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Morocco risk: Legal & regulatory risk
(RiskWire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC51C51Legal & regulatory riskC53C53Note: E=most risky; 100=most risky.SUMMARY
Legal and regulatory risk is moderate. The judiciary is slow-moving and unreliable. Foreign companies in Morocco seldom use the local courts, and are more likely to resolve disputes through arbitration. The creation of new commercial courts has, however, begun to improve the environment for foreign firms. Contracts are generally enforced, and there have been no recent instances of the expropriation of foreign property. However, competition policy is not well developed, and there are few safeguards against anti-competitive practices. Tax regulations are opaque and time consuming. The customs system has been notoriously slow and inefficient, although improvements are being made. Intellectual property rights are not well enforced but this should change with the signing in mid-2004 of a free trade accord with the US that came into force in January 2006. Price controls exist for a number of goods, such as fuel products.
SCENARIOS
The courts are inadequate and cannot be relied upon to rule quickly or fairly (High Risk)
Few companies would consider taking a dispute to the Moroccan courts. The judiciary has long been criticised by all parties, particularly with regard to business-related litigation. Its weaknesses include: the lack of efficiency and timeliness in the judicial process--resulting in a huge backlog of cases even at the Supreme Court level; the absence of transparency in judicial decision-making and of predictability in judgements; an inability to enforce judgements; and incompetence in matters of commercial law. On this last point, the recent creation of a system of commercial courts has been helpful, and progress is being made on other fronts. The central bank has also recommended that the legal and judicial systems be reformed to shorten the long delays in the recovery of commercial and bank claims from problem borrowers. Companies would do well, however, to include arbitration clauses in all contracts, as Morocco is a member of all of the international arbitration associations. Companies that have little or no access to efficient courts must rely on other mechanisms--both formal and informal, such as trade associations, social networks, credit bureaux or private information channels--to decide with whom to do business and under what conditions.
Customs clearance is slow and inefficient (Moderate Risk)
Customs procedures are often cumbersome, imposing considerable costs on importers. The government is accelerating the introduction of computers to speed the processing of goods declarations, and to help with the consistent assessment of tariffs. Some progress has been made, and waiting times have been reduced, but staff in many cases are not yet properly trained. Qualified representatives on the ground may be able to help companies with customs delays, but firms in most cases should be prepared for delays of at least several days for clearing goods.
BACKGROUND
(Background material is updated twice yearly. Last update: May 26th, 2006)
Enforceability of Contracts
The government is attempting to improve Moroccos commercial environment and make the enforcement of contracts easier. Private ownership is respected and recognised in Moroccan law. As part of its legal reform programme, the government has set up nine new courts since 1998: six commercial courts and three commercial appeal courts. Most foreign investors, on the rare event that there is a dispute, tend to avoid local courts because of their continued slowness and inadequacies. The new courts appear to be mostly for the settlement of disputes between local firms.
Independence of the Judiciary
The judiciary is open to meddling from politicians and has in the past been simply a tool of the state. The quality of the judiciary is now improving and efforts are being made to modernise commercial laws and train judges in commercial law.
Foreign Investment: Discriminatory Practices
According to the World Investment Report 2005 published by the UN Conference on Trade and Development, Morocco received an inflow of US$853 in foreign investment in 2004, a decrease from the US$2.3bn it received in 2003.
The 1995 investment code established a level playing field for local and foreign investors for most sectors of the economy. Foreign investors do not need a joint venture to operate in Morocco and can set up wholly owned subsidiaries. A local lawyer, or a local lawyer found through an international firm practising in Morocco, is a necessity for any foreign investor given the continued weakness of local commercial law.
A number of sectors are closed to foreign investors. The state has a monopoly on phosphate mining and the import and distribution of tobacco products (although the state-owned tobacco firm, Regie des tabacs, lost its monopoly on tobacco sales in August 2003, when an 80% stake in the firm was sold to Altadis, a French-Spanish venture). Foreigners can invest in the agricultural sector but cannot own agricultural land. Regulations prevent foreign firms from having a majority stake in a Moroccan insurance company.
A 1999 amendment to the 1992 privatisation programme reduced the number of state-owned enterprises for sale to 28 from 56 (58 have been wholly or partially privatised). The director of public enterprises at the privatisation and finance ministry, Abdelaziz Talbi, announced in early 2005 that 66 Moroccan companies had been either fully or partially privatised between 1993 and 2004, netting the government Dh75.5bn (US$8.76bn). Most sales have been to EU and, in particular, French companies, reflecting close historic ties. Government tender processes have been reformed. A new public procurement procedure has been in place since 1998, forcing open bidding and making it more difficult to have sweetheart deals with preferred partners. There is a Tangiers Free Zone, which gives firms duty free imports and frees them from most local taxes for their export related activities. There are no local-content requirements or performance requirements for foreign investors.
Permits are slow to be issued and local government permits often require the payment of bribes. Corruption is widespread and affects most levels of the administration. The relationship between the French government and the Moroccan government is close and dubious.
Unfair Competitive Practices
Nationalisation and expropriation are rare. There are no reports of unfair competitive practices. The Casablanca Commercial Arbitration Centre (CCAC), a nominally independent body, is an experiment in local arbitration. The CCAC has significant government help, although the government does not interfere in its operations. The government is also to codify arbitration laws by introducing a Commercial Arbitration Code.
Morocco is a member of the World Banks International Center for the Settlement of Investment Disputes. Morocco has also signed the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, with certain derogations, as well as the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.
Intellectual Property Rights
On paper Moroccos laws provide an internationally acceptable level of intellectual property rights protection. Yet, as with so many emerging markets, they are inadequately enforced. Morocco is a member of the World Trade Organisation (WTO) and the World Intellectual Property Organisation. On paper, Morocco observes the WTOs Trade-Related Aspects of Intellectual Property Rights (TRIPs) requirements. Morocco has signed the Bern Convention, the Brussels Satellite Convention, the Paris Industrial Property Convention, the Universal Copyright Convention, and the Madrid, Nice, and Hague treaties on intellectual property rights protection. The Office marocaine de la propriete industrielle et commercial (OMPIC), based in Casablanca, registers industrial and commercial patents and trademarks. The Rabat-based Bureau marocain de droit d'auteur is charged with copyright for software, literary and artistic works.
As part of the US-Morocco Free-Trade Agreement, which was ratified in the US in August 2004 and in Morocco in January 2005, Morocco committed to strengthening enforcement against intellectual property rights violations by allowing authorities to seize, forfeit and destroy counterfeit and pirated goods and the equipment used to make them. The agreement also required each government to provide criminal liability for internet piracy, and expanded the protection of trademarks, copyrights, patents and trade secrets.
According to the May 2005 Global Software Piracy Study by the Business Software Alliance and IDC, Moroccos piracy rate was 72% in 2004, slightly better from 73% in 2004. However, losses due to software piracy were US$65m in 2004, worse than US$57m in 2003.
There is widespread pirating of software, videotapes, CDs, cassette tapes. In one case, a French satellite television channel, Canal +, found that its pre-paid access cards were so widely pirated that it has had to consider the closure of its Morocco operations.
Price Controls
Social pressures and a legacy of government subsidies on staple goods have resulted in price controls being phased out only gradually. A range of basic consumer goods, including food staples, health products and some educational materials, are still subsidised, although the subsidy on edible oils was removed at end-2000. In 2000-01 the government cut taxation on petroleum products to avoid economic disruption as world oil prices rose, which amounted to an indirect subsidy.
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