Younes Benjelloun, Partner and CEO, CFG Bank, on the outlook for the Casablanca Stock Exchange (CSE): Viewpoint

With the overhaul of the CSE’s board, the market is set to move forward in terms of product availability, regulation and international best practices. To better understand the demutualisation, a brief history of the stock is needed. Created in 1929, the CSE saw a lot of companies going public in the 1970s, in the wake of the “moroccanisation”. In the 1990s the first reforms were undertaken to boost capital markets following the structural reforms required by the IMF. In 1995 the CSE was privatised, with brokers each having a 6% stake. Since then, the state has acted as a licensing authority and brokers as the private concessionaire, acting as both members and shareholders. When CSE’s indexes picked up, the licensing authority set a cap on CSE’s profits at 15% of the original investment. The remaining profits have been accumulated by the CSE. As a result, reserves increased significantly to reach Dh700m (€64.2m) in 2015. The idea of demutualisation grew out of this context and was implemented when, in 2015, the 20-year concession ended. Many issues have arisen regarding the CSE’s board of members and the reserves that have accumulated. Indeed, the board of members did not represent the different stakeholders of the stock exchange. The minister of finance, therefore, was required to enact the demutualisation, with a majority of shares owned by banks, and the rest split between the insurance firms, the state investment firm Caisse de Dépôts des Gestion (CDG), Société Nationale d’Investissement (SNI), Casablanca Finance City and the brokers.

The demutualisation is intended to boost the stock exchange’s attractiveness, improve its management and enhance its image. CDG is also likely to sell a 20% stake to an international stock exchange, with the aim of bringing on board its know-how and technology. Along with demutualisation, it has been decided that the accumulated reserves will be equally distributed between the state, the shareholders and the CSE. Despite these managerial and financial issues, the main challenges facing the CSE remain ahead: a lack of liquidity and transparency coupled with too few products. The creation of an independent regulatory body will help the market adapt more easily and quickly, so that operators can offer further products.

On the demand side, further fiscal incentives can improve stock market’s appeal. Furthermore, there is a need for reviewing the contract signed between the CSE and the licensing authority; the stock exchange needs to be a for-profit business in order to further attract investors, especially from abroad.

With Casablanca Finance City, the CSE needs to take steps to increase its effectiveness and deliver better services through IT and digitisation. The best stock exchanges in the world have top-performing IT firms in areas such as rating systems, offsets management and financial derivatives management. We have seen encouraging steps forward with, for example, the creation of securities lending. Operators will be given the opportunity to bet against the market, avoiding sudden increases and decreases.

Beyond a renewed management, the CSE needs further initial public offerings (IPOs), incentives for private investors and further products enabled by more flexible regulation. The CSE has been dynamic, thanks to IPOs from Moroccan companies, such as Maroc Telecom or Addoha in the 2000s – Maroc Telecom brought on board 100,000 subscribers. Therefore, we imagine attracting up to 250,000 subscribers, with IPOs from big public companies, such as Office Chérifien des Phosphates.

Another solution to boost the CSE is to incentivise both offer and demand. On the demand side, there is room for product growth, since previous experiments have failed. The home savings plan, for example, which is very successful in the Western world, does not meet the demand in Morocco. Instead, we should develop products that reduce the tax base for individuals holding stocks for a fairly long period.