Économie et Finance

Sectors encountering difficulties and the reason for the ongoing crisis

le 9 juillet 2018

In many respects, Morocco’s real estate crisis is very similar to what happened in Spain.

While Spanish banks and businesses experienced difficult times, with each accepting their share of the blame, Spain always knew, however, that the European Central Bank was on hand to provide a backstop.

The impact on the Moroccan real estate sector from the economic crisis that affected our country has been considerable, especially since 2014.

Real estate developers must of course take their full share of responsibility, many of which are accused of ‘badly-built’ developments and projects.

The banks’ responsibility, however, in this crisis affecting the real estate sector is also obvious.

Overwhelming support was provided by the banks to real estate developers to enable them to ‘keep their heads above water’, even going so far as using hitherto untried instruments such as repurchase agreements and dations-in-payment, in addition to rescheduling their debts when they got into trouble.

That was because the banks would appear to have had no other option since the entire banking sector was vulnerable to systemic risk as a result of the sheer size of the banks’ exposure, which amounted to billions of dirhams.

This is but an example showing that we are not yet done in solving the problems of the past.

This is because our domestic banking sector, unlike Spain’s, could and can only count on itself! Which means that more time is needed to resolve problems…

There is only one possible solution, however, to the domestic real estate market’s current crisis.  That single solution, in fact, is to shrink market supply by putting a brake on real estate companies’ business activity. And especially since buyer confidence has dissipated as a result of generally poor construction quality across all market segments.

The same can be said for Maghreb Steel, a steel maker, which is stuck with MAD 6 billion of bank debt, without the banks being able to find any means of resolving the situation.

A merger with Sonasid is envisaged, however, to enable Maghreb Steel to rid itself of its structural debt problems.

One of the questions that such a deal throws up is whether those banks with the greatest exposure to Maghreb Steel might not be able to convert their debt into equity in the new steel mill.

It would appear that Maghreb Steel has already entertained such a notion, having already converted some of its debt into shares, as was done in Spain’s restructuring.

In that country, the banks swapped their debt for equity in a number of companies which were then listed on the stock market, the level of required provisioning determined by their market value.

Morocco, however, is a different kettle of fish. In our situation, solutions always take time to materialise and even more time for them to be actually implemented…

The Moroccan economy suffers as a result, because growth is held back by the lack of any meaningful contribution to economic activity from these ‘sick’ sectors.

And while the banks are able to diversify into other areas of the economy that are growing, those sectors encountering difficulties remain handicapped, however, under the weight of their bank debt and a lack of impetus in their underlying business.

Afifa Dassouli

Original article : https://lnt.ma/secteurs-difficultes-crise-perdure/