Morocco Country Risk Assessment - Essay Example

? 12th November Morocco country risk assessment In their efforts to maximize profits and increase shareholders returns, local and multinational corporations are considering investing in other countries. In this regard, it is vital for company directors to undertake risk analysis to be aware of the obstacles that may interfere with operations of their companies (Timmons 23). One of the countries that organisations are focused at entering is Morocco. Morocco also referred to as the Kingdom of Morocco is located in North Africa. Based on the economic growth that the country has experienced in the last 12 years, it becomes a viable country where foreign firms can establish their operations. Thus it is essential to undertake assessment of political and economic risks that exist in the country. This paper analyzes the risks that a multinational corporation will face by investing in Morocco. Location and climate As mentioned earlier, Morocco is located in North Africa. With a coast on the Atlantic Ocean, Morocco is bordered by Algeria on the east side, Spain on the Northern side and Western Sahara to the southern side. The country lies between 36° and 27° . One of the major notable aspects in Morocco is the significant number of mountains that includes Atlas Mountains and Rift Mountains. Being the fifty-seventh largest country in the world, Morocco has a number of cities that includes Oujda, Safi, Agadir, Meknes and the capital city Rabat among other towns. Based on the high population that stands at approximately 34 million people, the government has embarked on establishment of various income generating activities with an aim of sustaining the high population (Clark 36). The major type of climate in Morocco is Mediterranean. Due to the rich nature of the coastal plains, the country heavily relies on Agriculture as the major source of foreign income. Other types of climates in the West of Atlas include maritime temperatures that allows for effective growth of various types of tree species and other plants. However, on the East Atlas, the country experiences dry and warm climate making this region a desert (Graeme 29). Population As mentioned earlier Morocco population stands at approximately 34 million people according to 2012 government records. Having been inhabited back in the Paleolithic times, most of the citizens are either Arabs or Berbers with the latter ethnic group forming the bulk of the population. Other ethnic groups that form part of the population include Haratin and Gnaoua. Additionally, the country is inhibited by more that 100,000 foreigners including Spanish and French who have invested in various sectors thus improving the country economic performance. Culturally, Morocco is known for being an ethnically diverse nation based on its hosting various foreigners who come from the East, South and other regions. Some of the key visitors who have contributed to the cultural growth of the country include Carthaginians, Arabs, Phoenicians, Romans, Andalusians, Jews and Vandals among others. Due to the interaction of the various groups in the country, Moroccan literature has continued to experience an expansive growth. For example, western and Middle East literary models have enhanced the growth of poetry and traditional Moroccan genres (Yahya 49). Similarly, the country rich cultural values have attracted expatriates academic and social writers such as Paul Bowles and Pierre Loti among others. Infrastructure One of the major factors that make Morocco a good country for investors is the highly developed infrastructure system as compared to other African countries. For instance, the country is served by more that 35, 946 miles and 18,800 miles of primary roads and secondary roads respectively. As a result, the cost of transporting raw materials and finished products within the country is low thus resulting to high profits by the local and foreign investors. Additionally, the government has continued to issues large number of licenses to automobiles aspect that has caused road congestion especially in large towns. In the same way, the government is focused at expanding the railway network that will see the connection of Morocco cities with countries such as Spain and Tangier in the next 13 years (Khaleej Times 13). Based on the high number of foreigners from Africa and other countries, Moroccan government has embarked on expanding its air transport resulting to establishment of more than 70 airports with the largest airport being located near Casablanca. Being serviced by more than 60 airlines, the airports enhance business within the country by hastening the travelling of tourists and business owners from regions such as Europe, US, Middle East and Canada. Another vital factor that makes Morocco a viable country for investors is the electrical power development. National Office of Electricity is the main government-owned firm that is responsible for providing electricity power in the country. Even though the country has significant oil reserves, most of the power was earlier generated from imported fuels from Saudi Arabia. This has forced the government to construct an additional power plant thus meeting the high demand for power leading to a reduction of costs of doing business in Morocco. Since 1990s, Morocco Telecommunication services have significantly improved based on the effective services by Meditel and Maroc Telecom, the main telephone companies in the country. Additionally, Morocco has more than 27 internet service providers (ISP) thus enhancing e-commerce in the country. Political risk analysis Government Morocco is ruled under the constitutional monarchy with the prime minister holding major powers while the king hold few executive powers including dissolving the parliament. Two major chambers in Morocco parliament are the assembly of councilors and the assembly of representatives. To ensure justice in the country judicial system, the country constitution provides for an independent judiciary. In this way, politicians do not have much impact on the country court system thus reducing the level of corruption in the country. One of the remarkable political initiatives that