Moody s Ba3 / S&P NR / Fitch B+ 1 Economy: Agriculture 20%, Industry 28%, Services 52%

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1 Côte d Ivoire Summary Moody s Ba3 / S&P NR / Fitch B+ 1 Economy: Agriculture 20%, Industry 28%, Services 52% Côte d Ivoire has significant growth potential given its abundant natural resources. The economy has been booming since 2012, posting one of the fastest growth rates in the world due to a low base effect and the international community s increased confidence. Investors are taking advantage of recent political stability by increasing participation in public-private infrastructure projects. The country has a strong economic team led by President Alassane Ouattara, formerly a deputy managing director at the IMF. Ouattara has delivered vital reforms that have unlocked disbursements and resulted in US$7.7 billion in debt relief. The government has outperformed fiscal targets, and debt ratios are at improved levels after declining sharply in 2012 as a result of the debt forgiveness. Political stability continues, although the potential for social unrest remains a risk. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 1,383 1,523 1,379 1,493 1,492 1,562 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, Haver Analytics, IMF, Ministry of Finance 565

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 B B Moody s Fitch Moody s Fitch 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 Côte d Ivoire 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 566

3 Côte d Ivoire Strengths Favorable Economic Growth Outlook Côte d Ivoire s disputed 2010 presidential election resulted in a six-month armed internal conflict that weighed heavily on economic activity. However, the country has experienced a strong recovery since fighting ended in April 2011, and the medium-term outlook is promising. The removal of trade and financial sanctions, the reopening of the banking system, the improvement in private-sector confidence, and political stability have contributed to the economic recovery. Foreign investment has grown considerably, and these inflows have funded oil exploration, the construction of a new hydroelectric power plant, and the completion of several mining projects. Going forward, potential growth will be supported by an increase in gross investment from less than 10% of GDP in 2011 to nearly 20% in 2017, as well as by favorable demographics, the reintegration of former fighters into the labor force, and higher productivity as private investment increases as a share of GDP. 2 Real GDP is expected to grow at about 7% per year over the forecast horizon, which is a bit lower than the average annual growth of 9.2% between 2012 and Abundant Natural Resources Côte d Ivoire has abundant natural resources in the agriculture, energy, and mining sectors. The country has an ideal climate for several agricultural products, making it the largest global producer of cocoa and cashew nuts, and the eighth-largest palm oil producer in the world. Côte d Ivoire also has abundant mineral reserves and is a net exporter of oil. Since the stabilization of the political situation in 2011, foreign and domestic investors have shown increasing interest in Côte d Ivoire, citing the country s ports, well-established bureaucracy, low border-crossing risk, and sophisticated infrastructure. Well-Developed Infrastructure Infrastructure in Côte d Ivoire is in relatively good condition, considering the fighting that erupted between the north and south of the country in 2002 and continued sporadically for several years thereafter. Côte d Ivoire has several advantages relative to its neighbors. First, it is an oil producer, with one of the largest refineries in the region. Second, it is self-sufficient in electricity, which is rare in sub-saharan Africa; Côte d Ivoire even exports power to neighboring countries. Third, the country has a relatively well-developed transportation network, with extensive paved roads and the most modern port in West Africa. Finally, Côte d Ivoire has good telecommunications services. Unfortunately, most of the infrastructure was built in the 1990s and urgently needs upgrading, as there was almost no investment for nearly two decades. Nevertheless, the amount of infrastructure needed to catch up with developing countries (measured as a share of GDP) is lower than most of Côte d Ivoire s neighbors. Good Relationship with Multilateral Institutions Upon taking office in 2011, President Ouattara moved quickly to re-establish relations with the international financial community. He renegotiated a three-year Extended Credit Facility (ECF) with the International Monetary Fund, secured financial disbursements from other multilaterals, and enacted key IMF-mandated reforms that resulted in substantial debt relief under the Highly Indebted Poor Countries (HIPC) Initiative in June This debt relief substantially reduced the country s external debt in June 2012, and Ouattara subsequently negotiated additional grants worth approximately 2.0% of GDP in The government also restructured and repaid its arrears to multilaterals, including the African Development Bank, which helped unlock new disbursements. In June 2012, the 567

