Ecosystem Deep Dives #14: Morocco -Blessings & Curses
Ecosystem Deep Dives #14: Morocco -Blessings & Curses
The Moroccan start-up ecosystem has a lot going for it, but low funding numbers highlight the need for more.
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from countries around the world. If you enjoy and gain value from my work, feel free to share and subscribe!
Solid bases
The case of the Moroccan start-up ecosystem is probably one of the most interesting ones we’ve covered yet, due to the sheer complexity of it. On one hand, Morocco enjoys some great advantages and is ahead of many African countries in some aspects. On the other hand, the relatively low funding numbers Moroccan start-ups posted in 2021 shine the spotlight on some of the underlying issues it still suffers from and if solved, could give rise to a very promising start-up scene.
Let’s start with the areas in which Morocco enjoys an edge. It boasts very high connectivity rates, with 93% of the population being connected to the internet according to the Agence nationale de réglementation des télécommunications. The country ranks 3rd in Africa on the World Bank’s Ease of Doing Business Report, behind Mauritius and Rwanda. As a constitutional monarchy headed by King Mohamed VI, Morocco also enjoys way higher political stability compared to its neighbors in both the Maghreb and the Sahel. Morocco possesses a good local IT talent pool which, however, is stretched with some talents leaving to Europe.
Recently, the Moroccan Office des Changes, which regulates foreign currency coming in/out of the country, has made it easier for founders to get a status referred to as "Jeune Entreprise Innovante" that allows startups to have an international card to pay for services abroad of up to $100,000. It does remain difficult for amounts larger than that though. The difficulty Maghreb-based founders face to gain access to foreign currency bank accounts was also one of the main points tackled by the Tunisian Start-Up Act legislation.
Obstacles
On the other hand, Morocco suffers from systemic and infrastructural issues that severely hinder its ecosystem’s development. The $29 million Moroccan start-ups raised in 2021 is admittedly an all-time high, but pales in comparison to the $400 million raised by Egyptian start-ups during the same time period. While funding isn’t an ecosystem’s only health indicator, it constitutes a good part of it.
One of the main obstacles Morocco faces is the lack of regional integration with its neighbors; indeed, the lack of tangible trade agreements with other countries in the Maghreb, notably Algeria and Tunisia, make it hard for Moroccan founders to expand their services beyond their immediate borders. For example, Chari.co founder Ismael Belkhayat explains that he had to create a clone of his company when he expanded to Tunisia, instead of simply creating a subsidiary. This puts Moroccan start-ups at a disadvantage on the continent, as other countries such as Kenya enjoy commercial ties with its neighbors through the East African Community, enabling Kenyan founders to scale faster.
The fact that Morocco is a francophone country is also a disadvantage, as African anglophone countries maintain better relationships with American investors and the international aid community, which is active in many African start-up ecosystems. The prominent presence of these international aid organizations is subject to debate, whether it be due to neo-colonial attitudes or the actual efficacy of their programs.
While Morocco enjoys more efficient business procedures than many other African countries, some elements of the country’s start-up fiscal policy could be improved. Namely, a decrease of the VAT (value-added tax) that is currently applied to investment fund management fees could increase the dynamism of the local investor scene.
Recent impetus
Morocco has also spearheaded the concept of “start-up hubs/clusters” in Africa, with the launch of Technopark in the early 2000’s. Since then, a plethora of start-up incubators/accelerators/co-working spaces have emerged through the likes of La StartUp Factory, MCISE, Hseven, Espace Bidaya, Impact Lab, StartUp Maroc or New Work Lab just to name a few. In 2019, MSEC (Moroccan Start-Up Ecosystem Catalysts) was created to federate different actors of the ecosystem. While most of the Moroccan start-up ecosystem is located in Casablanca, other cities such as Marrakesh boast their own structure such as the Emerging Business Factory.
On the fundraising scene, actors such as Outlierz Ventures, Maroc Numeric Fund II, 212 Founders, Réseau Entreprendre, Angels4Africa, and Wise Venture Capital aliment the small but growing local fundraising landscape. The establishment of a 212 Founders Campus in Paris’ famed “Station F” is a useful resource for Moroccan start-ups wanting guidance and funding for internationalization. However, the ecosystem still lacks enough former successful Moroccan founders to act as business angels in young Moroccan start-ups. This is an essential component of well-rounded start-up ecosystems, especially when banks and “traditional” investors don’t fully understand start-up fundraising methods.