occurred in 2011 was the drafting of new constitution that brought about major reforms in the country political system. For example, the king was given power to appoint a prime minister from the party with the majority seats in parliament. Similarly, the prime minister was given power to appoint high level diplomats and chief executive officers of the government owned organizations. It is worth noting that the constitutional also gave power to all citizens by ensuring freedom of creation, ideas, thought among others. International integration and relations After becoming an independent country in 1956 following France and Spain rule, Morocco associated itself with various international organisations with an aim of attaining economic stability. In this regard, the country has maintained positive relationship with African countries and other nations an aspect that has seen the growth of investment in the country. The table below indicates some of the major organizations that Morocco is a member with the years it joined. Organization Year United Nations 1956 Group of 77 1964 Organization of Islamic Cooperation 1969 World Trade Organization 1995 Arab league 1958 Financial risk analysis Macro-economic factors One of the key strategies that Moroccan government has taken to improve the economic performance is the privatization of various economic sectors thus improving service delivery and creation of employment. Being the world largest exporter of phosphorous, Morocco economy is significantly affected by the fluctuation of phosphorous prices in the world market (Dwivedi 15). Moroccan economy has grown by 4-5% from 2000 to 2007. This resulted to more job opportunities and increased Gross Domestic Product (GDP). According 2012 report by the World Bank, Morocco will experience an economic growth of 4% and 4.2% in 2012 and 2013 respectively (Pick 28). According to the economic performance report by Morocco government, the country total GDP in 2011 stood at $162.617 billion. This was influenced by the government objective of diversifying its exports instead of relying on phosphate alone (International Reserves and Foreign Currency Liquidity). Major economic problems facing the country include large outflows as a result of increased imports and unreliable rainfall. Due to regular occurrence of drought, household incomes underwent a reduction that caused the country GDP to reduce by 1.6% in 1999, 2.3% in 1997 as well as 7.7% in 1995 (World Bank Indicators).In its effort to introduce free trade and attract more investors, Morocco has formed trade partnership with developing as well as developed countries (Mishkin 27). Some of the trading organizations that the country is a member include US-Morocco Free Trade Agreement, Euro-Mediterranean free trade area among others. Currency The monetary unit of Morocco is the Moroccan dirham (MAD). Being issued by Morocco central bank referred to as Bank Al-Maghrib, dirham is divided into 100 santimat. To control money supply and avoid inflation in the country, the government through the Bank Al-Maghrib prohibits the exportation of the currency (World Bank Indicators). During the transaction in the international markets, 1 US dollar is exchanged at more than 8 dirham. Inflation rate The inflation rate (consumer prices) in Morocco stood at 1.4% in 2011. According to reports by CIA World Factbook the level of inflation in 2009 was 4.6% (CIA World Factbook). The reduction on the level of inflation is due to effective monetary policies that the Morocco central bank has initiated. Interest rates Rabat-based bank is responsible for reviewing the monetary polices. To curb the euro-region crisis, the bank maintains an interest at 3% (Mariam 1). This was a reduction after the 3.25% that was adopted in March 2012. As a result, the government has encouraging domestic borrowing thus encouraging investment and more job opportunities (Rogers and Sedghi 8) Conclusion Morocco has taken initiatives to attract more investors by establishing conducive business environment and political stability. In addition to development of effective infrastructure system, the government has embarked on privatization of essential services thus attracting foreign direct investment resulting to reduced level of unemployment. To ensure growth of trade and business in Morocco the government has also formed trade partnership thus creating ready market for finished goods. This implies that any multinational corporation intending to invest in Morocco has opportunities to expand based on good governorship, political stability and sustainable economic growth. Works Cited CIA World Factbook. Morocco Inflation rate (consumer prices). http://www.indexmundi.com/morocco/inflation_rate_%28consumer_prices%29.html Clark, Brandt. From Hunters to Farmers: The Causes and Consequences of Food Production in Africa, Berkeley: University of California Press, 2004.Print. Dwivedi, Warfield. Macroeconomics: theory and policy. New Delhi: Tata McGraw-Hill, 2001.Print. Graeme, David. The Archaeology of Drylands: Living at the Margin. London: Rutledge, 2000.Print. International Reserves and Foreign Currency Liquidity - MOROCCO". International Monetary Fund. 20 May 2011. Retrieved 31 May 2011. Khaleej Times Online. Morocco plans Arab world’s first high-speed train. Khaleej Times, 15 September 2006. Mariam Fam. Morocco Central Bank Keeps Key Interest Rate Unchanged at 3%. 2012. Available from http://www.bloomberg.com/news/2012-06-19/morocco-central-bank-keeps-key-interest-rate-unchanged-at-3-1-.html Mishkin, Frederic. The Economics of Money, Banking, and Financial Markets, Boston: Addison-Wesley, 2004.Print. Pick, Albert. Standard Catalog of World Paper Money: General Issues. New York: Krause Publications, 1994.Print. Rogers, Simon and Sedghi, Ami. How Fitch, Moody's and S&P rate each country's credit rating. The Guardian (London). Retrieved 31 May 2011 Timmons, John. New Venture Creation - Entrepreneurs for the 21st Century. Chicago: Irwin, 1994.Print. World Bank Indicators. Morocco-Interest rates. Available from http://www.tradingeconomics.com/morocco/lending-interest-rate-percent-wb-data.html Yahya, Dahiru. Morocco in the Sixteenth Century. New York: Longman, 1981.Print. Read More