TAKING THE TEMPERATURE OF THE CASABLANCA BUSINESS

C O N F I D E N T I A L CASABLANCA 000367

SIPDIS

SIPDIS

STATE FOR NEA/MAG AND NEA/PI

E.O. 12958: DECL: 04/01/2017
TAGS: ECON EFIN EIND ENIV PGOV MO
SUBJECT: TAKING THE TEMPERATURE OF THE CASABLANCA BUSINESS
COMMUNITY

REF: A. CASABLANCA 00142

B. CASABLANCA 00145

C. 05 CASABLANCA 01220

D. 05 RABAT 2005 01159

Classified By:
Principal Officer Doulglas Greene for reasons 1.4 (b) and (d)


1. (C) SUMMARY: Conversations with members of Casablanca's
business community reveal an underlying discord between the
economic priorities of the Government (and Palace) and the
expectations of Casablanca's businessmen and entrepreneurs.
While most business professionals we spoke with support the
King and monarchy, heads of small and medium enterprises
(SMEs) complained that "unstated" palace policies favor
large, palace-connected "national champions" at the expense
of smaller companies. The business community is also
generally dismissive of political parties, describing them as
weak and ineffectual; however, business leaders expressed
wariness of the increasing strength and popularity of Islamic
parties and unofficial Islamic groups. The Party of Justice
and Development (PJD) was cited by many private sector
observers who worry that Morocco does not yet have sufficient
constitutional controls in place to "limit the harm" of a
potential PJD parliamentary victory in the 2007 elections.
END SUMMARY


2. (SBU) Over the past several months we have held
conversations with a range of businessmen, investment
bankers, entrepreneurs and executives to discuss their views
on Morocco's economic and political environment. The
business professionals we spoke with represent both large
industrial conglomerates as well as small enterprises. The
following is a snapshot of their views, some of which
contrast with those of other sectors of Moroccan society.

ECONOMIC POLICY AND THE PALACE


3. (C) When asked their thoughts on the government of
Morocco's (GOM) economic policy, Casablanca-based businessmen
opined that policy is driven not so much by the GOM as it is
by palace insiders. Within Morocco this system is described
as "the Makzhen" (literally "treasury" in Arabic),referring
to the domination of the political and economic spheres by a
small core of elite connected to the palace. Observers
contend that the Makzhen pursues a deliberate policy of
"controlled competition" likened to the Chaebol system in
Korea or the Keiretsu system in Japan. Chaebol/Keiretsu
systems are characterized by large, family-controlled
corporate groups interlinked through share purchases and
supplier relationships. Businessmen argue that a similar
dynamic is at play in Morocco and that influential palace
insiders pursue a self-serving policy of developing "national
champions" at the expense of SMEs.


4. (C) According to some sources in the business and
financial communities, the unstated policy is allegedly
rationalized (privately) as the best means for Morocco to
compete globally, promote economic activity and increase
employment, much as the Chaebol/Kieretsu models played a key
role in developing new industries, markets and export
production in Asia. As evidence, a financial sector contact
referenced recent consolidation in the banking sector.
"Normally banking sector consolidation comes last to service
industrial consolidation," the investment banker explained.
"Here it happened first." Our contact argued that the recent
merger creating Attijariwafa bank (Ref D) was motivated by
the financial services needs of Omnium Norde Africain (ONA),
the royally controlled conglomerate. "That merger was driven
by ONA- a national champion that needed a national champion
bank to support it," he explained. COMMENT: ONA does in
fact control a majority interest in Attijariwafa Bank (Ref
C). We have also identified an unusually intertwined
relationship between ONA and Ynna Holdings, one of Morocco's
largest and most successful family-controlled industrial and
financial groups. END COMMENT

CORRUPTION


5. (C) Business attitudes toward governmental and other
high-level corruption suggest the corruption is concentrated
at the very top and the very bottom of the business and

governmental food chains. At the bottom end, most commonly
cited corruption is small in scale as practiced by minor
government bureaucrats and local officials. Business
contacts insist that Morocco is not the type of country where
one could "buy (or rent) a minister." That being said, at
the top end, local businessmen complain bitterly of a more
widespread corruption, larger in scale, and defined by
insider trading and corporate collusion among palace
insiders. Business contacts tell us this type of malfeasance
is rampant, and illustrate it with colorful examples. One
contact recounted a complicated (and apparently well-known)
story of a son-in-law of the royal family who, using royal
connections to obtain inside information, illegally pocketed
more than US $200 million in a single transaction. Owners of
SMEs are not immune to financial malfeasance either, (albeit
on a smaller scale),as many are well know for keeping two
sets of books and feel they are "practically obligated and
morally justified" in doing so.

