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InterviewsMarch 1 2012

Finance minister Diby looks to revitalise Côte d’Ivoire

Côte d’Ivoire’s economy was battered by the near civil war that broke out following elections in late 2010. The new government has made a good start in trying to repair the damage, but its finance minister knows it has more to do to regain the trust of foreign investors. 
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Finance minister Diby looks to revitalise Côte d’Ivoire

Côte d’Ivoire’s bitterly disputed presidential elections in November 2010 and the subsequent four-month stand-off which took the west African country to the brink of civil war, had a shattering effect on its economy. By the time incumbent president Laurent Gbagbo, who had refused to cede power after losing the vote, was arrested in April 2011, more than 3000 Ivorians had lost their lives, 1 million were thought to have been made internal refugees, and 200,000 had fled abroad.

Most big businesses and almost all commercial banks were forced to close down. Gross domestic product (GDP), which rose 2.4% in 2010, fell 14% in the first quarter of 2011 compared with a year earlier. Inflation, having been as low as 2% in September 2010, climbed to 7% in the second quarter of 2011.

Repair work

However, the new government, installed in June and headed by Alassane Ouattara, the legitimate winner of the 2010 polls, has moved quickly to repair the damage.

One of its immediate priorities was to negotiate with Côte d’Ivoire’s external creditors, which were owed about $13bn, or slightly more than half of the country’s 2010 GDP. The government’s efforts to get the economy growing again hinged heavily on being able to secure near-term debt relief.

It first approached its multilateral and Paris Club creditors, who held about $10bn of that debt. “As soon as we took office, we decided to start negotiations with the International Monetary Fund (IMF) and the World Bank to try and see what measures we could implement,” Charles Koffi Diby, Côte d’Ivoire’s highly regarded finance minister, tells The Banker.

The first step was achieved in early November when Côte d’Ivoire agreed a new three-year extended credit facility of $615m with the IMF. Later that month it signed a deal with Paris Club debtors, which will reduce by 78%, or $1.8bn, its payments due to them between July 2011 and mid-2014.

This should pave the way for the IMF to approve Côte d’Ivoire’s status as a heavily indebted poor country (HIPC) in the next six months, which will make it eligible for even bigger write-offs of its foreign debt. If so, it will mark the culmination of a process begun in 2009 when Mr Gbagbo’s administration signed an agreement with the IMF spelling out the reforms needed for Côte d’Ivoire to become an HIPC. The new government had feared that without the debt relief agreements last November, the HIPC programme would fall apart, imperilling the chances of a quick economic recovery.

West African powerhouse

Côte d’Ivoire’s position as the diplomatic and financial hub of Francophone west Africa has been severely eroded in the past 10 years. Ever since a mutiny by soldiers in 2002, which effectively split the country for a few years between a rebel-held north and government-held south, Ivorian politics have been characterised by tension and ethnic discord. Reversing this trend, which has seen Côte d’Ivoire lose investment to other countries in the region, notably Senegal, will not be easy.

Yet Côte d’Ivoire retains many advantages. At about $23bn, its economy is still the biggest among French-speaking west African countries. Its infrastructure, particularly its roads and main port of Abidjan, is among the most developed in sub-Saharan Africa. And it remains the world’s biggest producer of cocoa, the country's largest export earner.

Nonetheless, Mr Diby, in office since 2007 and one of the few ministers to survive the transition from Mr Gbagbo to Mr Ouattara, realises that the new administration has much to do to regain the trust of foreign investors. One of the main things he says is needed is more capital expenditure by the government.

Public sector investment will amount to about 5% of GDP in 2012. Mr Diby wants the figure to rise to 10% in the next few years, which he hopes will encourage the same scale of private sector investment. “It is the state’s job to attract investments,” he says. “The more public investments we do, the more private investment will follow.”

Widespread structural reforms are crucial for this to happen, says Mr Diby. Among the areas the government is addressing is the cocoa sector, the reform of which is necessary for Côte d’Ivoire to complete its HIPC programme. Although cocoa production remained high during the strife last year – it actually rose 20% to 1.5 million metric tonnes – the IMF wants farmers to get a guaranteed price for their crops.

Other reforms are being carried out in the energy sector – to make sure supply of electricity keeps up with demand – and the financial system. With the latter, the government is trying to ensure businesses, especially smaller ones, get better access to credit from banks and microfinance institutions.

Mr Diby is also intent on strengthening public finances. He aims to ensure tight fiscal management over the coming years, partly by controlling recurrent expenditure, particularly public sector salaries. He adds that modernising the pension system and adopting stricter laws on corruption are needed, too.

Eurobond talks

Another important factor in luring foreign investors back to the country will be the government’s handling of its $2.3bn Eurobond, which matures in 2032. Côte d’Ivoire defaulted on the instrument in December 2010, just after the election, when it failed to make a coupon payment. It then missed a further two in June and December of last year.

Investors had hoped Mr Diby would set out a schedule of when these arrears, totalling $87.5m, would be repaid when he met them in London and Paris in late January.

Instead, he said that while Côte d’Ivoire would resume its coupons payments in June this year, it could only decide when to repay its arrears once it had reached the HIPC completion point. Until then it had to abide by its agreement with the Paris Club and IMF, under which it was decided that the country had the capacity to pay $135m to external creditors this year and that no more than $87.5m of this figure could go to private creditors (enough to pay down this year’s two coupons, but not any of the arrears).

President Ouattara’s goal is that Côte d’Ivoire will became [an emerging market] around 2020, which would mean that we need double-digit growth

“Our ability to offer a deal to bond holders is determined by our payment capacity, which is itself determined in agreement with the IMF,” says Mr Diby. “We are part of a programme and must respect its guidelines. What Côte d’Ivoire’s payment capacity will be after the completion point is undetermined.”

However, he stressed that the fact the government was using almost two-thirds of its 2012 payment capacity on Eurobond holders was because it had insisted to the IMF that it needed to maintain good relationships with private creditors. As such, it was always adamant that coupon payments must restart in June this year.

So far, so good

So far the economic record of Mr Alassane’s administration is encouraging. When it came to power, the IMF was predicting that GDP would fall 7.5% over the whole of 2011. By the end of the year, it had revised the figure to 5.8% amid a faster than expected recovery.

The economy is forecast to expand as much as 8.5% in 2012. Inflation has fallen to 4% and should soon be below 2.5%, according to Mr Diby.

He says the government is pushing for even higher GDP growth rates in the next decade. “President Ouattara’s goal is that Côte d’Ivoire will became [an emerging market] around 2020, which would mean that we need double-digit growth,” he says. “Our wish is to have sustainable, inclusive growth. Our growth has started to benefit the poorest [Ivorians]. This is what we want, for growth to help the poorest.”

Still, the impact of the post-election violence on the economy and Côte d’Ivoire’s balance sheet will be felt for a while yet. As a result of falling tax revenues, the IMF believes the country, which had a primary fiscal deficit of 5% last year, will not be in surplus until 2014.

Much will rest on the government’s ability to maintain social and political stability. Tensions remain high. Although parliamentary elections in December last year, easily won by Mr Ouattara’s coalition, were largely peaceful, they were boycotted by Mr Gbagbo’s party.

But Mr Diby insists the country’s politics are on the right course and that calm will be maintained. “In [our] politics, tensions are normal,” he says. “The most important thing is that all Ivorians believe in the renaissance of their country and that [President Ouattara] represents this renaissance.”

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