire confidence or distrust among business people? Does it improve the business climate in terms of efficiency and transparency?
In all economies, the Finance Law is considered the determining framework for a country's social, political, and economic life. By its generic definition, it is the annual exercise that determines the allocation of state resources and spending.
In Morocco, this 2014 Finance Law arrives in a gloomy and turbulent national and international economic context. This requires the Benkirane government to produce a budget that improves visibility for businesses and creates economic and social dynamism. What about this 2014 Finance Law in terms of spending allocated to different budget items to create a fruitful investment climate for business people?
What about this 2014 general state budget where the Benkirane team loudly proclaims and sings the IMF's chorus of public finance compression?
Initially, it can be argued that the 2014 Finance Law, essentially based on a logic of collecting financial resources, contains few measures to promote economic dynamism. It also creates skepticism and suspicion about the business climate in Morocco.
Indeed, according to the head of the employers' federation, Meriem Bensalah Chaqroun, the 2014 budget does not contain measures likely to boost growth or sharpen the competitiveness of the Moroccan industrial sector. It lacks tools for reviving the Moroccan economy due to decreased public investment and a massive increase in operating expenses. Out of a total expenditure of 306 billion dirhams, 199.3 billion are allocated to operating expenses, which is four times the budget allocated to investment.
Regarding taxation, which is supposed to provide predictability and support economic operators, the 2014 Finance Law announces an increase in certain VAT rates. According to the Moroccan General Confederation of Enterprises (CGEM), this is a flawed and biased interpretation of the recommendations of the 2nd Taxation Conference. This risks exacerbating bottleneck problems and the scale of VAT repayment credits, jeopardizing the cash flow of Moroccan businesses.
Also, the proliferation of parafiscal taxes in the 2014 budget creates tax inequity, favoring imports to the detriment of the national productive sector. This increases the cost of inputs, harming the competitiveness of Moroccan export supply. Industrial competitiveness must be integrated into all sectoral aspects to boost exports, reduce imports, and contribute to job creation.
Furthermore, the 2014 Finance Law intervenes in a national economic environment marked by deindustrialization of the Moroccan production system (the share of industry currently represents less than 15% of GDP). This generates perverse displacement effects in favor of speculative sectors and constitutes a major obstacle to the real economy, which is a driver of jobs and investment.
This is why the CGEM called on the Benkirane team, during the last 2013 Taxation Conference, to create an industrial restructuring pact to revive local industry. It considered that the "reindustrialization" of the national economy and the strengthening of business competitiveness should be at the heart of all industrial strategies. This will create jobs, boost exports, slow down imports (which, according to Keynesian thought, represent a leakage from the Moroccan economic cycle in terms of foreign currency—valued at 4.5 months of imports at the end of 2013), and regain market share for businesses in the domestic market.
In conclusion, tax visibility alone remains a necessary but insufficient condition for making the investment climate profitable and credible in the eyes of economic operators. To restore confidence and send strong positive signals to international and national investors, they need more than ever the restoration of confidence, responsiveness, and proactivity from public authorities.
To this end, it seems to us that the Benkirane government must transcend budgetary instruments to propose non-budgetary measures to improve the environment for national businesses. This includes setting a deadline for processing taxpayer claims, accelerating the implementation of e-government for better productivity and greater transparency, clarifying tax laws for a better tax climate, accelerating the processing of long delays in obtaining permits (especially for construction), combating the informal economy and corruption, facilitating public procurement procedures, completing the judicial reform process, facilitating access to land and urban planning.
We believe that these economic reforms, independent of any Finance Law and budgetary consideration, will free up national and international private initiative, strengthen investment security, increase business predictability, restore confidence, and make the international business climate lucrative and fertile for international and national business people.
"The future is nothing but the present put in order," said Antoine de Saint-Exupery, and it is time for the Benkirane team to put the present of economic reforms in order for the future of a credible, clear, serene, and healthy investment climate for the business environment in Morocco.
Mustapha Maghriti.
Lecercle.lesechos.fr
Published February 3, 2014.
