Long dependent on exports of groundnuts, phosphates and fish, Senegal is poised for a surge in foreign investment that the government hopes will sow the seeds of an eventual economic transformation.
The planned projects – including an $800m investment by Dubai’s Jafza International in an industrial zone outside Dakar, the capital – aim to bridge Senegal’s yawning infrastructure deficit and spur private-sector led development after decades in which the state has controlled much of the formal economy.
The International Monetary Fund expects foreign investment to move from 1 per cent of gross domestic product for the first half of the decade to 6 per cent in the coming years. Senegalese businesses are, however, quick to reel off a list of problems – from an erratic power supply, to a dearth of affordable credit and a difficult, albeit improving, business climate – as barriers to faster growth.
In the short term, the biggest question centres on the government’s commitment to deepening reforms.
Praised until recently for its stewardship of the economy, the government of President Abdoulaye Wade has run up a huge pile of unpaid bills to private sector contractors – worth an estimated 2 per cent of GDP – prompting protests from the opposition and warnings from the IMF.
With politics increasingly dominated by manoeuvring around who may eventually succeed Mr Wade at elections in 2012, business groups are urging the country’s leaders to ensure power struggles do not further undermine the government’s commitment to reform. “The business environment is being blocked by all the political questions – we should have more focus on the economy,” says Mortalla Kane, executive director of the Confédération Nationale des Employeurs du Sénégal, an employers’ association. “Senegal is a very politically stable country, and it must stay that way.”
Senegal has managed to deliver GDP growth of about 5 per cent for most of the past few years, although low productivity and relatively high wages have blunted performance. Unlike some west African peers, it is bereft of the large mines or oilfields that would have allowed it to exploit the recent surge in commodities prices.
The spike in oil and food prices this year hit government finances and living standards for many in the country, where more than half the population live in poverty. The government has had to cut import duties on food and increase fuel subsidies, helping to widen the fiscal deficit to a projected 6 per cent of GDP in 2008 compared with 4.1 per cent in 2007.
The IMF expects growth in GDP to rise above 5 per cent this year, although the government says it needs to hit 7 or 8 per cent to alleviate poverty.
The state has adopted an Accelerated Growth Strategy to target priority sectors, including agriculture, cotton, textiles and tourism. It has also launched an $800m scheme to boost farming – though, given the failure of many past initiatives, development experts are treating it with caution.
The government can, however, point to concrete progress in improving the business climate. Senegal’s ranking in the World Bank’s “Doing Business” report has improved from 168 out of 178 countries in 2007 to 149 out of 181 in 2008, partly due to moves to slash the number of days it takes to register a new company.
However, the government’s management of its own finances is looking increasingly lax. Ibrahim Sarr, the former budget minister, was sacked in August after an audit revealed that $247m had been spent outside the budget.
The state’s arrears to contractors – linked in part to projects started ahead of the Organisation of the Islamic Conference summit in Dakar in March – have hurt the construction sector, previously one of the biggest engines of growth.
“There are many positive things the government is doing right now, not the least of which is making the country an easier place to do business,” says Kevin Murray, president and director-general of Citibank Senegal. “The most pressing issue is that the government’s current cash-flow constraints could have a knock-on effect in the wider economy.”
Senegalese companies are also keen to see the government push ahead with pledges to privatise Senelec, the state-owned electricity company, whose failure to provide a regular power supply is one of the biggest brakes on growth.
The government has had more success attracting investors into the Industries Chimique du Senegal (ICS), the troubled state-owned phosphate company, which accounts for about 10 per cent of exports. IFFCO, the Indian fertiliser co-operative, has agreed to take an 85 per cent stake after pumping in $100m of capital.
Cementing Senegal’s growing commercial ties with India, Mittal, the steel giant, plans to build a $2.2bn iron ore mine at Tambacounda, the biggest foreign investment in Senegal. Dubai World is planning to plough $300m into boosting Dakar’s port.
In spite of the growing investment pledges, the darkening world economic outlook could dim prospects. Should the credit crisis push western economies into a severe slowdown, then Senegalese businesses fear that both export markets and the $1bn in remittances earned by the diaspora each year could decline.
