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Moroccan
Cronyism: Facts,
Mechanisms and
Impact
Mohamed Said Saadi,
Economist
Content
 Motivation
 Methodology
 Political economy of Moroccan cronyism
 The big picture
 Mechanisms
 Economic impact
Motivation
 Moroccan business groups hailed as “national
champions”
 These groups are politically connected
 Another narrative: reasonable growth rates
(2000s), but deindustrialization, corruption
(Transparency Index), popular uprisings
(2011)
 Question: politically firms , paragons or
parasites?
Methodology
 Qualitative and historical analysis
 Empirical approach:
 - Data: -personal access to a unique
manufacturing industry database (8,372
firms), from which 618 firms were selected
(years 2003/2006/2012) and checked to
identify politically connected firms
 WBES (2004/2007)
 Econometric analysis (simple OLS)
Cronyism as a pillar of Moroccan
political economy
 The makhzen needs to maintain its power in
order to endure. Therefore, it has managed to
get control over the Moroccan bourgeoisie
and obtain its alignment with its objectives.
 This has resulted in the permanent
interference of the makhzen in the economic
sphere, not only to pick up winners, but also
to gain high stakes in the most lucrative
economic sectors.
Cronyism (cont.)
 Back to the precolonial period
 During the ISI era: state patronage through
“Morocconization”
 Liberalization and the persistence of
Moroccan cronyism (esp. via privatization)
Main findings
 1 The big picture of political connectedness
(table 1 )
 2 Performance differentials ( table 2 )
 PCFs have higher market share, higher net and
gross margins, higher added value per worker, but
they are not more efficient.
 Regression results are mixed: political
connectedness strongly associated with market
power and added value per worker , whereas it
has no effect on efficiency indicators.
3 Capture mechanisms
 3.1 Finance (fig 2)
PCFs are not only more levered than NCFs; they also enjoy
other advantages, esp. in the form of reduced debt financing
costs.
 3.2 Trade protection
-Trade policy bodies greatly influenced by big business.
-Connected sectors more protected (fig 4)
- Anecdotal evidence about NTM (safeguard, compensatory and anti-dumping
measures benefiting well connected big business)
 3.3 Flexible implementation of regulations and rules
Fig 5 All regulation indicators show that PCFs are privileged when it
comes to regulatory compliance activities in comparison with NCFs,
except for “g3” indicator.
 4 .1 PCFs stifles competition and innovation (fig 6)
Main (cont.) 4.2 Political connectedness and firm dynamics
- Dismal turnover for large firms (table 8)
- More economic concentration (table 10)
Main (cont.) 4.2 Political connectedness and firm dynamics
- Lower turn-over rate in connected industries (4%) relative to non-connected ones ( table 11)
- Both sectors contributed to job destruction ( table 11).

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Moroccan Cronyism: Facts, Mechanisms and Impact

  • 2. Content  Motivation  Methodology  Political economy of Moroccan cronyism  The big picture  Mechanisms  Economic impact
  • 3. Motivation  Moroccan business groups hailed as “national champions”  These groups are politically connected  Another narrative: reasonable growth rates (2000s), but deindustrialization, corruption (Transparency Index), popular uprisings (2011)  Question: politically firms , paragons or parasites?
  • 4. Methodology  Qualitative and historical analysis  Empirical approach:  - Data: -personal access to a unique manufacturing industry database (8,372 firms), from which 618 firms were selected (years 2003/2006/2012) and checked to identify politically connected firms  WBES (2004/2007)  Econometric analysis (simple OLS)
  • 5. Cronyism as a pillar of Moroccan political economy  The makhzen needs to maintain its power in order to endure. Therefore, it has managed to get control over the Moroccan bourgeoisie and obtain its alignment with its objectives.  This has resulted in the permanent interference of the makhzen in the economic sphere, not only to pick up winners, but also to gain high stakes in the most lucrative economic sectors.
  • 6. Cronyism (cont.)  Back to the precolonial period  During the ISI era: state patronage through “Morocconization”  Liberalization and the persistence of Moroccan cronyism (esp. via privatization)
  • 7. Main findings  1 The big picture of political connectedness (table 1 )
  • 8.  2 Performance differentials ( table 2 )
  • 9.  PCFs have higher market share, higher net and gross margins, higher added value per worker, but they are not more efficient.  Regression results are mixed: political connectedness strongly associated with market power and added value per worker , whereas it has no effect on efficiency indicators.
  • 10. 3 Capture mechanisms  3.1 Finance (fig 2) PCFs are not only more levered than NCFs; they also enjoy other advantages, esp. in the form of reduced debt financing costs.
  • 11.  3.2 Trade protection -Trade policy bodies greatly influenced by big business. -Connected sectors more protected (fig 4) - Anecdotal evidence about NTM (safeguard, compensatory and anti-dumping measures benefiting well connected big business)
  • 12.  3.3 Flexible implementation of regulations and rules Fig 5 All regulation indicators show that PCFs are privileged when it comes to regulatory compliance activities in comparison with NCFs, except for “g3” indicator.
  • 13.  4 .1 PCFs stifles competition and innovation (fig 6)
  • 14. Main (cont.) 4.2 Political connectedness and firm dynamics - Dismal turnover for large firms (table 8) - More economic concentration (table 10)
  • 15. Main (cont.) 4.2 Political connectedness and firm dynamics - Lower turn-over rate in connected industries (4%) relative to non-connected ones ( table 11) - Both sectors contributed to job destruction ( table 11).