Senegal: Risk Assessment
Country Rating1
Rating: B
Business Climate Rating1
Rating: B
Risk Assessment2
Economic growth has been recovering, driven by public sector investment, consumption and the strengthening of the phosphate sector
Growth rebounded in 2010, buoyed by the good performance of agriculture and the recovery of services and exports. Farm production has benefited from the increase in public sector investment and the growth of the horticultural sector. Industrial production has grown in phase with improvement in the supply of energy and continuation of the recovery in the phosphate sector. Services have perked up thanks to the modest recovery of tourism and the good performance of the financial sector. Domestic demand will likely grow even stronger in 2011 thanks to an acceleration of private consumption and an increase in government spending in the run-up to elections in 2012. Fuelled by the upturn of raw material prices, inflation became slightly positive again in 2010. And it is expected to remain under control in 2011 as a result of the growth of domestic food production.
Continued dependence of the economy on financial assistance from abroad
Despite the strengthening of its external position facilitated by cancellation of debt granted under the initiatives for heavily indebted poor countries (HIPC) and multilateral debt relief (MDRI), Senegal remains saddled with twin deficits. Public sector finances have remained in a deteriorated state even though government revenues have benefited from the growth rebound. The fiscal measures taken by the government appear convincing but the authorities will have to diligently assign priorities to new infrastructure projects based on a careful assessment of their capacity to generate a satisfactory return on investment and their consistency with the country's development strategy. They will, moreover, have to exercise prudence in considering recourse to non-concessional financing. Public sector debt (about 35% of GDP) remains vulnerable to a growth shock or slippage in fiscal governance. Although the risk of default on foreign debt is low, Senegal remains vulnerable to a decline in foreign direct investment and in private transfers. And, in any case, it remains dependent on international aid.
General elections in sights
The political climate has become increasingly tense with legislative and presidential elections looming in 2012. Although the opposition's good results in the March 2009 municipal elections contributed to reshaping the political landscape, they did not bury the chances of victory for the ruling Parti démocratique sénégalais (PDS). President's son, Karim Wade, emerged in a weakened position from his setback in the municipals and the tensions within the party over the naming of a presidential candidate have heightened. In this context, the likelihood of President Abdoulaye Wade running again - for a third term in office - remains strong. On the geopolitical stage, despite the agreement concluded in 2004 between the government and the Casamance independence movement and the calls in 2010 by one of the movement's leaders in favour of negotiations, the chances of achieving a durable peace are still remote.
Strengths
- Relative social stability
- International financial community support via debt relief
- Development potential of the processing industry
- Monetary stability underpinned by participation in UEMOA, the West African economic and monetary union
Weaknesses
- Still preponderant farm sector (50% of the working population)
- Still deficient transport and energy infrastructure
- High poverty rate (57% of the population) and regional disparities
- Obsolescent industry, constrained by the weak governance of key branches and a sporadic energy supply
- Public and external account imbalances and a dependency on donors