- Do Morocco have exchange rate controls i?
Yes Morocco has a fixed exchange rate for the dirham. In 2018, some flexibility was introduced (a 2.5% flexible rate).
- How does it work?
Office des Changes is regulating the exchange of dirhams to foreign currency. Any exchange of dirhams to a foreign currency must be done according to “Instruction Générale des Changes”.
This exchange to foreign currency must fall under one of the following categories:
- Importation of goods;
- Importation of services;
- International transportation services
- Insurance or reinsurance
- Travel expenses
- Bank guarantees
- Hedging Instruments
- Foreign investment in equity
- Which industries are positively or negatively affected by the exchange rate controls?
Moroccan central bank has a policy of strong dirham. Therefore, this is favorable for the cost of importation. On the other side, exportation of goods or services are negatively affected, but the main exports of Morocco are phosphate (and Morocco has 70% of the resources of phosphate and fertilizers and can dictate the price of such commodities), cars (which are not affected by the value of dirhams since they are high value goods) and tourism (mainly luxury tourism) which is not affected by the price of the dirham. Only small exportation industry is negatively affected by such policy.
- As advisors what role can we play in mitigating the risks of exchange control?
The exchange rate of Moroccan dirham is a fixed rate (with only 2.5% variation). However, the Moroccan dirham rate is based on a mix of euros and dollar. It is not usual for Moroccan companies to purchase hedge instruments for the exchange rate control.
Regarding the exchange control, it is possible for Moroccan companies to establish a foreign subsidiary which would not be subject to exchange control (only annual reporting) and such company would contract with foreign suppliers or client and then reinvoice the Moroccan company. With this strategy, the exchange control burden is not anymore on the international client or supplier but its an internal burden.
For foreign investors, to avoid the risk of exchange control we can structure the investment trough a holding company located abroad. The investment made through equity or loan would be released progressively based on the need of the Moroccan company.
- Are exchange controls necessary or is there another way of achieving the objective?
Exchange control is a necessity and a good protection during economic crisis or instability. It is a good protection for the value of the Moroccan Dirhams. Morocco benefits from a stable value of dirhams. However, such exchange control policy must be flexible, fair and not become a burden for companies.
- Why is it so complex and how can we simplify it?
Most of the exchange control formalities are done by banks in Morocco. Banks can be efficient in dealing with exchange control procedures compared to a bureaucratic body. Also, in other to attract new clients, banks have developed an expertise.
They face liability in case they do not respect the regulation so they would encourage the companies to respect the provisions of the exchange control regulations.
It is a good system