Casablanca investors pray for rain.

Author:Album, Andrew
Position::Drought in Morocco - Includes related article

Last year's drought caused a recession in Morocco and also scared away many potential stock market investors. As part of our ongoing regional market review, Andrew Album analyses the prospects for change in 1996.

Until recently, Morocco was seen as having one of the region's most impressive economies. Under the stewardship of the International Monetary Fund, discipline was brought to the country's economy. As a recent report from the GT Africa Fund notes, Morocco "can claim to meet most of the Maastrict criteria for economic monetary union. This is an achievement that few European nations can match."

On the back of a comprehensive reform and liberalisation programme, the economy grew by an average of 4.3% per annum in the period 1986-94. National debt, as a percentage of GDP has also been halved and the budget deficit slashed, whilst inflation was brought down to a respectable 5%.

It was almost inevitable that such progress would ultimately feed through into stock market performance. The Casablanca exchange, which has been in existence since 1929, grew significantly. Annual turnover rose to over $750 million and the number of quoted companies increased to 61, as the market's capitalisation soared above $4 billion. In 1993, the index rose by an impressive 27.9% and followed that up with a 31.8% gain in 1994.

1995 proved to be a turning point for the domestic economy, which was ravaged by the effects of a widespread drought. The resulting recession saw the economy shrink by an estimated 5%. As a recent report in the London economic daily Financial Times noted, "the impact of the drought shows the vulnerability of a country where nearly half the population depends on the land."

The downturn also focused attention on some of the underlying fundamentals of Morocco's economy, which is far less healthy than some analysts have claimed. A report by the World Bank, published in September 1995, revealed that Morocco had many failings. For instance, even though its economic growth performance might seem impressive, it was insufficient to absorb the growing workforce, leading to an unrelenting rise in unemployment. The World Bank was also sharply critical of social indicators and living standards, especially in the countryside, pointing to the country's failure to make effective use of state spending in areas such as education.

The combined effect of the World Bank report and the drought caused many investors, including foreign fund managers such as...

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