Morocco fears capital flight to Spain

“Of course I’m interested if they give me a residence permit and one to my wife and two children,” says Ahmed, a small businessman in the northeast of Morocco who normally spends his summer vacation in Fuengirola on Spain’s Costa del Sol. “Instead of renting, we would make the effort to buy an apartment and in that way the visa thing would be over. At last, we would be able to travel about Europe freely.”

When the Spanish secretary of state for commerce, Jaime García-Legaz, announced last month that the government was contemplating granting temporary residence cards to foreigners who buy homes valued at over 160,000 euros, the foreigners he had in mind to revive Spain’s moribund housing market were Chinese and Russian. Spain grants most tourist visas to Russian visitors and Moscow is Spain’s biggest consulate.

However, for the moment the scheme has generated most interest in Morocco. To the extent that the country’s department responsible for foreign currency exchange controls, the Foreign Exchange Office, issued a statement saying that to take money out of Morocco to buy property would require its “prior authorization,” adding that permission is normally only given in “exceptional” cases.

Moroccans, like most North Africans, are obsessed by the red tape that represents an obstacle to them traveling to Europe. Spain’s seven consulates in Morocco last year granted 145,880 visas to travel in the Schengen bloc.

Spain this year has displaced France as Morocco’s main trading partner, while close to 300,000 Moroccans spend their holidays in Spain each year, mainly in the Costa del Sol — less than half the around 700,000 Spaniards who visit the North African country.

In order to make online purchases and pay for medical insurance contracted in Spain, some of the burgeoning Moroccan middle class that has emerged during the economic push of the past decade have opened bank accounts in Spain in the exclave of Ceuta and on the Costa del Sol. Credit cards issued by Moroccan banks cannot be used outside the country, and the Moroccan authorities consider accounts opened overseas by individuals to be illegal.

In order to convert their dirhams into euros to deposit them in Europe, Moroccans use parallel circuits that charge a commission of between four to five percent, or else risk smuggling in money in cash when they travel to Ceuta or Málaga by boat. Carrying large sums of the Moroccan currency is complicated by the fact that the highest denomination is the 200-dirham note, which is worth only 18.5 euros.

Ceuta, along with its fellow North African exclave Melilla, is the only place outside of Morocco where dirhams are freely exchanged for euros. According to the Casablanca-based daily Akhbar al Youm, Moroccans have some 30.8 billion euros stashed away in overseas bank accounts, principally in Switzerland and Britain.

The Foreign Exchange Office is anxious to prevent any further expansion of such illegal practices that could arise as a result of the Spanish government’s residency permit for house purchase plan. The statement issued by the office notes that any such purpose “with illegal instruments constitutes an infraction of the exchange control law.”

The statement also says that obtaining a residence permit abroad does not authorize the holder of such a permit to enjoy the tax benefits of this arrangement if their physical residence remains established in Morocco.

Casablanca daily Al Massae reported that the Foreign Exchange Office is concerned that a “large number of Moroccans may take advantage of the Spanish offer.” The government is looking to stem a potential “capital flight at a time when foreign exchange reserves have been depleted,” economist Najib Akesbi says.

Foreign reserves have dropped from 1.932 billion euros to 1.527 billion over the past 12 months, largely as a result of a widening trade deficit, with exports depressed by the crisis in Europe.