Country Risk Rating

B
Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable. - Source: Coface

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.

Strengths

  • Diverse resources: agricultural wealth (world's largest producer of cocoa, coffee, sugar, cashew nuts, rubber), hydrocarbons, and ore (gold, copper, iron, manganese, bauxite)
  • Infrastructure undergoing modernization
  • Expanding middle class, although poverty still affects 40% of the population and child labor has not been eradicated
  • Improving business climate and governance
  • Inflation kept in check through membership of the WAEMU and its common currency

Weaknesses

 

  • Vulnerable to climatic hazards and changes in the price of cocoa, the main export product; agriculture accounts for 22% of the value-added of GDP, but employs 70% of the population and represents 40% of exports
  • Processing of agricultural products occupies a small place: the manufacturing industry represents 13% of GDP and its products makeup 8% of exports
  • Deficiencies remain in the management of public finances, infrastructure, access to banking services and the business environment, despite the progress made
  • Low government revenues: 14% of GDP
  • Massive informal economy: 90% of employment and 70% of added value; illegal cocoa production undermines prices
  • Large wealth gap between Abidjan and the rest of the country
  • Slow progress in national reconciliation

Current Trends

After the crisis, a return to strong growth

In 2020, the health crisis put an end to a series of strong growth years. Exports of cocoa (50% of the total), coffee, cashew nuts, cotton, bananas, and pineapples suffered from the drop in global demand and transport disruptions. Although imports moderated due to softer domestic demand, trade’s contribution to growth was negative. However, the weak state of domestic demand was the main reason for the underperformance. Private consumption and investment were affected by the measures taken to combat the pandemic (curfew, Abidjan lockdown, border closures, markets, restaurants, and schools shut down, transport restrictions), despite the introduction of a support plan equivalent to 5% of GDP providing aid to farmers, payments to households, and postponement of tax and utility payments. Households also faced higher food prices due to supply problems, while farmers saw their incomes fall amid a decline in volumes of cocoa traded. Services (50% of GDP), including telecommunications, transport, retail trade, and construction, were affected.

A clear recovery is expected in 2021, supported by a favorable base effect. Exports should regain strength, as should public investment under the National Development Plan 2021-2025, with the extension of the port of Abidjan, the development of transport infrastructure with Niger and Burkina Faso, infrastructure related to the organization of the 2023 African Cup of Nations football tournament, and construction of a road to Dakar. Foreign investment will gain momentum, not only in agriculture but also in the extractive industry. Household consumption is also expected to pick up, in line with the revival of demand and a plentiful cocoa harvest. The minimum price guaranteed to producers has increased by 21% for the 2020-21 harvest (which began in October) thanks to the recovery in prices and the implementation, in cooperation with Ghana, of the USD 400 per tonne income differential payable by buyers if they want to be covered by the fair trade label. Tourism, which was booming until 2019 (7% of GDP), will slowly start to recover. However, a deterioration in the political and social environment after legislative elections in March 2021 could hamper the recovery.

Accounts show a moderate deterioration

Bringing declining revenues and rising expenditures, the crisis led to a moderate deterioration in public accounts. This should only be a blip in the consolidation process, which is based on administrative reforms, digitalization, and under-spending. The increased financing requirement was initially covered by the IMF (USD 886 million), bilateral debt service suspension (USD 205 million) and an issue of “COVID-19” bonds worth 0.6% of GDP via the regional central bank. Subsequently, the country issued COVID-19 bonds on the regional market several times without difficulty, as well as EUR 1 billion on the international market at 5% over 11 years. Fiscal consolidation should resume in the context of negotiations for new financing agreements with the IMF. The low share of investment (4% of GDP in 2019), the high share allocated to the wage bill, the gradual rollout of universal health coverage, and improvements to the quality of education and health will be among the challenges.

The current account deficit did not increase by much in 2020, remaining moderate. The fall in exports was partially offset by the decline in imports of capital goods and energy. The services deficit narrowed with purchases of services related to exports and the completion of infrastructure projects. The primary income deficit remained stable, as the increase in debt service was balanced by the decrease in profit repatriation by foreign investors. The same was not true for private transfers, as remittances from expatriates decreased, while those by guest workers stayed much the same. In 2021, the current account deficit is expected to return to its pre-crisis level, with the trends observed in 2020 reversing with the reappearance of a trade surplus. Financing will remain largely assured by a mix of FDI, concessional financing, and portfolio investments.

Fragile political situation

Alassane Ouattara, who has been president since 2011, won the presidential election of October 2020 with 94% of the votes. The main opposition candidates, Affi N'Guessan and former president Henri Konan Bédié (1993-1999), had called on voters to boycott the election, which was marred by violence and deaths. They challenged the incumbent’s right to run for a third term since the 2016 constitution imposes a two-term limit. The president and the country’s constitutional court argued that the new constitution reset the clock to zero. In addition, the court rejected 40 of the 44 presidential candidacies, including those of former president Laurent Gbagbo (2000-2010) and former president of the national assembly Guillaume Soro, who has been a leading figure in Ivorian politics for over 20 years. The legislative elections were postponed and should be held in March 2021. However, tensions continue to run high, creating the risk of a repeat of the 2010-2011 crisis. All the players are still on the scene and ready to exploit ethnic and regional enmities and inequalities. The presidential party, the Houphouetist Rally for Democracy and Peace (RHDP), is the favorite to win. The opposition believes the electoral commission is biased and that the electoral boundaries favor the RHDP.

 

Source:

Coface (02/2021)
Cote d'Ivoire