MOROCCO'S MIDDLE CLASS PART II: THE STAGNATION OF

UNCLAS CASABLANCA 000048 SENSITIVE SIPDIS STATE FOR NEA/MAG STATE PLS PASS TO COMMERCE FOR NATHANIEL MASON E.O. 12958: N/A TAGS: ECON MO PGOV PREL SUBJECT: MOROCCO'S MIDDLE CLASS PART II: THE STAGNATION OF MOROCCO'S MIDDLE CLASS REF: CASABLANCA 36 -------------- Summary -------------- ¶1. (SBU) While the bustling markets that line the streets of Casablanca might suggest that Morocco's middle class is thriving, many of our contacts note that growth within this segment of society has stagnated in part due to the rising cost of living and the country,s poor fiscal policies. Middle class families are increasingly one major incident ) a sudden illness or a car accident - away from falling out of middle class status altogether. This is the second of a three-part cable series on Morocco,s Middle Class. The first (reftel) looked at what, exactly, constitutes the middle class in Morocco today. The third will discuss private and public initiatives to develop that segment of society. -------------- The Stagnation of Morocco's Middle Class -------------- ¶2. (SBU) While the bustling markets that line the streets of Casablanca might suggest that Morocco's middle class is thriving, our contacts argue that in reality this sector of the population is struggling. Recent marketing studies by Procter and Gamble (P&G) point to a stagnating middle class - defined as a family of four generating between USD 625 to 2125 per month. The external affairs director for P&G, Nawal Elaidaoui, said that although the absolute number of middle class households has grown, the percentage as it relates to Morocco,s population has not. In fact, P&G's marketing home visits illustrate a deteriorating quality of life for middle class families. -------------- The Rising Cost of Living -------------- ¶3. (SBU) To explain the cause of this stagnation, Elaidaouri points to inflation which has badly eroded middle class earning power over the past five years. This price pressure is only partially captured by official Moroccan statistics, which do not fully reflect key increases in such areas as housing and education costs. Elaidaoui uses the story of Mustapha Ihsane, who works at a French bank in Casablanca and once dreamed of sending his children to private school, to illustrate her argument. "We're not middle class anymore; we're at the poverty level", said Ihsane. He has a Master's degree from France and earns just less than USD1200 a month. His salary used to be more than adequate to support his family and be called middle class, and until recently he was even able to set aside more than a quarter of his salary for his parents. But rising prices have changed all that, he said. Now he has taken a second job teaching English on weeknights to support his wife and three children. Unable to buy a car, he takes public buses from his two bedroom apartment just outside Casablanca to work. He can no longer send anything to his parents. "I have to live day by day", he told Procter and Gamble. ¶4. (SBU) Ihsane's case has become the rule rather than the exception for Morocco's middle class, and even official statistics are showing higher cost of living. After several years of low inflation, recent studies by the High Commission for Planning (HCP) show that the cost of living has increased by four percent since July 2008. Onions rose to 90 cents a pound from about 22; medical care jumped about 20 percent; private schooling is up 30 percent, says Bekouchi of Hassan II University. Middle class families are increasingly one major incident - a sudden illness or a car accident - away from falling out of the middle class altogether, he added. ¶5. (SBU) Most critically, the urban real estate market in increasingly out of the middle class reach. According to market surveys, the cost of an apartment in Casablanca has risen 43 percent, 45 percent in Rabat, and 92 percent in Marrakech in the last four years. Priced out of the urban housing markets, middle class families have turned to social housing units which were originally constructed for more economically disadvantaged families. (Note: The purchase by the middle class of these units is contrary to law and thus often requires the payment of a bribe. End Note) -------------- Morocco's Fiscal Policy -------------- ¶6. (SBU) In addition to the costs imposed by inflation, financial experts also attribute the stagnation of the middle class to the government's poor fiscal policy, specifically its imposition of high marginal tax rates on salaried workers. Indeed, our contacts in business and academia, such as Youssef El Hadi of the Casablanca Stock Exchange, agree that far from promoting the emergence of a middle class, government policy has historically penalized it. ¶7. (SBU) For example, Moroccans making over 10,000 MAD (or almost USD 1250) per month are subject to individual income taxes that amount to 42 percent of their salary, which decreases the purchasing power of many middle class families. Moreover, at 30 percent the corporate tax rate for small and medium businesses, overwhelming owned by middle class families, is among the highest in the Maghreb region. MILLARD