US embassy cable - 05RABAT1204

UNCLAS RABAT 001204 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, EINV, MO 
SUBJECT: MOROCCO PRIVATIZATIONS CONTINUE, NEXT UP: SUGAR 
COMPANIES 
 
 
(U)  This message is sensitive, but unclassified.  Please 
protect accordingly. 
 
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 
transparency. 
RILEY