VZCZCXYZ0423
RR RUEHWEB
DE RUEHRB #0212/01 0671819
ZNR UUUUU ZZH
R 071819Z MAR 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 8240
INFO RUEHAS/AMEMBASSY ALGIERS 4708
RUEHAM/AMEMBASSY AMMAN 0600
RUEHEG/AMEMBASSY CAIRO 2309
RUEHTU/AMEMBASSY TUNIS 9546
RUEHCL/AMCONSUL CASABLANCA 3944
UNCLAS RABAT 000212
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN PGOV MO
SUBJECT: BUSINESS ASSOCIATION PRESSES FOR URGENT REFORM
Sensitive but unclassified. Not for internet distribution.
1. (SBU) Summary: In recent weeks, Morocco's chief business
lobbying group, the Confederation Generale des Entreprises du
Maroc (CGEM), has added its voice to those calling on the
government to adopt urgent reforms in areas ranging from
taxation to the judiciary to enable Moroccan companies to
compete internationally. The group identifies five critical
priorities: vocational training, support for small and
medium-sized enterprises, judicial reform, tax reform, and
modification of the Moroccan labor code. If previous such
exercises have usually not resulted in tangible improvements,
representatives of the Casablanca-based organization tell us
that they hope that this time will be different, with
government agreement to meet regularly and set up commissions
to examine the recommendations. End Summary.
2. (SBU) A Comprehensive Roadmap: The fifty page CGEM white
paper, based in part on a 2007 Monitor Group study that
benchmarked Morocco's corporate tax regime against that of
its competitors, was originally destined for release in the
pre-election period last year. In its consultations with
political parties, however, the group was "agreeably
surprised" to find that parties had already elaborated a
number of economic priorities. This led CGEM to hold back
the document for further review, and to ultimately present it
to the government at the end of January. In recent
interviews, CGEM President Moulay Hafid Elalamy has
characterized the white paper as an effort to ensure that the
voice of the confederation was heard as the new Moroccan
government works through its economic priorities.
3. (SBU) The five chapters of the report highlight what
Morocco's most influential business association believes to
be the key constraints that inhibit business that can be
addressed in the short term. Elalamy himself as
characterized them as "a realistic vision rather than a set
of pious wishes that are totally disconnected from reality."
The group's "realist" slant is most evident in its approach
in the field of education. The group decided not to tackle
the sector's overall problems head on, Elalamy's deputy
Mohammed El Idrissi recently told us, because that was a sure
recipe for ensuring that the report was "filed away and
forgotten." It chose instead to focus on achievable changes
in Morocco's vocational training regime, suggesting a new
centralized entity to oversee special training contracts and
to replace the multiple agencies that currently participate
in the process. Overall education reform is needed, El
Idrissi admitted, but in the short term the needs of business
can be addressed by this "remedial" approach.
4. (SBU) In other areas, however, the group saw no option but
to confront difficult and long-standing problems head-on.
Perhaps the most ambitious of its targets is the Moroccan
justice system. In an indictment that one leading business
paper characterized as the "consummation of the divorce"
between the business world and the judicial system, the paper
puts forward a broad indictment of Morocco's judiciary. It
includes corruption, lack of training, lack of
specialization, failure to utilize alternative means of
dispute resolution, and failure to disseminate jurisprudence
generally, with the result that judicial decisions display
little consistency between regions. To begin the process of
reform CGEM suggests increasing the budget of the Justice
Ministry to increase judicial salaries, and also setting
quotas for judicial training to ensure that judges have the
background that will enable them to adjudicate complicated
commercial disputes.
5. (U) The group's other recommendations fall into three
broad categories: improving the access of small and
medium-sized enterprises to finance, reforming Morocco's 2004
labor code, and reforming the country's onerous fiscal
regime. A short synthesis of key elements in these areas
follows:
6. (U) Fiscal regime: the group praises the government's
initiative to lower taxation from 35 to 30 percent in the
2008 budget, but drawing on the Monitor Group study argues
that this level remains too high in comparison to Morocco's
peers. The group also argues that lowering the rate alone is
insufficient-- procedures must be simplified as well, given
that an average business devotes 468 hours to fulfilling its
tax obligations, nearly twice the average in the MENA region.
Specific proposals thus include reduction of this
bureaucratic load and continued reduction in rates towards
the average of Morocco's peer group, including particularly
through setting a lower rate of 20 percent for small and
medium-sized enterprises. Such a tiered approach, CGEM
argues, would go far towards reducing the size of Morocco's
informal or parallel economy. Longer term, the group also
urges reform of the value added tax and income tax, to
increase the public's purchasing power.
7. (U) Labor Code: The white paper highlights long-standing
business complaints about shortcomings in the revised 2004
labor code, arguing that its "interventionist spirit" limits
managers' authority and marginalizes labor contracts.
Certain provisions are impossible to implement, others are
contradictory and open to judicial interpretation, while many
seriously handicap business competitiveness (such as the
requirement that retiring workers be replaced, an edict that
CGEM notes essentially rules out business restructuring).
CGEM also criticizes the government's continued failure to
adopt legislation governing workers' right to strike (a right
enshrined in the constitutions since 1962), arguing that the
anarchic manner in which strikes proceed currently is a
serious threat to business.
8. (U) SME Finance: As in the area of vocational training,
CGEM argues that the multiplicity of government initiatives
seeking to aid small and medium-sized enterprises have lacked
coherence and done little to assist them. Instead the sector
has stagnated at between 35 and 39 percent of industrial
production and 10 percent of value added over the last twenty
years, even with the government's three global initiatives,
six sectoral initiatives, and four thematic initiatives.
What is needed, CGEM argues, is not to adopt new measures,
but to optimize and better coordinate those which already
exist. Companies need to be screened in order to focus on
those that have the best chance of success, a promised fund
for the support of small enterprise should be implemented,
and most importantly, in CGEM's view, the fiscal system needs
to be modified to ease the burden on smaller firms.
9. (SBU) Process: CGEM presented these detailed proposals to
Prime Minister El Fassi at the end of January, and he
directed the government to set up commissions to meet monthly
on the issues the group raised. Those sessions feed into a
quarterly session with the Prime Minister himself. CGEM
President El Alamy put a positive spin on the process in a
March interview, arguing that "our objectives have been
attained in the sense that our voice has been heard by the
authorities." Earlier, the group's Secretary General,
Mohammed El Idrissi, also accentuated the positive in a
conversation with us, noting that many ministers come from a
business background, and understand the urgency of the
issues. "The diagnosis is not new," he said, what CGEM has
attempted to contribute are "concrete" solutions that can be
achieved in the short term.
8. (SBU) Comment: While in many areas it echoes the views of
other observers, including those of the World Bank, the CGEM
White Paper is an impressive summary of what Morocco's
business elite believes needs to be done on an urgent basis
to enable the private sector to fulfill its role as the
"motor" of Moroccan economic growth. Not all proposals will
be palatable to all audiences, particularly on taxation and
labor regulation, but the government's willingness to engage
with the organization highlights the seriousness of the
proposal and its success in avoiding "pie in the sky"
formulations. The real tests will come in the months ahead,
as the two sides engage on detailed labor, judicial, and tax
proposals that in many instances go beyond what the
government has up to now been willing to accept. End
Comment.
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