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Senegal
Located in the westernmost part of the continent, Senegal is bordered by Mauritania, Mali, Guinea and Guinea-Bissau. With a tropical and dry climate, it has 16.7 million inhabitants, a quarter of whom live in the Dakar region (0.3% of the territory).
The second largest economy in French-speaking West Africa behind Ivory Coast, Senegal structurally has a tertiary economy, with the sector representing 61% of GDP (telecoms and tourism in the lead), compared to 23% for the secondary sector and 16% for the primary sector.
POLITICAL AND ECONOMIC DATA
Political situation
Senegal is one of the most stable countries in Africa. The three political changes since independence in 1960 have been peaceful. In power since 2012, President Macky Sall won a second term (of five years) in February 2019. He announced in July 2023 that he would not take part in the next presidential election scheduled for February 25, 2024.
The legislative elections of July 31, 2022 have created an unprecedented situation in Senegal with a national assembly characterized by a narrow majority. The ruling coalition, Benno Bokk Yakaar (Union around the same hope), has 83 seats out of the 165 filled, the five opposition coalitions sharing the other 82 with Yewwi Askan Wi (Liberate the People, 56). , Wallu (Rescue Senegal, 24), Bok Guiss Guis (Same vision, 1), Aar Senegal (Protect Senegal, 1) and The Servants (1).
A relatively diversified economy
Senegalese agriculture is based on food crops (millet, sorghum, corn, rice) and cash crops (groundnuts and cotton). The Authorities have announced the launch of wheat production at the end of 2023 to reduce dependence on external sources. Senegal benefits from significant fishing resources which it exploits mainly for export. The agricultural sector employs around 40% of the population1.
Industrial activity mainly concerns the exploitation of mining resources (mainly gold and phosphate ore), but also the processing of food products (peanuts, seafood), the refining of imported oil as well as the production of fertilizers and of cement.
The country is banking on the development of hydrocarbon production thanks to the discovery of significant reserves off the coast in 2014 (Grand Tortue Ahmeyim – GTA oil and gas fields operated by BP and Kosmos Energy; Sangomar field operated by Woodside Energy ). The allocation of blocks for exploitation began in 2018 and the country plans to launch production at the end of 2023 (postponement of one year due to the health crisis) with a target of 100 to 125,000 bl/d and 2.5 Mt of LNG. A third field (Yakaar Teranga) should provide gas for local energy production. Its operation should be launched in 2024. In October 2022, Senegal became an observer at the Gas Exporting Countries Forum/GECF, the equivalent of OPEC for gas producers.
Services are dominated by commerce, real estate and public services. Tourism has been among the priority objectives of the Emerging Senegal Plan (PSE) since 2013. The sector aims to welcome 3 million visitors by 2035 (1.8 million in 2022).
Growth driven by the oil & gas sector
The inflation rate, which reached a historic level for the country of more than 14% in November 2022, contributed to the slowdown in growth to less than 5% in 2022.
Forecasts are more favorable from 2023 thanks to the expected launch of hydrocarbon production which should strongly stimulate growth, exports and state revenues. The construction of the deep water port of Ndayane and projects in the energy sector (Sambangalou hydroelectric power station and Saint Louis power station) will support investments. The resumption of tourism and agricultural production should also contribute to the rebound in activity.
The increase in prices, although in decline, remains relatively high (9% in April 2023 compared to 5.2% in Côte d'Ivoire) and could continue to limit the growth in demand in 2023. Inflation should ease in 2024.
The BCEAO gradually increased its reference rate (marginal rate) from 4% at the start of 2022 to 5% in March 2023. Further increases are possible, in line with ECB decisions.
The IMF thus forecasts +8.3% in 2023 and +10.6% in 2024. Senegal would thus record the highest growth rates in sub-Saharan Africa. Revenues from hydrocarbons constitute an important condition for the partial rebalancing expected in public finances and the current account balance in 2023/24.
