Senegal: Risk Assessment
Country Risk Rating
|B||Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.|
Business Climate Rating
|B||The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.|
Growth driven by the implementation of investment in the mining sector and infrastructure projects
Growth is expected to increase in 2016, thanks to the strengthening mining and industrial (phosphates and cement) production and to the continued dynamism of the services sector, driven mainly by banking and telecommunications. Activity is also expected to benefit from the acceleration of major public works on the back of the Emerging Senegal Plan, which began in 2014. This continues until 2018 and involves an investment effort in infrastructures, agriculture, agro-industry, mining and tourism. Meanwhile, the constraint imposed on growth by the problems of electricity supply is gradually easing due to the implementation of the plan for the recovery of the sector. Consumption is expected to remain lively in 2016, linked to the return of household confidence. It is expected, moreover, to benefit from rising in wages, mainly in industry. Investment is expected to grow as a result of the reforms and the plan for the development of a smart city on the outskirts of the capital, which is expected to act as a hub for digital and technological services in the West African region. Inflation, essentially determined by imported food products and energy, is expected to increase in 2016. It is expected to be fueled by the end of the fall in the oil barrel price (30% of the country’s imports), by the recovery of rents as well as by food scarcity caused by late or intermittent rainfall.
The budget deficit is on a downward trend and the external accounts are improving in the short term
The budget deficit is on a downward trend. Infrastructure investment spending is expected to remain significant, in particular in ports and in the communications and electricity sectors. However, a Staff-Level agreement with the IMF was signed in 2015 aimed at supporting implementation of the Emerging Senegal Plan. The government is thus expected to increase tax receipts thanks to the broadening of the tax base and the rationalization of current spending, in order to create budgetary room for maneuver to finance infrastructures and social spending.
Furthermore, the risk of debt overhang remains under control despite the increasing level of public debt following its relief under the MDRI initiative in 2006. This risk will become more difficult to control if the rate of economic growth fails to live up to expectations, if there is any relaxation in the efforts to control the budget or if too frequent use of non-concessionary loans is made. The current account balance is expected to remain in deficit in 2016, because of the substantial need for capital equipment imports for the implementation of infrastructure projects and investment, but also imports of foodstuffs and energy. It is nevertheless expected to improve, because exports should increase due to a slight recovery in the euro zone. They will remain dominated by fish products, mining output, as well as by services driven by tourism and transport, with the country increasingly establishing itself as regional logistics platform. The current account deficit is expected to continue to be funded by remittances from expatriate workers and foreign direct investments, which are set to rise.
More secure democracy but a mixed mid-term record
Since the election of president Macky Sall in 2012, political stability has been enhanced despite the slow pace of reforms. The country has made progress in healthcare and fighting corruption, but the record on combating poverty and strengthening the economy is mixed. The president has barely addressed popular expectations concerning jobs and purchasing power. Disappointed by the limited results of his action, former allies have left the government coalition.
Externally, the president’s powers on the international stage are likely to be reinforced by his presidency of the Economic Community of West African States (ECOWAS) in 2015 and 2016. He is also expected to help neighboring Guinea-Bissau return to political stability, paving the way for reduced tensions in Casamance, taking into account Guinea-Bissau’s support in Senegal’s anti-separatist campaign in Casamance (the rebels being supported by Bissau-Guinean militias). Senegal has, moreover, provided troops to the United Nations forces in Mali, underling its involvement in peace-keeping operations on the continent. Finally, despite improved electricity connection and easier registering of property, Senegal continues to post weak performance in terms of governance.