World Cup host Morocco plans derivatives to help fund spending
Morocco plans to start derivatives trading this year as the kingdom expands its capital markets to help finance a surge in infrastructure spending and preparations to co-host the football World Cup in 2030.
The move is part of the deepest revamp of the country’s financial regulations in more than three decades, Nezha Hayat, chair of the Moroccan Capital Market Authority, said in an interview in Rabat.
Capital market reforms have been in the works since 2021, when King Mohammed VI launched a 15-year plan dubbed the New Development Model that seeks to double gross domestic product per capita and propel a lower middle-income economy to the status of an emerging one. There’s now added urgency to finance World Cup projects such as high-speed rail links and stadiums.
Capital markets contribute to about 10% of the total financing of the economy, largely using money provided by institutional investors. “Our target is to raise that percentage to 25%,” Hayat told Bloomberg.
“We now need to focus on significantly broadening to retail investors to enable the market to play its full role,” she said on May 21.
To do that, legislation is expected this year to allow exchange-traded funds, foreign currency-denominated mutual funds and Sharia-compliant mutual funds, she said. It will also permit mutual funds dedicated to professional investors and benefiting from less restrictive constitutions and investment rules.
Morocco’s stock exchange “plans to start a derivatives market before the end of the year,” Hayat said.
Private Investors
The kingdom needs to let private investors contribute much more to financing the economy, by boosting the small retail investor community at home and raising the profile of the local financial market for foreigners, she said.
Hayat, who is a graduate of Paris business school ESSEC and a former president of the Moroccan stockbrokers’ association, said only a “tiny fraction” of some 20 million bank account holders are invested in the stock markets.
Local mutual funds, which manage assets totaling almost half of Moroccan bank deposits, will be allowed to invest in derivatives. The changes aim to make Morocco’s $60 billion mutual fund market “more competitive, more capable of financial innovation and, thus, able to tap more investors, especially retail and foreign ones,” Hayat said.
The Capital Markets Authority also plans to encourage dual listings and to allow domestic capital markets to raise cash for projects abroad. Firms authorized to issue derivatives and other market participants will be licensed in about a month.
While Morocco could benefit from a derivatives market, there is some concern among investors and bankers that it may not be deep enough to achieve rapid growth. It may start with the listing of an ETF index that includes the most liquid stocks and allows hedging operations, but could remain quite basic until it becomes clear if there’s demand and enough depth to develop it further.
Cup Boost
A previous market reform in the 1990s “sought to allow citizens to share the benefits of divestments by the state from several entities,” Hayat said.
Former state companies now listed include Samir, the country’s largest refinery, and Bank of Africa, which has roots in La Banque Marocaine du Commerce Exterieur, originally founded as a foreign trade bank.
Although the stock market has lost appeal to foreign investors since index provider MSCI relegated it from emerging to frontier status in 2014, co-hosting one of the world’s most popular sporting events has boosted it in recent months. Its broad benchmark index has risen about 13% since the world football governing body FIFA made the announcement in October 2023.
Yet investing in the market is still economically prohibitive for most Moroccan households, who are unable to save. Those that can frequently prefer to put their money into real estate.
The growth of a small retail investor community has also been stymied by an underdeveloped local fintech industry. New listings have become rare since the 1990s privatization drive, with only one company listed in 2023, raising about $60 million.
Economic Ambitions
The market capitalization of the Casablanca stock exchange is about $70 billion, according to its website, making it the largest in North Africa and second-biggest in Africa after Johannesburg.
The country’s annual GDP totaled around $144 billion last year, according to the International Monetary Fund, and implementing the plan will cost between 8% and 10% of that amount per year.
Banks “are aware they can’t provide financing for all ambitious planned projects,” Hayat said, adding capital market reform will benefit some of those initiatives.
The biggest involve desalination plants, solar and wind farms, gas pipelines, highways and industrial projects from electric batteries to airports. For many of them, the government and state-affiliated enterprises plan to form joint ventures with the private sector.
The country will need to spend 200 billion dirhams ($20 billion) on such so-called strategic projects as it gears up for the 2030 World Cup, Prime Minister Aziz Akhannouch told lawmakers in April.