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    Court of Auditors Slams CDG, Depository of Moroccan Social Security

    The court identified serious irregularities in CDG’s institutional governance policy, strategic management, and investment policy.

    10 Jan 2019

    Rabat – Morocco’s Court of Auditors issued a report on Monday heavily criticizing the state-owned financial institution Deposit and Management Fund (CDG), known by its French name Caisse de Depot et de Gestion.

    CDG is the legal depository of the National Social Security Fund (CNSS) and the national savings bank (CEN). It also manages the National Pension and Insurance Fund (CNRA) and the Collective Retirement Benefit Scheme (RCAR).

    CDG is a major institutional investor in Morocco and was established as a public entity by decree in 1959. It is mainly responsible for managing savings funds which require special protection.

    In its latest report, the Court of Auditors uncovered many irregularities in CDG’s institutional governance policy, strategic management, and investment policy.

    Lacking institutional framework and strategic planning

    The decree that founded CDG granted its general manager extensive management powers. The general manager can decide on operations related to investment, recruitment and appointments, as well as the creation and removal of structures.

    According to the court, “This concentration of power extended into the hands of one person is not in line with universally accepted rules of good governance.”

    “It does not promote the establishment of risk control which is essential to securing resources entrusted to the institution.”

    The court emphasized that CDG Group’s strategic vision has changed over the years from a “collector of savings and investor in Treasury bills to an active investor in riskier activities.”

    While reviewing CDG’s strategic planning and steering system of its subsidiaries and holdings, the court found that the institution has no assessment for objective achievements and has a general lack of monitoring mechanisms and management control.

    Non authorized subsidiaries and investment concentration

    One of the CDG’s major irregularities is that CDG made equity investments in some of its own subsidiaries and holdings and created some non-systematically authorized subsidiaries.

    The court found that the institution did not obtain prior obligatory permission from the head of government to do so, as required by Law 39.89 on the transfer of public companies into the private sector.

    The court cited CG Parking, Immolog, Med Resort, and Arribat Center as examples of CDG subsidiaries either created without authorization or in which CDG made equity investments. In the case of Arribat Center in Rabat, the company promised to become a “multifunctional complex in the heart of the Agdal neighborhood,” but construction has stalled.

    Between 2006 and 2007, CDG made some equity investments in foreign companies including France’s Club Mediterranee and Vivendi, and Germany’s TUI AG for a total of MAD 6.5 billion.

    The CDG’s decision to acquire stakes in the international market, according the court, lacks a strategic vision which does not take into account the institution’s constraints, particularly the securing of its funds.

    The security of CDG’s funds did not previously define an appropriate investment model due to the lack of “in-depth studies that take into account the overall allocation of its assets and prudent investment rules,” explained the report.

    The court report showed that CDG concentrates its investments in a limited number of subsidiaries and holdings.

    At the end of 2017, nine subsidiaries and holdings dominated CDG’s portfolio out of 70 subsidiaries and holdings. The nine subsidiaries received 76 percent (approximately MAD 31.4 million) of the portfolio’s book value of MAD 42.2 million, according to the court’s report.

    According to the court’s statistics, the number of CDG’s subsidiaries and holdings increased from 80 in 2007 to 143 in 2017. They operate in various business sectors from retail banking and finance to real estate, tourism, and insurance.

    The report added that between 2006 and 2017 the institution allocated 90 percent of its additional investments, amounting to MAD 26.8 billion, to eight subsidiaries and holdings whose outstanding balance increased from MAD 6 billion to MAD 32.7 billion.

    In 2017, CDG’s “subsidiaries and holdings made up 79% of the total equity portfolio, compared to 52% at the end of 2007,” the report noted.

    The court’s recommendations

    At the end of its report, the Court of Auditors recommended that authorities should “recast the legal and institutional framework governing CDG to comply with corporate governance best practices.”

    The court also called on CDG to “improve its internal control system and set up a risk management system at the group level.”

    CDG Group should bring “unauthorized” subsidiaries and holdings into compliance with the law, the court stressed.

    The court added that the Ministry of the Economy and Finance, in its capacity as the supervising authority of CDG, should ensure that CDG “respects the commitments and objectives” set for the authorizing of equity investments and creation of some subsidiaries and holdings.

    CDG should “formalize rules governing the management of the portfolio of direct holdings regarding investment concentration,” the court emphasized.

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