Present at the Morocco Capital Markets Days organized by the AMMC and the Casablanca Stock Exchange, on the occasion of the closing of Expo 2020, last week, Tarik Haddi, president of the Moroccan Association of Capital Investors, discusses the strengths of private equity on its role as well as on these prospects.
You have just returned from Dubai, where you took part in the Morocco Capital Markets Days organized by the AMMC and the Casablanca Stock Exchange, on the occasion of the closing of Expo 2020. What were the key messages from Moroccan operators to attract investors? operating from the United Arab Emirates?
Yes absolutely. Our Minister of Economy and Finance, our President of the Moroccan Capital Market Authority (AMMC), the teams of the Casablanca Stock Exchange and all the associations of Moroccan market operators have developed point by point the strengths of our investment country. I focused, for my part, on the assets that generate investment opportunities through the private equity industry in Morocco.
Starting with political and economic stability, driven by effective coordination between the long-term vision and medium- and short-term adjustments, thanks to a strong democratic monarchy. There is also rootedness in Africa, a continent of 1.25 billion consumers (2.5 by 2050), in full economic growth, cultural, economic and political proximity to Europe, the largest world trade market. Not to mention our free trade agreements with the EU and the USA in particular. We must also add world-class infrastructure, the most competitive business environment in Africa, ambitious and proactive industrial acceleration plans, in a wide range of economic activities (note: agriculture, agri-food, automotive, aeronautics, textiles, tourism, pharmaceuticals, logistics, renewable energies, etc.).
I also looked into the investment charter which will increase the share of private investment to 2/3, against only 1/3 currently. At the same time, I focused on the ecosystem for innovative entrepreneurship, boosted by the Innov Invest initiative of the Ministry of Finance, supported by TamwilCom.
Thus, 500 start-ups have been financed and 1,500 jobs created in less than 4 years. All reinforced by world-class universities such as UM6P, oriented towards innovation economies. I have not omitted the legal and regulatory framework for competition, in line with the best international standards, which is under the supervision of a new independent authority with broad prerogatives.
I also looked into the New Development Model, which aims to reduce inequalities, in particular through better education and health systems, the solid monetary and financial system, one of the most dynamic capital markets in the MENA and Africa region as well as on CFC, which is the main financial center in Africa. These same assets have enabled Morocco to achieve, in 2021, the most significant economic growth in the MENA zone, both in nominal terms (+5.3%) and per capita (+4%), according to World Bank data. I also took this opportunity to highlight the catalytic role, for Moroccan investment capital, of the Mohamed VI Fund for Investment, in particular through the sectoral and thematic sub-funds that it will support.
Were the investors present sensitive to the achievements of Moroccan private equity?
First of all, the strengths of Morocco developed above, create the conditions for the emergence of a major pipeline of investment targets, for private equity funds operating from Morocco, particularly in the promising sectors of health, services, agribusiness and consumer goods, distribution and logistics, education, new technologies, automotive and energy, renewable in particular.
Then, our interlocutors were sensitive to the increasing experience of the Moroccan management teams: nearly 15 years of experience and about twenty operations on average per employee in our industry, a rate of fundraising of 2.5 billion dirhams (MMDH) per year, and record investments in 2021, in 30 companies for an amount of 1.2 billion dirhams. Also highlighted was the extension of the development stages targeted by the industry, in particular to innovation capital (seed and venture capital), thanks to the support of TamwilCom. The liquidity of this asset class was also a subject of questioning, and our interlocutors were reassured by the prospects for industrial or strategic exits, on the secondary market or in payback, in MBOs or IPOs, greatly facilitated by the quality of the business environment and the rise of the Moroccan capital market.
Finally, the performance of Moroccan private equity was also presented. With a gross IRR of 13% and an overall multiple of 2, for the second consecutive year, this asset class should be particularly attractive in the current rate environment. Thus, Moroccan private equity funds constitute an excellent opportunity for diversification for institutional or private investors, on stable long-term assets with high returns.
However, this performance rewards a particularly high risk, doesn’t it?
Yes of course, we are not talking about “risk” capital for nothing. But this risk is controlled, thanks to the mechanisms intrinsic to private equity and which make it a tailor-made and hands-on financing instrument. Namely experienced teams, perfectly mastering the local environment, which analyze business models and challenge business plans. Rigorously applied complex decision-making processes, with investment committees comprising independent members who are experts in the sectors concerned by the targeted investments.
And, external due diligence is carried out by expert firms. The legal processes are carried out by large law firms. Term sheets and then shareholder agreements set out the key performance indicators agreed with the management of the target, the monthly, quarterly and annual reports to be provided, the representation of the investment fund on the boards and committees of the target, major decisions that require a favorable vote by the fund, liquidity clauses that facilitate exit from the fund, clauses for managing conflicts between shareholders and clauses to safeguard the interests of the fund, in particular in the event of poor performance impacting the value exit from the fund.
Investment limits, which are binding on the management teams, notably guarantee the division of risks in the fund’s investment portfolio. These elements are reinforced by compliance, KYC, independence of the securities depositary, management of conflicts of interest, and by information and internal control systems, under the supervision of the AMMC, to regulated funds known as “OPCC”.
What about close monitoring of investments
Finally, close monitoring of investments, through close monitoring of key performance indicators, allows effective management support by the fund, for the necessary adjustments in the face of endogenous and exogenous shocks, such as during the Covid-19 pandemic. Moreover, the annual studies commissioned by AMIC demonstrate, year after year, the favorable impacts of private equity on invested companies, through:
1. Improving their financial structure, by strengthening equity and improving long-term debt capacity, and therefore investment;
2. The strengthening of their institutional and managerial capacities, in terms of governance, steering, management control, training of human capital, quality process, etc.
3. The implementation of CSR policies, in terms of environmental protection, fiscal transparency, gender equality, inclusion of young people, working conditions, social protection and ethics;
4. Accelerating innovation and improving the adaptability of business models, in particular through sector migration or energy and digital transformation;
5. Increasing production capacities and strengthening competitiveness;
6. The conquest of new market shares, even the internationalization of invested companies.
The best illustration of these positive externalities was given in the midst of the pandemic crisis: companies invested in private equity recorded growth of 1% in 2020, whereas, at the heart of the crisis, all Moroccan companies experienced on average a drop in activity of 30%, and that the GDP contracted by 6.3%.
What interest would a foreign investor have in investing in Morocco through private equity and not directly in the target companies?
For any foreign investor, it is always preferable to invest through funds managed by local teams, for at least two reasons. Indeed, it is a question of diversifying risks and optimizing transaction and monitoring costs, by investing in multi-sector funds; and to benefit from the expertise of Moroccan management teams perfectly integrated into the local environment. More particularly, first-time investors in Morocco can, with low tickets, of the order of 10 million dollars for example, invest in funds of significant size, intervening in several sectors of activity, to better understand the market. and seize subsequent direct investment opportunities, particularly in payback mode.
Sami Nemli / ECO Inspirations