Moody s Ba3 / S&P B+ / Fitch NR 1 Economy: Agriculture 17%, Industry 24%, Services 59%

Transcription

1 Senegal Summary Moody s Ba3 / S&P B+ / Fitch NR 1 Economy: Agriculture 17%, Industry 24%, Services 59% Senegal s growth lagged that of its sub-saharan Africa peers earlier this decade, but activity has picked up in response to a growth and poverty reduction program launched in early 2014 that aims to transform the country into a West African economic hub by implementing far-reaching structural reforms, fostering human development and social protection, and improving governance. This development program has been aided by the economic authorities adherence to International Monetary Fund (IMF) guidelines for many years, as well as by multiple rounds of IMF technical assistance since 2008 aimed at strengthening Senegal s debt management, national accounts, tax administration, public expenditures, and statistical capabilities. These market-friendly policies are further supported by a relatively stable political environment, with the current government s coalition retaining a plurality in the National Assembly following parliamentary elections in July Senegal also benefits from an absence of ethnic and social tensions in the country. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 1,095 1, ,016 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, BCEAO, Bloomberg, IMF, National Statistics Agency 651

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency BB Local Currency BB BB- BB- B+ B+ B B Moody s S&P Moody s S&P As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Senegal 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 652

3 Senegal Strengths Political Stability Political stability is a key strength for Senegal, as it is one of the few African countries that has not experienced a coup d état since its independence in In contrast to other African countries where the incumbent is often reluctant to relinquish power, President Macky Sall scheduled a political reform referendum in March 2016 with a goal to modernize the political regime, reinforce good governance, and consolidate the rule of law. The referendum was approved by 68% of Senegalese voters, although the Constitutional Council rejected prior to the plebiscite President Sall s proposal to reduce the presidential term to five years from seven. Senegal ranks better than most sub-saharan African countries on key governance indicators, including rule of law, regulatory quality, and government effectiveness. Senegal ranks 64 th of 176 countries in Transparency International s Corruption Perception Index, up from its 2013 rank of 77th of 175 countries, and ahead of Côte d Ivoire (108th), Nigeria (136th), and Kenya (145th). 2 While business conditions have improved, Senegal still ranks poorly on the World Bank s latest Ease of Doing Business ranking, at 140 th of 190 countries. 3 Plan Sénégal Emergent (PSE) In February 2014, President Sall launched the Plan Sénégal Emergent, a medium- and longterm economic and social program that aims to transform Senegal into an emerging markets economy by The program is based on three pillars: a structural transformation of the economy to promote exports and attract investment, an improvement in social conditions (including a reduction in social and income inequality), and the reinforcement of security and consolidation of the rule of law. 4 The PSE aims to increase annual growth to an average 7.1% from 2014 to 2018, reduce the current account deficit to less than 6% of GDP by 2018, and keep inflation below 3%. The government has identified agriculture, agro-business, mining, and tourism as key sectors for development. The PSE also envisions Senegal as a logistics, transportation, and industrial hub in West Africa. The action plan for the PSE from 2014 to 2018 consists of 17 major reforms and 27 infrastructure projects with an estimated cost of $19 billion. As part of this infrastructure push and with the assistance of the Africa Development Bank, the government intends to build a new city about 40 kilometers from Dakar in an effort to ease population pressures in the capital. The IMF supports the PSE and in June 2015 renewed a three-year Policy Support Instrument (PSI) to facilitate its implementation. 5 Low Risk of a Balance of Payments Crisis Senegal is a member of the West African Economic and Monetary Union (WAEMU), which was created to promote economic and trade integration between Benin, Burkina Faso, Côte d Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. WAEMU members share a common currency, the CFA (African Financial Community) franc, which was originally pegged to the French franc and is now pegged to the euro. The CFA franc has been the currency of these countries since they were French colonies, and full convertibility is guaranteed by the French Treasury, where the WAEMU keeps half of its foreign reserves. This pooling of resources, coupled with the backing of the French Treasury, minimizes the risk of a balance of payments crisis in Senegal or in other WAEMU countries. The only period during which WAEMU members faced a balance of payment crisis was in 1994, when the CFA franc was devalued 50%. 6 At that time, economic and political conditions were much less favorable, with most WAEMU states registering large fiscal and current account deficits. Since that time, fiscal and external imbalances have improved, as have relations with multilateral organizations, which also provide support to combat balance-of-payments pressures. Senegal is 653

