Brexit effects on Morocco
On June 23, 52% of British voters decided the separation of their country from the European Union. A historic impact, which will affect not only the EU and Britain but also other countries including Morocco. With what consequences for the Moroccan economy? It depends on the horizon.
Moroccan exports to the U.K amounted to 6.01 billion dirhams (550 million euros) in 2015. Imports totaling they, almost 8 billion dirhams (735 million euros), leaving a deficit of about 180 million euros at the expense of Rabat. Here are some scenarios:
In the very short term
The most noticeable immediate effect today is the strong turbulence in the financial markets. In this regard, Morocco has nothing to fear in the short term since its capital account is not open. Speculation (-8.04% closing for the CAC 40, -12.35% for the Ibex 35) did not affect the Casablanca stock exchange, in fact it ended June 24 with a small increase of 0.35%. But this will impact the trade (import / export of goods and services). If confirmed, the diving of the pound vis-à-vis the euro and the dollar (-5.3% vs -7.4% vs euro and dollar on June 24), will have a direct effect. For those of Moroccan exporters whose contracts are denominated in sterling, it’s a dead loss once their claims converted into dirhams since the Moroccan currency is tied to the euro and, to a lesser extent, the dollar. By late afternoon, the 24th of June, according to data from Bank al-Maghrib, the pound had retreated from 6.28% against the dirham.
The Brexit will open a period of uncertainty in Europe. And it’s not good for business and growth. Europe constituting 65% of Morocco’s business opportunities, as well as most of its tourists, a fact which should have a direct impact indeed. This should approximately have an affect of 0.1 growth point. So low but not zero in a context of strong current slowdown in growth in Morocco (only 1.2% expected this year caused mainly by a poor agricultural year).
This is where the consequences should be the most sensitive, particularly in trade. Morocco is a close partner of the European Union through the “advanced status” in 2008 but also thanks to several free trade agreements, including agriculture. With Brexit, after a period of negotiation, which no one has yet thought, the British could, depending on the scenario, no longer be part of trade agreements between Europe and its partners including Morocco. Everything will depend on the choice of the future British government. This assumption does not materialize particularly if London is negotiating with 27 inclusion in the European Economic Area to obtain a status of “the Norwegian” including the “four freedoms” (capital, services, goods, people). In this case, its trade relations with Morocco will remain essentially unchanged. It is also possible that Brussels and London negotiate a broad agreement ad-hoc combination leaving most trade rules between the two Entities unchanged. Again with a sort of status quo with Morocco.
Otherwise, the UK would become a “new country” with its own rules with which Morocco will have to negotiate a treaty of commerce and standards recognition devices, for example pesticides on fruits and vegetables.
Other subject: bilateral and technical agreements between Morocco and the EU, for example that of 2015 on the reciprocal protection of agricultural geographical indications or the one on the aviation sector concluded in 2006. Unless the UK wants to maintain this status quo after a transition period, such agreements would no longer apply to relations between the two countries. Again, there must be, renegotiation between London and Rabat.
Last issue, the likely drop in European funding after 2020. The European Union is a major funder of the southern Mediterranean (Tunisia, Morocco, Jordan, the Palestinian Authority …) through multi-annual programs under its “neighborhood policy”. In the 2014-2020 period, Morocco should be able to receive 728 to 890 million euros. These commitments are within the budget of Europe (960 billion) over seven years between 2014 and 2020. With Britain out of the picture, such aid in Morocco or Tunisia will not be reduced overnight . But during the negotiation of the future European budget after 2020, the withdrawal of London will be felt. The UK contributes directly to about 14% of the European budget. So technically, the reduction should be as much! Hence a large program of savings to be expect on the EU spending, including foreign aid. A calculation applied to the current situation highlights a theoretical “loss” of 100 million euros over 7 years for Morocco from 2021.