4 Lazard Emerging Markets Debt government resumed interest payments on its sovereign bond maturing in 2032 and met with bondholders in the fourth quarter of 2012 to reschedule the three interest payments missed in 2010 and By the end of 2012, the government had cleared all arrears with multilateral and bilateral entities as well as bondholders a major feat, considering arrears amounted to an estimated US$5.3 billion in Also in 2012, during the World Bank s Donor meeting in France, foreign donors pledged US$8.6 billion for development projects in Côte d Ivoire between 2013 and The government has also made progress in securing additional donations and loans from other countries. For example, Côte d Ivoire signed a five-year US$524.7 million agreement in November 2017 with the Millennium Challenge Corporation (MCC), a bilateral US foreign aid agency. 7 Finally, Côte d Ivoire regularly met the performance criteria of its three-year ECF that expired in December 2015 and subsequently negotiated two three-year arrangements under the Extended Credit Facility and the Extended Fund Facility totaling US$658.9 million. 8 Low Risk of a Balance-of-Payments Crisis Côte d Ivoire 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. Côte d Ivoire is the most important member of this organization, as it has the largest economy and the highest level of foreign reserves in the WAEMU. This pooling of resources, coupled with the backing of the French Treasury, minimizes the risk of a balance-of-payments crisis in Côte d Ivoire or in other WAEMU countries. The only period during which WAEMU members faced a balance-of-payments crisis was in 1994, when the CFA franc was devalued 50%. 9 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. Côte d Ivoire is projected to register current account deficits equal to about 3% of GDP over the forecast horizon, owing to the import of capital goods related to the country s infrastructure development program, but these shortfalls are expected to be nearly fully financed by foreign direct investment. Weaknesses Reliance on the Cocoa Industry Côte d Ivoire is the largest cocoa producer in the world, accounting for about 40% of world output, and the industry is responsible for 25% of the country s employment. 10 Despite its importance, the cocoa sector faces several weaknesses, including low productivity and poor quality. Most cocoa fields are at the mature stage of development, and the number of cocoa farmers is diminishing as younger people move to urban areas. As a result, more than 60% of cocoa growers live below the poverty line. 11 The government is trying to tackle these problems through a restructuring of the cocoa industry, which requires forward sales of cocoa and guarantees farmers a higher percentage of sales revenues. 12 The goal of these reforms is to raise incomes for cocoa farmers and encourage them to reinvest in the sector. The government is also trying to attract investment into the sector to improve productivity. Notwithstanding these efforts, reliance on cocoa production leaves the economy vulnerable to price fluctua- 568

5 Côte d Ivoire tions, crop disease, and weather. Cocoa exports fell to 12% of Côte d Ivoire s total exports in during the El Niño conditions of 2015 from 34% in Moreover, cocoa prices have fallen by one-third since the end of 2015, which has strained the country s fiscal accounts. 14 Potential for Political Instability Côte d Ivoire has experienced periodic internal conflicts, including a civil war from 2002 to 2007 fueled by ethnic, religious, and regional differences, and post-electoral violence following a disputed presidential election in The latter conflict, sparked by former President Laurent Gbagbo s refusal to accept defeat by current President Ouattara, lasted six months and resulted in the death of more than 3,000 people. 15 The medium-term risk of social unrest has declined, especially after the peaceful reelection of Ouattara in October The opposition s participation in the election and the high voter turnout lent credibility to the election results and provided Ouattara with the political mandate to continue his economic reforms. Nevertheless, political stability is relatively new and still fragile. Strikes by public sector workers have intensified in recent years. Moreover, soldiers staged a series of brief mutinies in early 2017 to demand higher pay and other benefits. The rebellions subsided after the government acquiesced to the soldiers demands, but further uprisings remain a risk. Security Challenges Côte d Ivoire faces a number of security issues, including a high risk of violence in a country with 3 million firearms among a population of 25 million people. 16 In addition, large numbers of former fighters in the country s civil war may have difficulty integrating back into society, especially since reconciliation processes are unlikely to meet expectations in the short term. Although new leadership has emerged within the opposition and the power of Gbagbo s allies has diminished, the former president s supporters account for about onethird of Côte d Ivoire s population, presenting a risk of future unrest, despite Ouattara s overwhelming reelection victory in October In addition, the border with Liberia poses security risks, since this historically unstable region is controlled by warlords who are not loyal to any particular Ivorian party and whose principal aim is to control and exploit this remote area. Moreover, the towns near the Liberian border include a large number of Gbagbo supporters who are hostile to the ruling party. Many of these supporters were displaced during the armed conflict in and are still living in refugee camps that are potential hot spots for unrest. 569

6 Lazard Emerging Markets Debt Country Background Size 322,463 KM 2 (70th) Capital Yamoussoukro Population 24.2 Million Religion Muslim 42.9%, Catholic 17.2%, Evangelical 11.8%, Methodist 1.7%, Other 26.4% Median Age 20.9 Years Literacy Rate 43.1% Independence 7 August 1960 Political System Presidential Republic Government Leadership President Alassane Ouattara; Prime Minister Amadou Gon Couliably Next Election 2020 Legislative Branch Unicameral Parliament Economy Agriculture 19.5%, Industry 28.3%, Services 52.2% Labor Force Agriculture 68.0% Merchandise Exports Cocoa, Coffee, Timber, Petroleum, Cotton, Bananas, Pineapples, Palm Oil, Fish Export Partners Netherlands 11.3%, US 7.4%, France 6.8%, Belgium 6.1%, Germany 5.2%, India 5.1%, Burkina Faso 4.6%, Mali 4.5%, Switzerland 4.1% Currency West African CFA franc (XOF) As of November 2017 Source: CIA 570

