Second International Conference on Financing Municipalities and Sub-National Governments

1. Second International Conference on Financing Municipalities and Sub-National Governments Kingdom of Morocco Current experience, innovations and opportunities : Middle East and Africa Thursday, September 30, 2004 Karim MANSOURI Managing Director

2. Introduction • Complexity of the issue • Different actors and mechanisms involved • Various objectives : developed / developing countries • Important disparities within developing countries • Many considerations : governance, expertise, public utility, citizen’s quality of life • Mutations of the local / financial sectors • Impact of decentralization • F.E.C as the main lender to local governments / consultancy & assistance • New requirements • Loan process as fundamental

3. Current experience, innovations and opportunities : Middle East and Africa 1- Current experience 2- Innovations 3- Opportunities

4. 1- Current experience • Presentation of the FEC • 1959 : Establishment • 1992 : Public agency with an independant statute and financial autonomy • 1996 : Banking institution

5. 1- Current experience • Activity of the F.E.C • F.E.C’s general purpose • To grant loans for funding infrastructural and capital spending schemes to urban and rural authorities, associations formed by them, public services bodies (utilities) • To accompany the Moroccan government’s general development / local and regional priorities • Public utility mission / private management methods

6. 1- Current experience • Cyclical activity / elections • Loan commitments : 1993-2003 : 1.1 billion dollars Disbursments : 2003 : 96 million dollars 1997 elections 2003 elections Million of dollars • Loan commitments & disbursments

7. 1- Current experience • Activity of the FEC • Predominance of urban sector / urban improvement 2001-2003 Distribution of loan commitments by sector

8. 1- Current experience • Activity of the FEC • Predominance of urban communities Distribution of loan commitments by beneficiary

9. 1- Current experience FINANCE • Intervention methods Promotion of local governance Strict bidding procedures / debt ratio / environmental considerations GOVERNANCE ASSISTANCE TRANSPARENCY Local governments PLANIFICATION

10. 1- Current experience • Intervention methods • Adaptation of the intervention methods to the mutations of the environment : local and financial sectors • Local sector : decentralization of power to local authorities • Simplify procedures / speed up processes • Regional planning / awareness of local agents Local development ► National development • Increase of financing needs of large municipalities • New requirements of municipalities : assistance / financial advisory / proximity • Expectations of diversified instruments and partnerships

11. 1- Current experience • Intervention methods • New chalenges : • Disengagement of the State • Opening of the local authorities market to commercial banks • Opening of the domestic financial market • Financial sector : to stimulate mobilisation and allocation of resources, to promote competition • Need to cope with this new environment Eg : Interest rates

12. 1- Current experience • Financial activity • Increase of shareholder’s equity : 90 million dollars in 2003, • + 80% from 1995 to 2003 Million US $ Banking statute

13. 2- Innovations • Anticipation of future developments • New reflexion about the strategy / FEC’s future role • Public utility role / private management methods • Partnerships with different actors involved • Marketing approach of assistance and advisory • Establishment of a special assistance fund / to help local government to study and select suitable projects and programs

14. 2- Innovations • Anticipation of future developments • New reflexion about the strategy / FEC’s future role • Specialized entity in structured financings • New type of relationships with International partners / synergies in local funding • Financial arrangements : donations / loans at market conditions • Close collaboration with local and regional authorities / Ministry of Interior

15. 2- Innovations • Anticipation of future developments • Review of management parameters • Reorganization of internal and external structures : to meet new requirements / better proximity to customers • New technologies : Workflow • To reduce operational risks • To speed up processes • Improvement of management methods : more rationality / simplification of procedures

16. 3- Opportunities • A strong potential • Many other opportunities : in terms of customers / categories of projects / types of financing • Credit capacity not yet reached regarding prudential rules and loan capacity

17. 3- Opportunities • A strong regulation and supervision of the Moroccan financial sector by the central bank • Rules established according to international standards - Prudential rules • Specific treatment of provisions for doubtful debts issued by local communities (weighting : 20% according to the risk associated) - Internal control requirements / audit committee / risk assessment - External control achieved by international auditing firms

18. 3- Opportunities • Financial activity • Total assets : 556 million dollars in 2003

19. Financial activity 3- Opportunities • Improvement of revenues and increase of shareholder’s equity during the last few years • In 2003 : ROE : 16,6 %, ROA : 2,7 % • It helps F.E.C to raise funds on the domestic market at better conditions • F.E.C reduced interest rates for clients

20. 3- Opportunities • Potential not yet reached • Transformation of the FEC into a limited liability company : in progress • Opening of capital / new shareholders • Reinforcement of funding conditions • Assistance upstream • To stimulate demand • To attract small municipalities • Support of international lenders • Management of preferential loans

21. Conclusion • Two vocations • Public utility mission • Market driven strategy • New role of specialized local funds • Value added of foreign lenders • Competition as complementary

22. Kingdom of Morocco Second International Conference on Financing Municipalities and Sub-National Governments Thursday, September 30, 2004