Risk Watch #October 14-20: New tax measures, scarcity and more

Welcome back to another edition of our Weekly Risk Watch!

Morocco continues to evolve, offering a plethora of opportunities while navigating through its share of challenges. Our weekly watch remains your steadfast guide, offering insights into the ever-changing landscape of economic indicators, political shifts, and security updates that might influence your business strategies or day-to-day decisions.

Join us as we unpack the latest developments, tailored neatly into a convenient weekly update.

Economy and Markets

• Starting January 1, 2025, new income tax (IR) changes will exempt income up to 40,000 dirhams and introduce deductions of 10% for incomes from 40,001 to 60,000 dirhams, 20% for 60,001 to 80,000 dirhams, 30% for 80,001 to 100,000 dirhams, 34% for 100,001 to 180,000 dirhams, and 37% for higher incomes. This could reduce government revenue and create budgetary pressures, impacting public services and economic stability.

• The 2025 finance bill estimates income tax revenues of 61 billion and 10 million dirhams for the upcoming year.
  Underestimating these revenues could lead to financial shortfalls and hinder economic growth initiatives.

• A new specific tax on cement, set at 0.15 dirhams per kilogram, will apply to both locally produced and imported cement starting January 1, 2025. This tax may raise construction costs, potentially slowing down infrastructure development and investment.The tax on local cement will require companies to self-report based on internal sales, while the tax on imported cement will follow standard customs procedures. Self-reporting may lead to inconsistencies and tax evasion risks, affecting government revenue.

• The government proposes mandatory electronic payment for customs duties and taxes, with some exceptions for specific debts or transactions. While this could improve efficiency, it may also expose the system to cybersecurity risks and operational challenges.

• Authorities proposed exemptions from import tax on equipment for the Nigeria-Morocco gas pipeline and suggested new penalties for improper possession of customs seals. These changes could impact revenue from customs and raise concerns over regulatory enforcement.

• International road transport professionals plan to display red bands to protest the sector’s challenges, potentially leading to a strike affecting exports and imports. Labor unrest in the transport sector could disrupt trade and logistics, impacting economic activity.

• The government introduced tax exemptions on essential consumer goods, including meat, olive oil, and rice, from January 1, 2025, to December 31, 2025, to combat rising prices. While aimed at easing costs for consumers, this could strain government finances and limit funding for other priorities. Exemptions will also apply to live animals with specific quotas for each category.
  Dependency on these quotas could lead to supply shortages or price fluctuations in the livestock market.

• The government will allocate over 16.5 billion dirhams to support essential goods like butane gas, sugar, and flour in 2025, aiming to bolster citizens’ purchasing power. Excessive subsidies may lead to fiscal imbalances and increased national debt, but more strikingly, is increasing indirect subsidies to such essentials as the executive moves forward with scrapping all subsidies in the next 5 years.

• After recent decreases in fuel prices, industry professionals anticipate a minor increase, projected between 30 and 40 centimes per liter, though this remains uncertain. Fluctuating fuel prices can lead to inflationary pressures, affecting overall economic stability and consumer confidence.

• The household confidence index showed near stability in the third quarter of 2024, remaining at 46.2 points compared to previous periods, but a staggering portion of Moroccan households reported struggling to make ends meet, with a near impossible ability to save. Persistent low confidence levels may hinder consumer spending and economic growth.

• The government increased support for wheat imports due to rising global prices and demand from Egypt and Algeria.
  Rising global prices could lead to food security concerns and increased costs for consumers, affecting overall economic health.

Political Stability

• Stafaan De Mistura’s Diplomatic Failures: The UN envoy continues to struggle with unresolved conflicts in Western Sahara, reflecting a lack of effective international diplomacy, which can lead to political instability and loss of credibility for international institutions.
• Government Budget Pressures: Increased government spending due to ambitious reform projects raises concerns about fiscal sustainability and may lead to political backlash if economic conditions worsen, risking instability.
• Social Security Financing Challenges: The significant costs associated with the social protection project highlight political risk due to potential public dissatisfaction with government management of funds and social programs, leading to unrest.
• Pension System Crisis: The looming bankruptcy of the civil pension system could provoke political unrest, particularly if reforms are perceived as placing undue financial burdens on workers without adequate improvements in benefits.
• High Unemployment Rates: Persistently high unemployment, especially among youth, poses significant political risk as it can lead to social unrest and a loss of confidence in government efficacy, potentially destabilizing the current administration.
• Lack of Female Representation in Parliament: The absence of women in key parliamentary positions raises concerns about gender representation and equality, risking public discontent and undermining democratic principles.
• Road Safety Legislation Concerns: The introduction of regulations for electric scooters without adequate safety measures may lead to increased accidents, prompting public criticism and political repercussions for the government if safety is compromised.
• Union Responses to Wage Policy Changes: Labor unions’ rejection of the “pay for work” principle reflects deep tensions between workers’ rights and governmental policy, posing risks of strikes or protests that could disrupt social harmony.
• Controversial Strike Legislation: The government’s push for new strike legislation without participative dialogue with unions could incite significant resistance, leading to potential labor unrest and challenging the government’s authority.

• Arrest of Algerian National Wanted for Drug Trafficking: An Algerian man was arrested on an international warrant for drug-related crimes. This highlights the risk of cross-border crime and the potential for international drug trafficking networks to operate within Morocco.

• Human Trafficking and Illegal Migration in Al Hoceima: Two individuals were apprehended for organizing illegal immigration and human trafficking. This scenario poses significant security risks as it can fuel criminal networks and create unsafe conditions for vulnerable populations.