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Morocco ripe for investment, says Edmond de Rothschild Private Equity CEO

By David Whitehouse
Posted on Monday, 29 June 2020 16:13, updated on Tuesday, 30 June 2020 10:48

Police on patrol in a locked-down Casablanca. Edmond de Rothschild is betting on Morocco's post-COVID prospects. REUTERS/Youssef Boudlal

Edmond de Rothschild Private Equity is planning to make new investments in Morocco and would have done so already had COVID-19 not arrived, CEO Johnny El Hachem tells The Africa Report.

“We have deals in the pipeline we are ready to make,” says El Hachem. “Morocco offers huge opportunity. We will focus here in coming years,” along with Tunisia and Egypt.

The new Morocco investments would have been made faster, adds El Hachem, but for delays in fundraising caused by COVID-19. He’s confident that the money will be raised soon, with the firm making growing use of “e-roadshows.” The pandemic, he expects, will mean greater reliance on such remote kinds of fund-raising in future. Such crises, he says, always contain the “seed of opportunity.”

READ MORE Coronavirus in Africa: an opportunity for innovative investment

Morocco meets firm’s the criteria of a diversified economy, urbanisation and a growing middle class. There are opportunities in financial services and healthcare, adds El Hachem.  The country has done a lot to attract foreign direct investment and has achieved a “liveable” environment for business, he says. Morocco also has “great potential as a gateway to sub-Saharan Africa.”

The economy is taking a hit from the pandemic, with the central bank predicting a 5.2% contraction in the economy this year. NKC African Economics in South Africa is more pessimistic, forecasting a 6.1% slowdown. But NKC says that Morocco is the North African economy that is best-placed for a quick recovery – once international tourists return.

  • Morocco had nearly 13 million tourist visitors in 2019, with the sector accounting for 7% of GDP.
  • Even that record figure, however, was not enough to lift hotel occupancy to profitable levels, according to the National Tourism Confederation.
  • Agriculture and the weather are also unpredictable variables.
  • The Economist Intelligence Unit (EIU) in London predicts that growth will resume in 2021 and average 2.6% in 2021-24, helped by manufacturing and services.
  • But growth remains linked to agricultural exports, which will be reliant on volatile weather patterns.
  • Furthermore, the country’s complicated tax system and high rates are “major constraints on business,” the EIU says.

Time needed

Edmond de Rothschild Private Equity, which is based in Geneva, invests in Africa through partnerships with Amethis and Moringa.

  • Amethis, founded by Luc Rigouzzo and Laurent Demey, has raised 725mn euros since being started in 2012.
  • It has made investments in Morocco including the investment bank CFG, equipment distribution company Groupe Premium and communications group WBAfrica.
  • Moringa, which invests in ago-forestry projects, is a partnership between Edmond de Rothschild and ONF International, a subsidiary of the French Office National des Forêts (ONF) dedicated to sustainable forest management.

In Europe, investment can be based around financial engineering, explains El Hachem. Private equity is different in Africa. Business discussions are more likely to take place at the coffee machine than in the boardroom. “It’s a matter of being on the ground.”

READ MORE Why Orange chose Morocco for its new African headquarters

Exits take much longer in Africa and “time should be considered differently.” The internal rate of return (IRR) is not the right tool to measure investment performance. Private equity investors need more time to build a company in Africa, he says.

During COVID-19, exits have been delayed or postponed and this will have an impact on investment returns. That does not change the underlying fundamentals. “Resilient businesses will retain their value.”

Bottom Line

Long time horizons are essential for investing in tourism-sensitive economies such as Morocco.

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