Casablanca Stock Exchange stepping up to finance the Moroccan economy

Morocco - Having weathered the global financial meltdown, the Casablanca Stock Exchange (la Bourse de Casablanca) is stepping up to its central role of financing the Moroccan economy. Over the next few years, Africa's third-largest bourse seeks to double its number of listed companies and more than quadruple its number of investors.

At the end of September, CSE head Karim Haji told international press, "Our goal is to draw 75 new companies by 2015." He added that the bourse was currently eyeing 500 companies for potential listing. This target corresponds to the government's greater drive to modernise the financial market and establish Morocco as a financial hub for Africa.

Only 77 companies are currently listed on the CSE, due in part to a wave of delistings in 2008. Buyouts were responsible for a number of companies, including paper maker Le Carton and life insurer La Marocaine Vie, removing their shares from the market. Market depth also presents a challenge, with only 20 companies trading daily. Small and medium-sized companies (SMEs), accounting for 95% the economy, are underrepresented on the stock market. As well, despite Morocco's strong ties to francophone Africa, no foreign companies are listed.

However, the CSE's paucity of listings belies its market value. For a brief period in 2009, Morocco's stock exchange surpassed Egypt's to become the continent's second largest, trailing South Africa's Johannesburg Stock Exchange. Many foreign investors may still see Morocco as a small market, possibly due to a substantial delisting by the regulator 10 years ago for infractions that brought the number of companies listed to 42.

The bourse's expansion strategy includes increasing its investor base. "We also aim to have 500,000 active individual investors by 2015 versus roughly 120,000 now," Haji stated. A major selling point is that the CSE has had the world's highest average annual investor gain - 15% - for the past 10 years and capitalisation has increased five times over that period.

Another gambit to attract investors to Morocco is setting up a derivatives market for swaps, futures and commodities trading. With the draft law currently being reviewed in parliament, Haji predicts that the derivatives market could be up and running within 18 months.

With limited correlation to international markets, the CSE fared better than other African stock exchanges in the financial crisis, falling less than 14% in 2008, while Saudi Arabia's Tadawul All Share Index's took a 57% dive. The primary reason for this is foreign investors account for only 5% of the market. Trading volume was more affected, retreating 32%, while capitalisation stood at €48bn at the end of July 2009, down from a March 2008 high of €63bn. However, the government expects the economy to remain resilient, with 5.4% growth expected in 2009.

Haji told international press that Morocco wants to become "a stepping stone for investors from the US, Asia, Europe and the Middle East looking for opportunities to diversify investments." One subgroup specifically being targeted is Moroccan expatriates, who have traditionally invested in real estate. However, to attract them to the stock market, the entire financial system needs to mobilise. "The stock market may set up promotion and communication incentives, but ultimately it is the investment banks that will convince entrepreneurs to list their companies and will assist them in the process," Haji told OBG. He also mentioned that the government should renew a five-year tax exemption of up to 50%, which gives companies an incentive to float shares. Another strategy being considered is allowing foreign firms to list in Casablanca and repatriate the money raised.

Following a record number of initial public offerings (IPOs) in 2007, only five took place in 2008 due to unfavourable market conditions. All were oversubscribed by individual investors betting on post-IPO rallies, though stock in four of these companies fell after they went public. No IPOs have taken place in 2009 so far and none are expected for the remainder of the year.

Hassan Ait Ali, the CEO of Upline Corporate Finance, told OBG that market participants want laws incentivising long-term investment, as well as general financial reform. "The CSE operators need to focus more on marketing its stability, transparency and technology to international actors. Morocco could become a hub for Western/sub-Saharan African investments and the bourse has developed the necessary know-how, but we need to work on extending the reach and exposure of the market," he said.