Casablanca: an emerging financial centre

Woman: What makes saloonkeepers so snobbish?
Banker: Perhaps if you told him I ran the second largest banking house in Amsterdam.
Carl: Second largest? That wouldn't impress Rick. The leading banker in Amsterdam is now the pastry chef in our kitchen.
Banker: We have something to look forward to.
Casablanca, 1942

I’m currently the guest of the British Chamber of Commerce in Casablanca. If you have read my CV you will have seen that I used to be a British Diplomat. As a Diplomat, I never really had ambitions to be an Ambassador but one of the jobs I always wanted was to be Her Majesty’s Consul in Casablanca, based on the impressions formed by the famous film quoted above. I regret that I never got that job but I am delighted that I eventually got here, and that my good friend David Flint now has that position.

I am here to discuss what makes a city successful as a financial centre. As part of our international strategy, TheCityUK seeks to increase the UK’s links with fast-growing world markets, particularly those with ambitions to become global financial centres in their own right.

Last September, I visited the Kremlin to sign in front of the British Prime Minister and the Russian President a Memorandum of Understanding with our Russian partners to develop Moscow as an international financial centre. Although TheCityUK is not a government body, the Russians announced the agreement as the first bilateral agreement signed between Russia and the UK in over six years. This illustrates the importance Russia attaches to developing Moscow as an international financial centre. Political support is essential. Since Moscow, we have been approached by Dubai and Toronto to sign similar agreements.

That is why I am pleased to be here today to develop relations between the UK and Morocco. I hope that one day we will sign a similar agreement with Casablanca.

I am often asked why we are assisting potential rival centres to grow. My response is that this should not be seen as a ‘zero-sum game’ in which emerging financial centres gain at the UK’s expense. On the contrary, as with all trade, there will be advantages for both sides as the global market expands.
How can Casablanca learn from London, and perhaps more importantly, other new centres?

In Lloyd’s, London has the largest insurance and reinsurance market. Lloyd’s has been trading continuously since 1688 – nearly for 325 years; our stock exchange was established in 1565. So I could say history helps. But that does not explain the success of Dubai, Bahrain or Shanghai which have developed as major players in the last 30 years or less.

For the new financial centres I think they have in the first instance to develop a unique selling point. This could be geographical location or an expertise – say insurance or Islamic finance. There are four basic requirements:

• a vision and a will to succeed. This has to be set and supported by government which will sometimes have to make decisions that are not popular. Someone has to drive the vision to encourage the market to grow;
• a business and social culture that encourages foreign investment;
• an educated workforce, and 
• an infrastructure that supports a growing industry.

The physical infrastructure is the perhaps the easiest. Casablanca has the right buildings, transport infrastructure, housing and so on. There is also a requirement for the related and supporting industries: the right cluster of ancillary skills and services, plus access to competitive services in fields such as IT and telecommunications.

So there is a wider task in creating a financial centre that also brings beneficial job creation in supporting industries, especially as you have to keep adapting and improving the physical environment.

For example, for 400 years London’s financial centre was traditionally ‘the square mile’ right in the heart of London. But over 30 years ago it was realised that there was simply not enough space, so a complimentary new development was built at Canary Wharf – a new financial centre has sprung up, physically similar to the Dubai International Financial Centre (DIFC). Interestingly for both Canary Wharf and the DIFC, new legislation and laws had to be enacted to allow them to be established.

This is where government backing is crucial – but not just in giving support for the construction of infrastructure. Government cannot create commercial advantage on its own, it has a key role to play in economic and prudential regulation – reliable rules for the soundness of providers that need to be (and be seen to be) independent of the executive. Transparency, maintenance of law and order, and a strong law of contract with an independent judiciary are also key factors.

Foreign investment and business flow like water – they flow to where there is the least resistance. Any foreign bank can set up in the UK provided it meets the regulatory requirements, so can any law firm or accountancy practice. Our government decided many years ago that the UK should be open for business. Companies must have freedom to compete effectively and innovatively, with a supervisory system that strikes the right balance between stability and allowing scope for innovation.

Sadly, many countries still put up trade barriers and have protectionist measure in place. To encourage growth in financial services the government has to ensure that there are no obstacles to trade. They may have to make decisions that are unpopular in the short term with parts of their domestic industry.

Multilateral trade agreements can remove these barriers.  It is interesting to compare the EU/Korea and EU/India Free Trade Agreements (FTAs). Both sets of talks started at the same time. The EU/India FTA is bogged down. But the EU/Korea FTA has been finalised and foreign investment and business are already moving to South Korea.

One problem area in the India discussions is that it is difficult for international law firms to work there. Complicated international trade needs good lawyers, and it follows that an international financial centre needs good, internationally experienced lawyers. Our research has shown that not one local lawyer has lost their job because of the opening of markets to international law firms; indeed job opportunities have grown as international companies locate in these new markets.
The availability of skilled staff is a key factor in location decisions. This is particularly the case for emerging centres, the locations where businesses are most likely to be considering opening new offices or expanding operations. A survey conducted by Ipsos Mori with the City of London, found that the availability of local talent acts is a key factor for businesses when deciding which staff and operations can and cannot be moved. Decision-makers pointed out that if a depth of local talent in the form of trainees and support staff is available in a particular location, moving key operations to that location becomes both more cost-effective and easier to do.

In light of these considerations, there is a distinct trend towards emerging centres actively seeking to enhance the depth of local talent. This is not just a function of government efforts to improve education locally, but also a consequence of businesses themselves realising the advantages of training local staff. Many decision-makers argue that it is cheaper and more effective to have employees who understand local culture and local business.
I’ve already mentioned the requirement for new international and regional financial centres to have a unique selling point. I believe Morocco and Casablanca have many strengths:

First of all, the Moroccan government has pursued an economic programme accelerating real growth. Reforms of the financial sector have been implemented. Morocco is no longer reliant on phosphate exports, it is emerging as an exporter of manufactured goods, textiles, clothing and agricultural products. New service industries in telecommunications, tourism and offshoring have grown. So a strong local economy is developing.

Second, the proximity to and relationship with the EU. Under the Neighbourhood Action Plan, Morocco has already embarked on a major effort to align with the legislation and standards of the EU. Probably more so than any other aspiring financial centre. This ambition is reflected in Morocco's advanced status with the EU.

Thirdly, access to the Africa. Currently there is no major regional financial centre in North Africa. There is a role to be had in providing access to the immediate region and North West Africa, especially in the francophone markets.

As the balance of global competitiveness swings away from the older OECD economies, it will be vital to establish long-lasting partnerships. Partnering with new financial centres – as with any new business partner – is an important challenge for financial centres such as London. 

I believe Morocco has many of the positive factors to make the Casablanca Financial Centre a success. With a bit of drive and support, Casablanca can grow into a regional then international financial centre.

Rick:  “I think this is the beginning of a beautiful friendship”
Casablanca, 1942