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05RABAT1204 2005-06-09 11:48:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rabat
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1. (U) SUMMARY: Seventeen state-owned companies remain on
the GOMs privatization list. The GOM will likely privatize
six in 2005, according to Moroccan Department of Public
Enterprises and Privatization (DEPP) officials. While nine
companies are theoretically eligible, only six are considered
"ready" for privatization. Four sugar companies, Suta,
Sucrafor, Surac and Sunabel, are farthest along. The two
others are Drapor (dredging company) and Somathes
(commercialization of tea and sugar). Audits and evaluations
have been completed and officials are currently determining
minimum prices. Debate over pre-privatization sugar sector
liberalization continues, nonetheless the GOM could sell the
four sugar companies as early as August. Critics question
GOM's dependence on privatization receipts and warn of medium
to long-term fiscal and financial consequences. END SUMMARY

2. (U) The GOM has privatized fully or partially sixty-six
state-owned companies since 1993, adding nearly $9 billion to
state coffers, according to Abdelaziz Talbi, Director of
Public Enterprises at the Ministry of Finance. Morocco
ranked first in privatization receipts among Arab countries
and third in Africa in 2004. Privatization transactions
pushed capitalization of the Casablanca Stock Exchange to
$24.2 billion from $590 million between 1989 and 2004. The
larger companies fully or partly privatized during the period
were Maroc Telecom and Regie des Tabacs (tobacco distribution
company). According to a recent GOM study, after
privatization, former parastatals' turnover increased by 35
percent on average, dividends improved by 48 percent, and
taxes transferred to the government went up 55 percent.

3. (U) GOM originally considered Biopharama (pharmaceutical
company) and Cotef (textiles) for privatization in 2005.
However, Biopharma may not be ripe, according to GOM
officials and Cotef is considered rife with internal problems
and may need pre-sale restructuring. Two salt companies, SCS
and SSM, are at the same stage of privatization development
as Drapor and Somathes but their privatization is not a
priority because of their small size. Although Minister of
Finance and Privatization Oualalou stated that GOM will also
privatize Comanav (merchant marine) and continue the
privatization of Banque Populaire (begun in 2004) in 2005,
those may be delayed until 2006.

4. (U) Recent privatizations have also increased money
market liquidity in the banking sector. This liquidity has
been absorbed by placements in treasury bonds that allow GOM
to transfer external debt to internal debt, improving
Morocco's external position significantly. Some fear that
when Morocco's privatization program ends, it will be faced
not only with a fiscal crunch, but also the added pressure of
a sharp increase in interest rates.

5. (SBU) Local pundits and international organizations
criticize the GOM for relying too heavily on privatization
receipts to mask fiscal imprudence. Recent privatizations
are "one offs" that are not a sustainable source of fiscal
revenue. In addition, financial analysts worry that the end
of privatization will diminish excess domestic liquidity. A
subsequent tightening of domestic financial markets will
result in higher interest rates. Econoff spoke to
parliamentarians, including El Jadida representative and FTA
advocate Khalid El Hariri, former entrepreneur and member of
the socialist party. El Hariri argued that GOM recognizes
privations are not a long term revenue source. He contended
GOM is not dependent on privatization receipts, but does try
to maximize short-term advantages. El Hariri reminded
Econoff that fifty percent of privatization receipts go to
the Hassan II philanthropic fund which invests the money in
long-term infrastructure and social development projects and
poverty reduction. The fund recently announced a $100
million investment in Morocco's Tangier-Med project. The IMF
has faulted the royally-controlled fund for lack of