Despite the very favorable outlook, growth forecasts remain, as in most economies, subject to significant uncertainties concerning in particular the evolution of global growth and financing conditions, the consequences of the conflict in Ukraine, but also the national political and social situation in view of the 2024 elections.
In the longer term, growth should be supported more by the Plan Sénégal Émergent (PSE) development plan than by hydrocarbon production, which should remain moderate. The IMF anticipates average annual growth of around 5% for the period 2025-2027, lower than that of 2014-2018 (6%).
A globally healthy banking system
The country has around 25 establishments, almost exclusively private, dominated by foreign banking groups. There are also more than 35 microfinance institutions and mobile banking is growing rapidly.
The government has implemented a financial inclusion strategy from 2022 with the objective of achieving an inclusion rate of 65% for adults and 90% for SMEs by 2025.
The level of capitalization of Senegalese banks, of around 12% in June 2022, is generally satisfactory. The BCEAO has taken measures to improve the liquidity of the sector and promote access to credit during the health crisis.
The bad debt ratio fell slightly to reach 11.2% in mid-2022. However, certain establishments present weaknesses. This is the case of the financial division of the Post Office which could be subject to restructuring as part of an action plan defined in 2022.
Perspectives and challenges
Senegal aims to be an emerging country by 2035 and is on track to achieve this, despite the repeated crises experienced since 2020. It is to this end that the government launched, in 2014, the Emerging Senegal Plan (PSE), which remains, with some adjustments, the country's economic roadmap.
The country has significant assets, starting with political and social stability that is almost unparalleled in the sub-region and in Africa.
The hub position of West Africa, a robust macroeconomic and monetary framework, the demographic potential (44% of the population is under 15 years old), the tourism, agricultural and mining potential, the dynamism of the digital sector, openness and membership in large regional groups (UEMOA, ECOWAS, etc.), are all parameters favorable to growth and investments.
Foreign companies assume and claim a strong presence in Senegal. Established over the long term, they contribute significantly to the country's economy, its tax revenues and the rise of its workforce via technology transfers and training actions carried out by various organizations and local authorities. , which their competitors are far from offering. They practice win-win collaboration with Senegalese companies and authorities.
PROMISING SECTORS
Project (Bus Rapid Transit) BRT
With a total cost of EUR 457 million, the project involves the construction of an 18.3 km route between the city center of Dakar and the suburb of Guediawaye. 23 stations will be served (including 3 interchange hubs), and 300,000 passengers transported per day from 2022. it has 4 components: infrastructure, vehicle fleet and systems; restructuring of the road network; capacity building and monitoring; road safety.
Regional Express Train (TER)
Phase 1 is almost complete: at a cost of nearly EUR 1 billion, it involved the construction of 36 km of track between Dakar and the new urban center of Diamniadio.
Phase 2 will cover 19 km between Diamniadio and AIBD airport, with an estimated cost of around EUR 300 million (several lessors have already confirmed their participation).
As with the BRT, the objective is for the TER to be fully operational for the Youth Olympic Games which will take place in Dakar in October and November 2022.
The new town of Diamniadio
Flagship project of the Emerging Senegal Plan – located 30 km from Dakar, on 1,644 ha, divided into 4 districts and which has the main objective of decongesting the capital Dakar.
Launched in 2014, Diamniadio already has some operational infrastructures: sports stadium, 5-star hotel, ministerial spheres, accommodation, conference center, exhibition center, etc.
Ultimately, the new city should accommodate 300,000 inhabitants within a “complete urban matrix” (housing, offices, hospitals, campuses, etc.) and “sustainable” (green spaces, waste treatment, solar power plant).
Many projects carried out by private actors are planned (hotels, schools, leisure parks, shopping centers, etc.).
Urban center of Lac Rose
It completes the range of services available in Diamniadio, with a tourist, high-end residential and agro-industrial vocation. The cluster of 13 villages will be developed over an area of 7,000 ha. In the development phase, investment needs are estimated at nearly EUR 669.4 million.
