Global standards: Modernising the legal system to attract foreign investors

The year 2013 is set to see several important steps in the legislative trend towards the modernisation of the Moroccan economy. The term “modernisation” in this context suggests that new laws will be implemented to bring the economy in line with global standards and offer investors new financial products, thus creating new potential and capital injections for the country.

One key element of this reform trend is the implementation of the derivatives exchange market. A draft law has been finalised and is currently under discussion in parliament. It is expected to be voted on in the course of 2013, with the derivatives exchange becoming operational later in the year.

GREATER SCOPE: Market participants will be able to trade derivatives on foreign exchange rates, commodities or interest rates. Furthermore, the authorities will consider other types of derivatives products for approval. Foreign exchange rules already allow the execution of derivatives products based on underlying assets such as exchange rates, commodities or interest rates. However, the current scope of permitted derivatives transactions is limited to those authorised by the foreign exchange rules. With the new law, other types of sophisticated products may well be structured and authorised by the incoming Derivatives Management Company, which will be in charge of structuring and approving all exchanged derivatives products.

In addition to creating the Moroccan derivatives exchange, the legislature will also implement a new type of financial transaction; namely, securities lending, also referred to as stock lending. This financial product is widely used in today’s global economy, and it has been revealed in a survey that approximately €1.37bn of stocks were lent in 2007. This market continues to grow globally and many foreign banks and investors are willing to offer stock-lending opportunities to local market participants. The Moroccan lawmakers had to react and therefore drafted a bill that is currently being voted on by parliament. The law on stock lending is expected to be enacted sometime during the course of 2013.

UPGRADED STATUS: Concomitant with the implementation of the derivatives exchange and securities lending, Morocco created a new legal status in December 2010 for financial companies and large industries willing to set up a local presence at low costs through the award of tax incentives. Termed Casablanca Finance City (CFC) status, it will be granted to companies that go through a specific application process. Once status is granted, participating companies will thereafter be able to benefit from the tax incentives. Through the creation of this new status and the greater incentives available to successful applicants, the Moroccan government appears to be taking concrete steps in establishing a financial centre in North Africa.

The geographical area of CFC has not yet been determined by the legislature, but the Moroccan Financial Board has already disclosed that CFC will be located in downtown Casablanca. While the site has not yet been built, companies can already buy a plot of land and begin construction. They will also be able to buy or rent platforms starting from 2014/15. Further, companies have already started to apply for CFC status and are looking to benefit from the tax incentives available.

REGULATOR: The last step of reforms to the financial market will be through the enactment of the Draft Law 54-08 to create a new regulator called the Moroccan Authority of Capital Markets (Autorité Marocaine des Marchés de Capitaux, AMMC). The role of the AMMC will differ from the current Financial Markets Authority in that it will not be limited to organising and monitoring securities transactions, but will extend to the capital market in general, thus including the monitoring of derivatives and securities lending transactions.

In addition to attracting foreign investors and encouraging new capital injections in the kingdom, specifically through the implementation of new and improved financial products and tax incentives, the Moroccan government is also aiming to entice foreign industry groups to set up their business activities in the country through the creation of new offshore zones (see analysis).