The government has also been active through the establishment of the Fonds Innov’Invest, carried out through the CCG (Caisse Centrale de Garantie).
“The Moroccan government created, via the Caisse Centrale de Garantie, (CCG), the Innov’Invest Fund in 2017. The banks, who did not want to miss the train of innovation, have started to react positively to that development. Also, several large companies such as the Office Chérifien des Phosphates, the Caisse de Dépôt et de Gestion and major telcos such as Orange Morocco issue grants to support Moroccan start-ups.” - Source
Another interesting recent initiative has been the launch of Morocco Tech, an umbrella organization pioneered by the government in Morocco in collaboration with ecosystem actors to unite all of the elements of “digital Morocco”. However, the launch has been stained by much controversy, uncovering dysfunctions that are sending shockwaves throughout the ecosystem. Many of the ecosystem actors I’ve talked to have exposed the complete dichotomy between how positively the launch of Morocco Tech has been received in international media, compared to the scandal it is creating locally.
The potential importance of the Moroccan stock market
In the light of Morocco Tech’s launch, another interesting development popped up. This time, it came from the Casablanca Stock Market, who announced they wanted to work hand in hand with Moroccan start-ups in order to facilitate the IPO process, lower the minimum investment required to list to 5 million Dirhams ($500,000), as well as the creation of an alternative market destined for start-ups/SME’s.
“Investing in stocks issued by Moroccan start-ups is a unique way to create a societal link between the general public and Morocco’s tech innovators, whose ambition is to create a digital nation.” - Aujourd’hui.ma
This is a very interesting take, and one that could maybe provide one option to fight the illiquidity that start-up investments represent, especially in emerging markets. As we spoke about in the Egypt article, IPO’s for start-ups from Africa/MENA are very rare, and thus make the VC asset class less attractive. However, if start-ups can IPO in their local stock markets at an early-stage, that could not only incentivize business angels to take more risks, but it could also provide a practical way for the diaspora to invest in start-ups back home.
Local champions
Although no start-ups from Morocco have achieved unicorn status yet, a couple of them have been making noise through impressive traction and fundraising rounds. Some of them include:
Mubawab: A real estate classifieds portal for the Middle East and North Africa. Raised a total of $17 million+
Waystocap: A B2B marketplace where businesses in Africa can buy and sell products. Acquired by Egyptian start-up MaxAB in 2021.
Atlan Space: A start-up building AI to autonomously pilot any fixed wing drone, to monitor and take measures over very large areas. Raised $1.7 million
KoolSkools: A collaborative learning platform that responds to pedagogical requirements by digitalizing different processes.
Chari.co: A B2B e-commerce and fintech platform for traditional proximity stores in French Speaking Africa. First Moroccan start-up to get into Y-Combinator.
Dabadoc: A technology company which helps patients across Africa find the right care with simple yet powerful technology solutions.
Sle3ti: A Casablanca-based B2B marketplace, connecting FMCG retailers to wholesalers and distributors. Just raised $1.3 million.
Conclusions
The Moroccan start-up ecosystem is an interesting one. It seems to be that a lot of the pre-conditions for a booming start-up ecosystem are there, but a couple of legislative and fiscal regulations have to be painstakingly removed in order for the ecosystem to fully express itself and achieve its full potential. More could be written about the cultural aspect, as stigmatization of failure is still a societal barrier for many founders in the MENA region. Big banks and corporates also have to be more involved in either working with, investing or even acquiring start-ups for the ecosystem to take off. To be completely honest, this is the article in which I received the most vehement criticism of my initial draft, which shines the spotlight on the need to look deeper than the surface of hype that has been prominently shared about African start-ups this year. A lot remains to be done, and the public shouldn’t be fooled by a couple shiny initiatives, but rather look at raw data to build an informed opinion.
Question of the week: How have you seen your local start-up ecosystem misrepresented in foreign media? Respond in the comments!
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!