Senegal: Risk Assessment
Country Risk Rating
Business Climate Rating
- Economic momentum linked to the implementation of major investment projects
- Supported by international donors under the Plan for an Emerging Senegal
- Progress on business climate and governance
- Solid track record for political stability
- Significant offshore oil and natural gas reserves
- Growth and exports subject to weather events and movements in commodity prices
- Inadequate infrastructure (energy, transport)
- Significant twin deficits
- Low per capita wealth, unemployment and regional disparities
The Plan for Emerging Senegal Still Supports Growth
Year 3 of the Plan for an Emerging Senegal led to higher economic growth in 2017. In 2018, the consolidation of economic performance is expected to continue thanks to the completion of energy and infrastructure projects and the implementation of reforms aimed at improving the business climate and stimulating private investment. Private investment could, in particular, be catalyzed by the creation of the Dakar International Integrated Economic zone (DIIEZ), a logistics and industrial hub located near the Blaise Diagne airport (inaugurated in late 2017). Apart from the construction and energy sectors, the extractive and chemicals industries are also expected to contribute positively to growth, supported by the recovery of Industries Chimiques du Senegal, enabling phosphate production to be maintained at a high level. In contrast, the promising prospects for hydrocarbons, with projects still at the exploration phase, are unlikely to be reflected in the growth figures before 2019-2020. In 2018, higher agricultural output, buoyed by investments in key sectors (rice, groundnuts, horticulture) and the programme for the Acceleration of Senegalese Agriculture, will be one of the main growth factors. Services will also be robust thanks to trade and transport.
Debt Control - A Priority for Managing Public Resources
Ongoing budget restructuring under the IMF-backed Policy Support Instrument is expected to result in further fiscal deficit reduction. The strength of the economy combined with progress on tax collection will boost revenues. This will help to partially finance the investment drive under the Plan for Emerging Senegal. Debt interest payment, which has been higher in recent years (rising from 13.5% of fiscal revenues in 2006 to almost 35% in 2017), will continue to put pressure on spending. Efforts to rationalize public spending are expected to result in a controlled increase in current expenditures. Budget restructuring is aimed at controlling the debt ratio, which has been rising rapidly in recent years. Accordingly, there is likely to be less recourse to credit in 2018. The government hopes to reverse the trend in the debt ratio from 2019.
The current account, which widened in 2017 due to the worsening trade balance and repatriation of corporate profits, is expected to continue to show a large deficit in 2018. The trade balance and income balance deficits are expected to stabilize. Transport and tourism, stimulated by investment in airport infrastructure, could help reduce the services balance deficit. The transfer balance, thanks to remittances from expatriate workers, should make a positive contribution to the current account balance. Increased FDI's will help finance a proportion of this external deficit, which apart from grants and loans to the public sector, is also financed by external debt. Senegal’s vulnerability in the event of an external shock is heightened by falling foreign exchange reserves, which covered 3.5 months of imports in 2017 compared with 4.6 in 2015, in the WAEMU.
The Legislative Elections Were the Starting Gun for the Presidential Elections in 2019
Often considered a model of stability and democracy in Africa, Senegal partly confirmed its reputation during the 2017 parliamentary elections. Marked by the return of ex-president Abdoulaye Wade (2000-2012), the campaign was marred by violence and tensions. Winning 125 seats (out of 165), the United in Hope (BBY) coalition, which supported the president in office, Macky Sall, was deemed to have an absolute majority. However, with no fewer than 13 parties represented and fewer than 3,000 votes separating the winning side from Khalifa Sall’s list in Dakar, the victory was not as big a landslide as the results suggest. While the significant growth rates are slow to materialize in the form of social progress for the population, dissatisfaction with the president is growing. He could, therefore, find himself in a precarious position in the run-up to the 2019 presidential elections. With no fewer than 47 lists for the parliamentary elections, the opposition could, however, find it hard to get itself sufficiently organized to topple the president at the polls.
Political stability continues to be an argument in Senegal’s favor when assessing the business climate. The efforts made, particularly in the context of the Business Climate and Competitiveness Reform Plan, have been rewarded with a seven-place jump in the Doing Business 2018 rankings. With progress made on starting a business and enforcing contracts, Senegal (140th out of 190) is consolidating its position above the regional average and is now hot on the heels of Ivory Coast.
Islamist terrorist groups continue to pose a significant threat of destabilization. In 2017, attacks perpetrated in Mali, Mauritania and Burkina Faso resulted, in France and the United States, in particular, issuing recommendations to their nationals to be more vigilant.