Exploring Unconventional Solutions to Combat Inflation in Morocco

2023-05-09 19:15:44

Aincrease in the key rate, fight against excessive price increases, exemption from VAT for agro-food inputs…: despite all the efforts made by the authorities, nothing helps, inflation continues to act up. Thus, having exhausted all conventional remedies, our salvation may lie elsewhere, where it has been least suspected since the beginning of the crisis. Because if this inflation is indeed, at least in its beginnings, imported as evidenced by the soaring prices of inputs in almost all sectors, it is because perhaps the solution lies upstream. And limiting oneself in this context to treating the symptoms only delays the inevitable, since breaking the thermometer does not make the fever disappear.

However, when dealing with issues relating to the exchange rate, great care should be taken. Because solving structural economic problems through currency manipulation often amounts to putting dust under the rug. It always ends up coming out! Because the exchange rate is a bit like nitroglycerin: you have to handle it with care, at the risk of being confronted with consequences that are not necessarily those you want at the start. It’s like putting our finger in a gear, which could lead us to operate other manipulations of the exchange rate to correct the situation and so on until the monetary authorities are discredited.

But, nothing prevents to explore this track, maybe something will come out of it finally. First, when analyzing the evolution of Moroccan exports and imports in recent years, several deductions can be made. On the one hand, we are clearly facing a structural trade deficit, which however seemed to be shrinking until 2015/2016. But, on the other hand, since 2013 our exports have experienced an increase that is admittedly small, but trending. Notably thanks to the qualitative leap made by Moroccan industry, through the “Industrial Acceleration Plan”, which means that the automotive sector now accounts for around 40% of total industrial exports.

This trend is very likely to strengthen in the decades to come, mainly due to the profound changes in the global supply chain, which means that geographical proximity to the European market and the presence of an adequate industrial ecosystem are now becoming increasingly in addition a major argument, more than the cost of labor stricto sensu. But concerning the automotive sector, if a slight appreciation of the Dirham will necessarily result in a fall in revenues in Dirham, this will in no way impact those made in foreign currencies, then repatriated by the parent companies in Europe. So there is no risk that this will impact our attractiveness for FDI.

As for the local ecosystem, the impact remains to be assessed, even if the resilience of the latter seems to suggest that the impact will be absorbed over the long term. Second observation: imports which, unfortunately, continue to grow faster than our exports. However, the rate of acceleration or deceleration of our imports seems closely correlated to the evolution of energy products (diesel, gasoline, fuel oil, gas, etc.). Indeed, the slight reduction in our trade deficit between 2012 and 2015/2016 goes hand in hand with a fall in the price of the energy bill, due to a fall in the price of energy materials on a global scale.

As well as the increase from 2016 in the value of our imports, is due to a trend rise in the price of a barrel internationally. Imports therefore constitute, in fact, the channel that fuels the exogenous component of our inflation. In this perspective, the policies of energy transition mainly towards solar, contribute and will contribute in the long term to reducing our dependence on fossil fuels, and consequently to plugging relatively this breach in which a mainly Western monetary inflation is engulfed. , which we undergo without being there for nothing.

But, in the meantime, it is possible to mitigate this impact by reducing this bill, at least in Dirhams, through a slight appreciation of the Dirham. However, it is obvious that this prospect will not only make people happy. Because all companies in the export sector will have to bear a drop in their margins in Dirham, if this measure were to be adopted, at least temporarily, until prices calm down internationally. But, from another point of view, this could stimulate and lead our exporters to draw on other resources, such as innovation (technological, managerial, organizational, etc.), to regain profit margins, instead of take refuge behind an exchange rate which, perhaps, and I am saying perhaps, does not necessarily reflect the evolution of our trade structure in recent years, nor the true value of the Dirham, if we were in a floating exchange rate regime.

All of this of course calls for a thorough and exhaustive study and analysis of the different impacts of such a measure on our productive fabric. But what is certain is that this is an avenue, which in my opinion it would be wrong to ignore by limiting oneself to classic measures (rise in the key rate), the results of which do not seem so far not flamboyant. As someone said, “He who has a hammer as his only tool tends to see all problems in the form of nails”. Let’s not do the same with the key rate, and let’s collectively try to explore other avenues, however heterodox they may be.

By Rachid Achachi, columnist, CEO of Archè Consulting

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