THE ROLE OF THE KING


6. (C) Despite these criticisms, conversations with
business leaders in Casablanca reveal widespread support for
the monarchy and for King Mohammed VI (M6) in particular.
Contacts tell us that they respect his "energies", credit him
with improvements to the business environment and support his
efforts toward economic liberalization. Even so, some are
privately critical. One entrepreneur suggested the
(relatively) new king lacks the confidence "to step back a
bit" and let his technocrats work. "He has some good people
in government", the businessman explained. "Jettou (the Prime
Minister) is a businessman, he knows things. But do you
notice the King never lets him speak (on policy)?"


7. (C) Most in the business community agree, however, that
M6 is a notable improvement over his father, Hassan II and
that Morocco today is "unrecognizable" from ten years ago.
Even so, some remnants of the prior regime may have carried
over. Hassan Chami, the controversial president of CGEM,
Morocco's largest business association (Ref B),is believed
to have upset the palace recently and is currently under
investigation by the Moroccan tax authorities. Even some of
his rivals within CGEM describe it as "retaliation."
Nonetheless, the progressively-minded young monarch, who as
"Commander of the Faithful" retains authority on all things
Islamic, is viewed by many business leaders as an essential
backstop against growing Islamist influence both domestically
and regionally.

PARLIAMENTARIANS AND POLITICAL PARTIES


8. (C) Business professionals are almost universally
disdainful of parliamentarians and political parties.
Contacts described Morocco's 30-odd political parties as
"decoration", "disorganized", "useless", "vehicles for
self-promotion" and "corrupt," (although not always in that
order). "Too many parties controlled by too many
personalities," said one contact. Businessmen noted that no
political parties have economic agendas and very few
parliamentarians have any business experience. Others
complained that too often Parliament acts as nothing more
than a "rubber stamp" for the king. "Look at how
parliamentarians live," noted one local entrepreneur. "Fancy
villas and beach houses- these guys are scholars, civil
servants and lawyers, where do they get the money to afford
that?" He went on to allege that the Palace "subsidizes"
salaries of parliamentarians as needed. Another commented
cynically that that the Palace uses political parties "to
keep the Americans off our back" about democratization.
While most political parties are viewed by businessmen as
weak and ineffectual, the Party of Justice and Development
(PJD) emerges as a notable exception.

CONCERN WITH THE RISE OF ISLAMISTS


9. (C) There is growing unease among Moroccan business
leaders with the increasing strength and popularity of
Islamic parties and other "unofficial" Islamic groups. The
recent election of Hamas alongside widely publicized local
polls forecasting success of Islamic parties in Morocco's
2007 election have reinforced concern among business
contacts. The PJD, Morocco's largest and most influential

legal Islamist party, has not publicly advocated any specific
economic policies or proposals. However, local business
leaders fear the adverse effect religious encroachment in the
public sector will have on the business climate. "What will
happen if they win?" one contact asked over dinner at a
fashionable Casablanca restaurant, "Will they close this
place (the restaurant),ban alcohol and cover women in the
veil? No one knows." In contrast to most parties which are
seen as disorganized, weak and in the pocket of the palace,
the PJD stands apart. Entrepreneurs and investors worry that
growing Islamic influence in the public sphere could
negatively impact much needed foreign investment and frighten
away tourists, both critical to maintaining foreign reserves
and offsetting Morocco's negative balance of trade in goods.
Business professionals confessed they would feel better if
separation between religion and government were codified, but
many do not believe Morocco has the time or political will to
enact the constitutional controls necessary to "limit the
harm" of a potential 2007 Islamic parliamentary victory.


10. (C) Reflecting these apprehensions, a number of
business contacts, despite being overwhelmingly liberal and
pro-western, expressed reservations about democratic
liberalization for Morocco at this time. Business contacts
we spoke with were at times surprisingly monarchist in their
views, and questioned the appropriateness and timing of some
democratic reforms. Many fear political results that could
negatively effect Morocco's economic development and business
climate.


11. (C) COMMENT: In general, the Casablanca-based business
community is optimistic regarding Morocco's economic
development, despite concerns of insider-dealing among the
Makhzen and fears of Islamist political gains. Nonetheless
many of these businessmen, investors and entrepreneurs work
in Morocco by choice and should business climate conditions
change adversely, many would be quick to relocate their
careers and businesses elsewhere. While the King currently
retains the respect and support of the business sector, the
cynical views of business leaders toward the political system
and democratization is revealing and contrasts with the views
of some other sectors of Moroccan society. In addition, the
continued dynamic between SMEs and large conglomerates points
to another cause of concern for the business community.
GREENE