7 Côte d Ivoire Country Timeline 1960 France grants independence under President Felix Houphouet-Boigny. He holds power until he dies in Henri Konan Bedie becomes president following the death of Houphouet-Boigny Bedie overthrown in military coup led by Robert Guei. Bedie flees to France Guei proclaims himself president after announcing he has won presidential elections, but is forced to flee in the wake of a popular uprising against his perceived rigging of the poll. Laurent Gbagbo, believed to be the real winner in the presidential election, is proclaimed president. Opposition leader Alassane Ouattara, excluded from running in the poll, calls for a fresh election. Fighting erupts between Gbagbo's mainly southern Christian supporters and followers of Ouattara, who are mostly Muslims from the north Opposition leader Alassane Ouattara returns, ending year-long exile in France and Gabon Ouattara's RDR opposition party given four ministerial posts in new government. Mutiny in Abidjan by soldiers unhappy at being demobilised grows into full-scale rebellion, with Côte d Ivoire Patriotic Movement rebels seizing control of the north President Gbagbo accepts peace deal at talks in Paris. Deal proposes power-sharing government. Political parties, rebels agree on new government to include nine members from rebel ranks. "Consensus" prime minister, Seydou Diarra, is tasked with forming cabinet. At a ceremony in the presidential palace, military chiefs and rebels declare that the war is over Deadly clashes during crackdown on opposition rally against President Gbagbo in Abidjan. First contingent of UN peacekeeping force deployed Government and New Forces rebels sign a power-sharing peace deal, mediated by Burkina Faso. Under the deal, New Forces leader Guillaume Soro is named as prime minister Former rebels who still control the northern half of the country begin disarming International Monetary Fund (IMF) agrees to write off $3bn ( 2bn) of Côte d Ivoire's $12.8bn national debt Election commission declares Mr Ouattara the winner of the run-off presidential election. Mr Gbagbo refuses to accept result and dispute between the two camps soon escalates into violence Alassane Ouattara is inaugurated as president UN Security Council lifts embargo on Côte d Ivoire's diamond trade Sporadic mutinies by soldiers over non-payment of bonuses. Source: BBC 571

8 Lazard Emerging Markets Debt Notes 1 As of November Côte d Ivoire : First Reviews Under Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility, and Requests for Modification of Performance Criteria and Augmentation of Access, IMF Country Report No. 17/165, June 2017, Publications/CR/2017/cr17165.ashx. 3 IMF, World Bank Back $4 billion Côte d Ivoire Debt Relief, International Monetary Fund, 26 June 2012, 4 Report No. 15/341, December 2015, 5 Côte d Ivoire: 2009 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, and Financing Assurances Review, IMF Country Report No. 13/171, May 2013, pubs/ft/scr/2009/cr09326.pdf. 6 Bax, Pauline, Ivory Coast Donors Pledge $8.6 Billion to Spur Development Plans, Bloomberg, 5 December 2012, 7 U.S. and Côte d Ivoire Sign $525 Million Compact, Millenium Challenge Corporation, 7 November 2017, 8 IMF Executive Board Approves US$658.9 Million Under the ECF and EFF Arrangements for Côte d Ivoire, International Monetary Fund, Press Release No. 16/554, December 12, 2016, Articles/2016/12/13/PR16554-Cote-d-Ivoire-IMF-Executive-Board-Approves-under-ECF-EFF. 9 A Brief History of the CFA Franc, African Business magazine, 19 February 2012, 10 Côte d Ivoire : First Reviews Under Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility, and Requests for Modification of Performance Criteria and Augmentation of Access, IMF Country Report No. 17/165, June 2017, Publications/CR/2017/cr17165.ashx. 11 Côte d Ivoire s Cocoa Sector: A Holistic Approach to Addressing Poverty Alleviation and Child Labour Issues, United Nations Development Programme, World Cocoa Foundation, International Cocoa Initiative, 21 May 2010, Draft%20Concept%20Paper%20Version%2021%20May.pdf. 12 Special report: Côte d Ivoire s cocoa sector reforms , Agritrade, 16 December 2012, agritrade.cta.int/en/layout/set/print/content/download/76645/ /file/218dcc0a56e1fd4582c3f4ce05a4 31d2.pdf. 13 Source: Haver Analytics. 14 As of October Source: Bloomberg. 15 Ivory Coast: Conflict Profile, Insight on Conflict, March 2015, ivory-coast/conflict-profile/. 16 Communities shattered by arms proliferation and abuse in Côte d Ivoire, Amnesty International, March 2013, 572

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