Atalayar talked to Mokhlis Elidrissi, CEO of Valoris Capital, about the great options offered by the Moroccan kingdom for foreign investment

Morocco, a great investment opportunity


Casablanca recently hosted the Spain-Morocco Business Meeting to promote the investment of Spanish companies in the North African country and Atalayar was able to talk to Mokhlis Elidrissi, CEO of Valoris Capital, on the occasion of this event, to talk about his company and analyse the possibilities offered by the Moroccan kingdom to invest and generate wealth. 

Mr. Elidrissi, could you tell us a little about the background of Valoris?  

Valoris Capital is a wholly owned subsidiary of the Valoris Group. The Valoris Group is Morocco's leading independent investment bank, and our group operates in a fairly wide range of financial services, including stock brokerage, asset management and the management of organisations that invest in property for rental income. Our group also operates in financial engineering and advisory services, focusing on bond issuance for private and public sector operators, as well as in private banking and, most recently, through Valoris Capital, which I have had the honour of managing for the past two years, investment fund management. Valoris Capital currently manages an investment fund specialising in SMEs, mainly in Morocco. We have invested heavily since the fund's creation, and we are about to launch the first Moroccan green investment fund specialising in the decarbonisation of industry. Moroccan industry is a crucial target for our country, which is part of Morocco's strategic plan for renewable energies, and this fund is intended to be a tool to achieve these strategic objectives. Let me remind you that Morocco's ambition is to reach a 52% share of renewable energy production in its energy mix by 2030. And for the moment, the weak link, unfortunately, is the decarbonisation of medium voltage, particularly for small and medium-sized industrialists. And this is where we intend to operate through Valoris Alternative Investment, and this fund, which for the moment has mainly Moroccan investors, i.e. institutional investors from the banking, insurance and pension sectors, and mainly UCITS, also aims to attract foreign investors, and why not Spanish investors, given that many Spanish companies are interested in the renewable energy sector in Morocco. 

What are the reasons why it is so attractive for the Moroccan government to invest here?  

Until recently, when the World Bank published its annual "Doing Business" report, Morocco was on the verge of entering the world's top 50 in terms of attractiveness for foreign investment. And this was due to a number of factors, a number of arguments that the current and previous governments have worked on under the enlightened supervision of His Majesty the King to make the environment attractive. So, first of all, political stability, so our country enjoys internationally recognised political stability, the stability of the Moroccan currency so that, unlike other countries with comparable economies, we have not suffered any severe evaluation that erodes the performance of foreign investors. We also have a very stable macroeconomic framework, with a budget debt that is under control and a trade deficit... our trade balance, which is largely covered by other sources of income, i.e. macroeconomic income, especially foreign direct investment, and we have very ambitious national programmes, supported by the state, with an increasingly well-trained human capital. For example, in industry, our country's ambition is to increase the share of industry in its GDP, which is currently around 17%, to more than 24 or 25% to reindustrialise the country, create sustainable jobs and achieve a more inclusive and energy efficient economy. 


And with the new Investment Charter that the government has enacted, it helps and guarantees another element such as legal certainty, which is a fundamental guarantee for investors.  

Indeed, the Investment Charter, which has taken a long time to be enacted and has only recently been published, brings with it a number of important incentives, especially in terms of subsidies and tax breaks. But what makes the country strong today is the global environment, apart from the tax advantage, in all the studies, let's say worldwide, that have analysed the attractiveness of countries, particularly emerging or developing countries, whereby the tax incentive generally ranks 4th or 5th, what counts today for a foreign investor is the depth of the local market, the availability of human capital, especially in terms of quality, a liberal environment that guarantees the free movement of capital, free entrepreneurship and a legal environment that is also secure for the foreign investor. In these respects, Morocco has made great strides and now wishes to continue its momentum and, why not, become the African leader in attracting and draining foreign investment. 

The Moroccan authorities are talking about investments and industry in a regional diversification project. Do you think it is a good idea to also invest funds in such diversified projects throughout Morocco?  

