Moroccan Outward FDI in the CFA Zone: Currency and Exchange Rate Risk in the Banking Sector

Abstract

This paper investigates the growth of Moroccan outward foreign direct investment (FDI) from 2014 to 2024, with a specific focus on the investments channeled into the West and Central African CFA franc zone, particularly in the banking sector. The study finds that nearly 66 percent of the general moroccan FDI is directed toward the CFA region, highlighting its strategic importance. Despite the CFA franc’s peg to the euro, the research uncovers that persistent exchange rate volatility, coupled with regulatory divergences and macroeconomic uncertainties, poses significant financial risks for cross border investments. In the banking sector, these challenges manifest in eroded profit margins due to heightened currency risks, increased compliance costs, and intensified market competition. The analysis employs rigorous econometric models to quantify the actual impact of currency fluctuations on profitability, revealing that even marginal increases in volatility can substantially diminish profit margins. The findings underscore the need for proactive risk management strategies, such as effective hedging and coordinated policy measures, to mitigate these risks and sustain the momentum of Morocco’s international expansion.