4 Lazard Emerging Markets Debt projected to register relatively large current account deficits equal to about 5% of GDP over the forecast horizon, owing to the import of capital goods related to the country s infrastructure development program. These shortfalls are expected to be financed by public borrowing at both concessional and non-concessional rates, as well as by private external foreign direct and portfolio capital flows. Robust Services Sector Senegal has a dynamic services sector and serves as one of the principal business hubs for West Africa. Several international public and private sector entities, such as the IMF, World Bank, the US and British embassies, as well as some multinationals, use Senegal as a base for serving that country as well as Mali, Guinea, and Guinea-Bissau. Senegal s status as a business hub has had positive spillover effects on the broader economy, with the construction of new hotels, shopping malls, and restaurants. An upgraded airport costing more than 560 million has been under construction since 2007 and after repeated delays is now scheduled to open in December The airport will be connected to Dakar via a rail link. In addition, a new road was recently opened near the coast in Dakar, making the area more attractive for tourists, which is one of Senegal s major potential growth areas. Tourism remains relatively unexploited, despite the country s attractive coast and favorable year-round weather conditions. Mining Is a Key Priority Sector The government has prioritized the development of the mining sector by approving a new mining code in October 2016 aimed at increasing transparency and attracting investment. The government has also invested in transportation infrastructure to support mining activity. Senegal has some of the largest gold deposits in Africa, with an estimated 2.24 million ounces in key areas. The country also has high-quality iron ore deposits, with estimated reserves of 750 million tons. However, the government has a checkered past with international mining companies operating in Senegal, settling a dispute with mining company ArcelorMittal for $150 million in The new mining code should promote additional long-term mining investments in Senegal. Remittances Between 2010 and 2015, remittances in Senegal averaged 41 percent of exports of goods and services and 12 percent of GDP. 7 These inflows represent an important source of foreign exchange, a steady source of income, and a major source of economic stimulus. About 80% of remittances fund consumption and have a positive spillover effect on economic activity, even though they do not improve the productivity of the economy. For example, major housing development projects around Dakar have been financed with family remittances, and this construction activity has generated employment and income for thousands of people. Remittance flows have also contributed to a reduction in Senegal s current account deficit. 8 Minimal Ethnic or Social Tension A homogeneous population and the absence of ethnic and religious tensions (compared to other African countries) have contributed to Senegal s generally peaceful political environment. Senegal has avoided the regional, ethnic, and religious conflicts that have occurred in the region because 94% of the population is Muslim, and a minority is Christian. However, the country is still adversely affected by spillover effects from regional conflicts, such as ongoing tensions in Mali, which is a key trading partner. In addition, there is ethnic conflict in the Casamance region located in the southern part of Senegal, where the separatist Movement of Democratic Forces of Casamance (MFDC) has been fighting a low-grade war for indepen- 654

5 Senegal dence since A peace accord was reached in 2004, which has helped to improve security conditions. 9 Nevertheless, sporadic conflict between the MFDC and the military could potentially lead to greater violence. Weaknesses Weak but Improving Growth Senegal traditionally has had lower GDP growth than other sub-saharan countries. This remains a relative weakness, although economic activity has picked up since The IMF projects real GDP growth will continue to accelerate to about 7% per year over the forecast horizon, fueled by public investment as the Plan Sénégal Emergent is fully implemented. However, land tenure and high labor costs continue to constrain growth, since ambiguities over land ownership discourage long-term investment. In addition, labor costs, which are patterned after the French model, tend to be high, undermining the competitiveness of the manufacturing sector. Electricity Production Electricity shortages and poor electrical production capacity are major problems for Senegal s economy, with only 55% of the population having access to electricity. 10 Power outages are common and are costly for the non-agricultural sectors of the economy as well as for the government, reducing economic growth by about 1% per year. Due to the poor production capacity, Senegal has had to rely on expensive temporary electricity imports. The government is trying to diversify the sources of energy production and has a goal of achieving 60% electricity access by 2017 and universal access by The government s energy development plan would substantially increase the use of coal, gas, and renewable energy. In addition, some of the new power plants in the pipeline can be converted to operate on natural gas or high efficiency heavy fuel oil. Senegal s oil and gas sector has also been expanding in recent years, and major offshore oil discoveries in 2017 should enhance the country s energy selfsufficiency going forward. Government Balance Sheet Senegal s fiscal deficit has gradually declined in recent years, but it remains high, which is increasing the country s debt ratios. When the current government took office in 2012, it undertook a major fiscal consolidation effort to prevent the fiscal deficit from increasing to double-digit levels after the outgoing government increased spending during the election campaign. These efforts have paid off, with the fiscal shortfall projected to finish 2017 at less than 4% of GDP, down from more than 6% in The IMF projects further fiscal consolidation, with the deficit reaching the WAEMU target of 3% in Over the longer term, however, further fiscal consolidation will be difficult without stronger economic growth. In the meantime, Senegal s debt levels continue to deteriorate, with public debt increasing to about 60% of GDP in 2017 from 36% of GDP in Limited Natural Resources Unlike most of its sub-saharan neighbors, Senegal is not rich in natural resources. The country is not an oil producer, mining activity is limited, and agricultural output is insufficient to meet the country s needs. A large portion of the country is situated in the arid Sahel region, where droughts are frequent, living conditions are harsh, and hunger is widespread. Most of the land in northern Senegal is desert, where agricultural activity is limited and a large portion of the population relies on food imports. The most fertile region of Senegal is 655

