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Why Morocco Holds Mixed Fortunes for Investors

Casablanca, Morocco
Scott E. Barbour | The Image Bank | Getty Images
Casablanca, Morocco

The uprisings of the Arab World reshuffled the political landscape in North Africa, toppling dictators in Egypt, Tunisia and Libya. But Morocco is one country that has been able to resist the wave of revolutions, and holds mixed fortunes for foreign investors.

"The jury is still out as to whether Morocco can remain fully insulated from what's going on in neighboring North African countries and more recently Mali, which has increased the political and social risk of all of North Africa," Slim Feriani, CEO at Advance Emerging Capital, told CNBC.

A quick look at the local stock exchange, classified by the MSCI as an emerging market, delivers some perspective in that it has lost considerable appeal. Over the course of one year, the index fell over 20 percent and comes in as one of the worst performers from that group.

"The country suffered from being a key Arab country that did not participate in the Arab Spring. Western fund managers simplistically avoided or divested investment on the 'they could be next thesis'," Daniel Broby, Chief Investment Officer at Silk Invest, explained to CNBC.

It's a view which, Broby argues, turned out to be wrong. Earlier this week a series of developments hit the monarchy. First, as reported by Reuters, the first tranche of a $2.5 billion aid package from fellow monarchies of the Gulf Cooperation Council (GCC) had now been dispersed. Although far from the Gulf geographically, even a membership is in the cards.

Then the IMF stated, as part of an assessment for the 24-month, $6.2 billion loan provided under the new Precautionary and Liquidity Line (PLL) last year, that the country's economic strategy was "built appropriately on fiscal consolidation, structural reforms and prudent monetary and financial policies". It did however urge the government to reform its pension and politically-risky subsidy systems. Feriani also believes there is a lot of work to do as weaker demand from the euro zone continues to weigh on exports, tourism and remittances.

"Morocco suffers from sizable and growing twin deficits. Hence, the latest news about some form of IMF help is badly needed, but won't be enough to resolve Morocco's structural problems".

The Justice and Development Party (PJD) of Prime Minister Abdelilah Benkirane, Morocco's first Islamist political power grab, has struggled to deliver on the promise of jobs for a predominately young population. Periodic protests against the status quo and the slow pace of change, although rarely in the mainstream spotlight, remain. Meanwhile, King Mohammed VI, who came to power in 1999, still exerts considerable influence in decision-making despite constitutional changes two years ago.

In October, rating agency Standard & Poor's revised Morocco's outlook to negative, indicating a downgrade was possible "if unemployment remains stubbornly high, living costs spike, or political reforms disappoint popular expectations" as there would be a "risk of sustained and large-scale unrest".

But for 2013, the IMF projects stronger economic growth of 5.5 percent, higher than any other country in the MENA region, including Qatar and Saudi Arabia. Corruption challenges aside, that is where some investors like Broby are identifying lucrative opportunities.

"Valuations are now some of the cheapest in Africa. This valuation anomaly exists across the board and we are correspondingly overweight in all sectors except mining"