Morocco opted for advanced regionalisation more than 10 years ago under the leadership and vision of the King, creating 12 regions endowed with certain local powers and a certain degree of fiscal autonomy, or at least considerable resources, and with a vision that expects a better territorial distribution of wealth, with a considerable effort in infrastructure to provide each region, or almost each region, with a major port that guarantees the international opening of infrastructures in terms of industrial investment and, in fact, there are currently regions that are emerging, such as the region of Agadir, the region of Tangiers-Tetouan-Al Hoceima, which is becoming a major industrial incubator with world-class infrastructures, and the regions of Dakhla and Laayoune, which will soon be equipped with a world-class port. Dakhla is also becoming an economic and even diplomatic magnet. So there are opportunities to be seized in other regions beyond Casablanca. But there is a clear will to diversify value creation in the different regions of the country. 

In the context of the investment funds market, what advantages do you think Valoris has over other market players?  

In the Moroccan market, the first thing to say is that investment fund management, particularly regulated private equity, is still a small business compared to other countries such as Spain, for example, where a great effort has been made to catch up in the private equity register, which is growing. Unfortunately, the proportion of the financial market devoted to this asset class, i.e. venture capital/investment in the portfolios of large investors, in particular long-term investors such as insurers and pension funds, is still less than 1%, while in highly developed countries the figure is closer to 10 or even 15%. This situation is changing, thank God, because more and more investors are becoming interested in this asset class, which promises returns when investments are well executed and deployment is on track. As our Minister of Economy and Finance recently said, we need to do an autopsy of this period, which has left its mark, and turn the page and give managers with experienced teams the opportunity to be the financing channel, because, I would remind you, private equity finances the real economy. And today, in particular, Moroccan SMEs have a great need for this financing channel, because SMEs need to strengthen their funds to move forward, to improve their competitiveness and to better link up with the global economy. At Valoris, the first fund I mentioned, Valoris Equity Fund, has a modest size for the moment, but our ambition is to increase it. We started with EUR 30,000,000, and we were able to deploy more than 80% of that amount in a single year. This shows that there is a strong demand from SMEs to strengthen their equity capital, as I said, but the key to success is the right selection. You have to select the right projects that are most likely to create value for investors and achieve the returns promised to them, which are typically in the 10-15% range. 

What does Valoris expect and what opportunities can it offer to Spanish investors? 

We are targeting foreign investors, so what you need to know is that private equity in Morocco has only been able to develop over the last 20 years, even if it is still a somewhat timid development, as I have explained, thanks to foreign investors, in particular public bodies, whether state or multilateral, such as the EBRD, the European Investment Bank, but also thanks to foreign public players, such as BPI, the French public investment bank, Proparco. Unfortunately, Spanish institutions are very little involved in venture capital in Morocco. I think they would do well to take a closer look at the new private equity offer, because the Moroccan currency is stable and it is imperative to support the Moroccan private sector, especially SMEs, which represent more than 80% of the business fabric. So a Spanish investor, private or public, investing in a Moroccan or regional fund, as long as he selects the right horse and the right manager, can expect an interesting return, because it has been working very well. There is a lot of demand. With a high potential for development and growth, and we are talking about an internal rate of return of 15% where the exchange rate risk is limited. Because it is true that, under other skies, although the returns are attractive. But when there are significant valuation risks, it reduces investors' returns. Today, we would be happy to have some of these investors in our funds. Valoris is the only company investing in solar parks to contribute to the decarbonisation of the industry, and it promises very attractive returns with regular distribution, and we know that many Spanish companies are interested in the Moroccan energy sector. So we would be delighted to have Spanish investors in the capital of this fund as well. 

And you hope that this could also include the Sahara. That Spanish entrepreneurs overcome the Sahara taboo that still exists in Spain and, as Minister Ryad Mezzour said, a platform from Vigo to Dakhla and that the Sahara is considered a normal opportunity like any other region in Morocco. 