Public infrastructure
The Youth Olympic Games are expected to be held in Senegal in 2026 (YOG 2026). In this context, the renovation and construction of numerous sports infrastructures are planned.
The Regional Express Train (TER – phase 2) project and the construction of a new 1,520 km rail network are planned for the next five years, for a total cost of approximately EUR 2.12 billion.
The project to build a 5-star polyclinic at the Principal Hospital in Dakar.
The construction program for 100,000 homes over 5 years.
BUSINESS ENVIRONMENT
Since 2013, the government of Senegal has been implementing the Business Environment and Competitiveness Reform Program (PREAC). Many innovations have been made, such as the elimination of share capital for the creation of an SARL, the creation of one-stop shops for setting up a business or connecting to electricity, the dematerialization of customs procedures, the reduction of taxes for companies that invest, as well as the various tax incentives permitted by the Investment Code and the free export company regime. The establishment of a package of 52 measures has propelled Senegal among the 10 best reformers in the world according to the “Doing Business” ranking established by the World Bank and its partners.
Senegal has signed several Investment Protection and Promotion Agreements (APPI) with several dozen partner countries around the world. In a context of globalization, these agreements improve the legal security of investments. They provide for the free repatriation of investment capital and returns on investment, guarantee expropriation and provide a Most Favored Nation (MFN) clause for the treatment of investors. They also provide compensation for losses in the event of war, armed conflict or riot. Senegal is fully committed to improving its business climate to promote investments and foster economic growth driven by the private sector.
FOREIGN DIRECT INVESTMENT (FDI)
Foreign trade balance position
The current account deficit is expected to remain high in 2022 before gradually reducing Senegalese exports are diversified. Seafood and mineral products (gold) cumulatively account for nearly 30% of export revenues. The weight of processed products (from imported oil, locally extracted phosphate, cement) is approximately equivalent. Africa represents an important market for Senegal (more than 40% of exports), particularly the UEMOA countries.
The current account deficit is estimated at -16% of GDP in 2022, despite high prices for gold and phosphates. due to the significant need for imported goods and services and their increase in price (energy, food, etc.).
From 2023, exports are expected to increase thanks to the exploitation of hydrocarbon reserves. According to IMF estimates (based on an export hypothesis of 100% of gas from the GTA field and 70% of crude oil, the balance being refined locally), exports would increase by 5% of GDP between 2023 and 2030. Expatriate transfers are an important source of income, representing around 9-10% of GDP. The current account deficit should thus be reduced, especially from 2024.
Resumption of investment flows
Senegal is one of the rare countries in sub-Saharan Africa to have recorded an increase in FDI flows in 2020 (+39%) while they were down 11% in the area according to UNCTAD. The trend was confirmed in 2021 (+21%) at $2.2 billion. Investments were focused on the energy sectors. The three Special Economic Zones (SEZs) oriented towards agribusiness, information and communication technologies as well as tourism, should help support FDI flows. The government also wishes to strongly involve the private sector in the implementation of its recovery plan (PAP2A) which could attract foreign companies.
From the CFA Franc to the Eco
A member of UEMOA, Senegal therefore belongs to the Franc zone. At the end of December 2019, Ivorian President A. Ouattara announced a reform of the CFA Franc, providing in particular:
- a change in the name of the currency from CFA Franc to ECO11
- the closure of the operations account opened with the French Treasury, on which the BCEAO deposited at least 50% of its reserves
On the other hand, neither France's guarantee of convertibility nor the fixed parity against the euro have been called into question by this reform, the implementation of which is not yet effective.
The price of the CFA franc depreciated by around -5.5% against the dollar in 2022, less than the currencies of Ghana (nearly -40%), or Nigeria (-10%). It was better oriented at the start of 2023 (+ 2% between January and May). Reserves in the UEMOA zone centralized by the BCEAO fell in 2022 to 11.4 billion FCA, representing around 4 months of imports. The IMF forecasts a further decline in 2023 (3.6 months). The potential return of countries to international markets and the financing obtained from official lenders (notably IMF) will be decisive for the evolution of these reserves.