6 Lazard Emerging Markets Debt in southern Casamance, which is historically unstable, owing to the separatist movement in that area. Another fertile area is around the Senegal River on the northern border with Mauritania. The agricultural sector in Senegal is important because it employs more than 50% of the population, but the sector is uncompetitive. In addition, productivity is low because farmers operate at a subsistence level, and agricultural output is dependent on favorable rainfall (only 4% of cultivated land is irrigated). Groundnuts, Senegal s principal cash crop, account for nearly one-third of Senegal s cultivated land, but exports of these products earn only about US$70 million annually. An Unstable Neighborhood In recent years, political unrest and sporadic terrorist attacks in Mali have adversely affected trade with Senegal, and ongoing turmoil will continue to have repercussions since Mali accounted for 17.5% of Senegal s exports in Senegal is also vulnerable to potential unrest in Mauritania, where terrorist training camps have reportedly been established in sparsely populated regions of that country. 656

7 Senegal Country Background Size Capital Population 196,723 KM 2 (89th) Dakar 14.7 Million Religion Muslim 95.4%, Christian 4.2%, Other 0.4% Median Age 18.8 Years Literacy Rate 57.7% Independence 20 June 1960 Political System Government Leadership Next Election 2019 Legislative Branch Presidential Republic President Macky Sall Unicameral National Assembly Economy Agriculture 17.2%, Industry 23.7%, Services 59.0% Labor Force Agriculture 77.5%, Industry & Services 22.5% Merchandise Exports Export Partners Currency As of November 2017 Source: CIA Fish, Groundnuts (Peanuts), Petroleum Products, Phosphates, Cotton Mali 18.2%, Switzerland 10.6%, India 8.2%, Côte d Ivoire 5.3%, China 5% West African CFA franc (XOF) 657

8 Lazard Emerging Markets Debt Country Timeline 1960 Senegal becomes independent, as part of the Mali Federation. Senegal pulls out of the Mali Federation, becomes a separate republic with Leopold Senghor as president Senegambian Confederation formed; Senegal and neighboring Gambia aim to combine military and security forces Senegambian Confederation dissolved Opposition leader Abdoulaye Wade wins second round of presidential elections, ending 40 years of Socialist Party rule Voters back new constitution which shortens presidential term, limits holder to two terms, and gives president power to dissolve parliament. Abdoulaye Wade s Senegalese Democratic Party (PDS) wins an overwhelming majority in parliamentary elections Clashes between troops and rebels in the province of Casamance Macky Sall wins presidential elections. President Sall s coalition wins parliamentary elections Rebel leader Salif Sadio, who has been fighting for the independence of the Casamance region, declares a unilateral ceasefire Voters in a referendum approve a proposal to reduce the presidential term from seven years to five Senegalese troops gather on the Gambian border ready to enforce transfer of power under ECOWAS regional mandate after President Jammeh refuses to step down on losing the presidential election. Source: BBC Notes 1 As of November Corruption Perceptions Index 2016, Transparency International, feature/corruption_perceptions_index_ Doing Business 2018: Reforming to Create Jobs, The World Bank Group, org/~/media/wbg/doingbusiness/documents/annual-reports/english/db2018-full-report.pdf. 4 Plan Sénégal Emergent, Republic of Senegal, February 2014, 5 The PSI is an instrument of the IMF designed for countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring, and endorsement of their policies. Source: Senegal: Request for a Three-Year Policy Support Instrument, International Monetary Fund, IMF Country Report No. 15/273, September 2015, 6 A Brief History of the CFA Franc, African Business Magazine, 19 February 2012, 7 As of December Source: Haver Analytics. 8 Senegal: Fourth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument, International Monetary Fund, IMF Country Report No. 17/230, July 2017, imf.org/~/media/files/publications/cr/2017/cr17230.ashx. 9 Peace Accord Matrix, Kroc Institute for International Peace Studies, University of Notre Dame, peaceaccords.nd.edu/accord/general-peace-agreement-between-government-republic-senegal-and-mfdc. 10 Senegal Energy Sector Overview, USAID, 24 February 2017, 11 Senegal: Fourth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument, International Monetary Fund, IMF Country Report No. 17/230, July 2017, imf.org/~/media/files/publications/cr/2017/cr17230.ashx. 12 World Economic Outlook, International Monetary Fund, October Senegal Trade at a Glance, World Integrated Trade Solution, SEN/textview. 658

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