Yes, Dakhla has undeniable potential, both in agriculture and logistics. Dakhla and Laayoune in industry, in energy, in renewable energies, there are many areas that are very suitable for installing solar farms. Yes, so there are opportunities to be seized in this region. There is also the possibility of going to investment funds, like us. We finance projects. In any case, we are currently looking very seriously at investment opportunities in Dakhla, especially in decarbonisation for industry. We are also looking at large-scale projects in the Guelmim region, not Dakhla, but which is part of the southern provinces, in agriculture with the use of non-conventional water, in particular seawater desalination, so a foreign investor who does not want to get bogged down in the file selection phase, to manage afterwards or dedicate a team to oversee these projects by investors like us, by managers like us. So our ambition and our DNA is to support the emergence of new regional poles in Morocco, and we are looking very seriously at activities outside Casablanca, because we believe it is vital for our country to diversify the sources of value creation and provide employment opportunities throughout Morocco. 


Regarding the international situation, are you worried? Can it affect the Ukraine issue, food prices, energy prices? To what extent can that affect the development? 

Yes, as I said, risk capital is about financing the real economy. What we call the microeconomic fundamentals of an economy and, in fact, the companies in our portfolio, some of which we even have a majority stake in, by 2022 will have suffered the full force of some of the unfortunate repercussions of the crisis that you mentioned, particularly in terms of commodity and input inflation in general. It is a bad time, because these companies have just come out of another big crisis, the COVID crisis, which they could only overcome, I would say, with a straight face, by resorting to public debt, so now they have to pay back this public debt. Fortunately, we can already feel that this crisis, or the repercussions of the Ukrainian crisis, are starting to fade, as we can see in volatility and commodity prices. And some of our portfolio companies that import raw materials and inputs from abroad are already seeing some reversal. So in terms of inflation, we think that by the end of the year we could be back to more acceptable levels of inflation, in any case, more in line with the historical level which has been relatively low in recent years and which has anchored both savings and investment thanks also to relatively low interest rates.  

So, as you know, the Central Bank, in an attempt to curb these inflationary pressures, has raised rates in Morocco on several occasions, which is exceptional, at least in the last 10 or 15 years. We are keeping a close eye on this because we manage a fairly large bond portfolio and, as you know, interest rate movements have an impact on the price of these assets, and we think that between now and the end of the year there will be an easing that could be synonymous with a further drop in interest rates. In any case, we believe that this crisis is beginning to run out of steam, at least in terms of its consequences. 

Morocco's role vis-à-vis Africa and the United States could be very interesting for investors. Valoris is also working along these lines, it is a bridge not only for Morocco, but also for Africa and even for the United States. 

Of course it is. In recent years, Morocco has undeniably become a platform for many economic actors, a platform or an advanced base for investment in Africa, in particular with the emergence of quite strong financial centres, but also with support measures that follow, once again, a very enlightened real vision. In some African regions, Morocco is becoming the first foreign investor; in West Africa, for example, we are the 2nd foreign investor, which is quite remarkable, and shows that there is now a movement of investment within African countries, and therefore of South-South cooperation, and Morocco really wants to be a pioneer and a leader, or at least a driver, of these movements. So, for the moment, the funds we manage at Valoris Capital are essentially focused on Morocco, but our ambition is to regionalise them soon. Either by investing directly in the countries where we think there are opportunities, i.e. sub-Saharan countries, or by helping to bring to light, through the portfolio companies that we fund, regional leaders and Moroccan players who are themselves investing in Africa or elsewhere in sub-Saharan Africa in particular, and what we are pleased about today is that many entrepreneurs, including relatively modest sized SMEs, have the ambition to go to Africa and get out of the domestic market, and we are also here to support them, to help them take that first step towards internationalisation.

Is there anything you would like to say about Valoris that we have not mentioned and that you would like to highlight?  

Perhaps one last message for Spanish investors, particularly institutional investors. In Morocco, the Mohammed VI Investment Fund initiative, which was a royal initiative, will soon enter the scene after two years of gestation. This sovereign wealth fund will inject more than 4 billion euros into the Moroccan economy, with an additional quality effect that will bring it to more than 10 billion euros, through investment funds. The Mohamed VI Investment Fund thus intends to inject 1.5 billion euros through the selection of fund managers who will support it in the deployment of its strategy with several priority themes. Tourism, agriculture, industry and small and medium-sized enterprises (SMEs) have recently been the subject of a call for tenders. I therefore urge Spanish investors to support this initiative, which I hope will have a considerable impact on the Moroccan economy, and which will generate interesting returns for both Moroccan and foreign investors.

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