Posted online February 11, 2014.
In all economies, the Finance Law is considered the determining framework for a country's social, political, and economic life. By its generic definition, it is the annual exercise that determines the allocation of state resources and spending.
In Morocco, this 2014 Finance Law arrives in a gloomy and turbulent national and international economic context. This requires the Benkirane government to produce a budget that improves visibility for businesses and creates economic and social dynamism. What about this 2014 Finance Law in terms of spending allocated to different budget items to create a fruitful investment climate for business people?
What about this 2014 general state budget where the Benkirane team loudly proclaims and sings the IMF's chorus of public finance compression?
Initially, it can be argued that the 2014 Finance Law, essentially based on a logic of collecting financial resources, contains few measures to promote economic dynamism. It also creates skepticism and suspicion about the business climate in Morocco.
Indeed, according to the head of the employers' federation, Meriem Bensalah Chaqroun, the 2014 budget does not contain measures likely to boost growth or sharpen the competitiveness of the Moroccan industrial sector. It lacks tools for reviving the Moroccan economy due to decreased public investment and a massive increase in operating expenses. Out of a total expenditure of 306 billion dirhams, 199.3 billion are allocated to operating expenses, which is four times the budget allocated to investment.
Regarding taxation, which is supposed to provide predictability and support economic operators, the 2014 Finance Law announces an increase in certain VAT rates. According to the Moroccan General Confederation of Enterprises (CGEM), this is a flawed and biased interpretation of the recommendations of the 2nd Taxation Conference. This risks exacerbating bottleneck problems and the scale of VAT repayment credits, jeopardizing the cash flow of Moroccan businesses.
Also, the proliferation of parafiscal taxes in the 2014 budget creates tax inequity, favoring imports to the detriment of the national productive sector. This increases the cost of inputs, harming the competitiveness of Moroccan export supply. Industrial competitiveness must be integrated into all sectoral aspects to boost exports, reduce imports, and contribute to job creation.
Furthermore, the 2014 Finance Law intervenes in a national economic environment marked by deindustrialization of the Moroccan production system (the share of industry currently represents less than 15% of GDP). This generates perverse displacement effects in favor of speculative sectors and constitutes a major obstacle to the real economy, which is a driver of jobs and investment.
This is why the CGEM called on the Benkirane team, during the last 2013 Taxation Conference, to create an industrial restructuring pact to revive local industry. It considered that the "reindustrialization" of the national economy and the strengthening of business competitiveness should be at the heart of all industrial strategies. This will create jobs, boost exports, slow down imports (which, according to Keynesian thought, represent a leakage from the Moroccan economic cycle in terms of foreign currency—valued at 4.5 months of imports at the end of 2013), and regain market share for businesses in the domestic market.
In conclusion, tax visibility alone remains a necessary but insufficient condition for making the investment climate profitable and credible in the eyes of economic operators. To restore confidence and send strong positive signals to international and national investors, they need more than ever the restoration of confidence, responsiveness, and proactivity from public authorities.
To this end, it seems to us that the Benkirane government must transcend budgetary instruments to propose non-budgetary measures to improve the environment for national businesses. This includes setting a deadline for processing taxpayer claims, accelerating the implementation of e-government for better productivity and greater transparency, clarifying tax laws for a better tax climate, accelerating the processing of long delays in obtaining permits (especially for construction), combating the informal economy and corruption, facilitating public procurement procedures, completing the judicial reform process, facilitating access to land and urban planning.
We believe that these economic reforms, independent of any Finance Law and budgetary consideration, will free up national and international private initiative, strengthen investment security, increase business predictability, restore confidence, and make the international business climate lucrative and fertile for international and national business people.
"The future is nothing but the present put in order," said Antoine de Saint-Exupery, and it is time for the Benkirane team to put the present of economic reforms in order for the future of a credible, clear, serene, and healthy investment climate for the business environment in Morocco.
Mustapha Maghriti.
Lecercle.lesechos.fr
Published February 3, 2014.
Posted online February 11, 2014.
