Cote economy teaser

Agriculture and oil have fed Côte d’Ivoire’s growth spurt in the last few years – but now coronavirus and a contentious election pose a threat to its prospects. 

Cote economy

Côte d’Ivoire enjoyed one of the fastest growing economies in both Africa and the world during the 2010s. After decades of stagnation, the government of Alassane Ouattara – in power since 2011 – has undertaken far-reaching economic reforms and invested in infrastructure, attracting foreign direct investment as a result.

These investment and reforms have boosted revenues from the country’s all-important agriculture sector – it is the world’s largest producer of cocoa and in the top three for cashew nuts – as well as the nascent oil and gas industry.

Peace dividend

“After the political bloodbaths of recent decades, Côte d’Ivoire has been experiencing an economic peace dividend,” says Murega Mungai, trading desk manager at African currency broker AZA. “Rule of law has been strengthened through intervention by humanitarian organisations, and infrastructure has improved with the pick-up in economic growth in recent years.”

The country – west Africa’s third largest economy after Nigeria and Ghana – experienced average economic growth of 8.5% a year between 2012 and 2019, according to the International Monetary Fund (IMF). As a mark of its confidence in the country’s economic trajectory, the IMF predicts Côte d’Ivoire will record economic growth of 2.7% in 2020 despite the impact of the coronavirus, followed by a surge of 8.7% in 2021.

Nevertheless, in interviews, several local senior bankers privately expressed fears of a recession in 2020 due to the impact of the coronavirus on the local economy. The country is also bracing itself for a controversial presidential election in October, with fears of fresh outbreaks of intercommunal violence.

Covid-19 response

The government announced a state of emergency on March 23, introducing curfews and internal travel restrictions on its 27.5 million-strong population, and banning all travel in and out of the country a week later.

As in other African countries, Côte d’Ivoire has not experienced the mass outbreaks of Covid-19 witnessed in Europe, the US and Latin America. As The Banker went to press, the country had recorded just over 6000 infections, with fewer than 60 deaths.

The government allowed bars and restaurants outside the capital, Abidjan, to reopen from May 8. Restrictions were lifted in Abidjan at the end of that month, with schools reopening around the same time. Yet the damage has already been done to the local economy.

“The Covid-19 pandemic is expected to have a considerable negative impact on Côte d’Ivoire’s economy, creating fiscal pressures and an urgent balance of payments need,” Mitsuhiro Furusawa, deputy managing director at the IMF, said in mid-April. “The authorities swiftly adopted strong containment measures, which – while necessary – will also weigh on economic activity.”

Prime minister Amadou Gon Coulibaly announced a CFAFr1700bn ($2.84bn) “economic, social and humanitarian” plan at the end of March to help the country withstand the pandemic. Among the measures was a three-month freeze on the collection of taxes.

The IMF agreed in mid April to lend Côte d’Ivoire $886.2m – drawn under its rapid credit facility and rapid financing instrument – towards its balance of payment needs in light of the coronavirus emergency. “Additional donor support is critical to close the remaining financing gap and preserve Côte d’Ivoire’s substantial development gains over the past decade,” said Mr Furusawa.

Cocoa flop?

A key pillar of the government’s economic response to Covid-19 was the allocation of around $400m to support the agricultural sector, especially the crucial cocoa industry.

Côte d’Ivoire produces 42.5% of the world’s cocoa, with annual production amounting to 2 million metric tonnes, according to the International Cocoa Organisation. The country has more than 2.5 million hectares of cocoa plantations – occupying much of the southern half of the country – with the industry accounting for 15% of the nation’s gross domestic product (GDP) and 40% of exports, according to government data.

The World Bank estimates that the country has more than one million small independent cocoa producers, with the sector providing a livelihood to five million people.

Cocoa prices fell to a six-month low in late March, as countries moved to impose lockdown to halt the spread of the coronavirus, but subsequently recovered in May. Yet analysts remain concerned about the impact on demand for the rest of the year. “Covid-19’s major impact will be on the demand for cocoa and it has led to a dislocation in supply, given that the country accounts for a high proportion of cocoa production worldwide,” says Mr Mungai.

The government agreed at the end of April to give cocoa producers a subsidy of CFAFr35 per kilo of cocoa, with a ceiling of 50,000 metric tonnes per operator and per campaign. Going forward, the government is keen to avoid bankruptcies by making Ivorian cocoa players more competitive against the multinationals that dominate the sector.

“These government measures will allow the structures of the cocoa industry to continue to exist and to make their activities prosper,” says Constance Kouamé, secretary-general of the Association of Ivorian Traders.

Election challenges

Prior to the global spread of the coronavirus, perhaps the largest perceived threat to Côte d’Ivoire’s political stability and economic growth trajectory was the prospect of presidential elections in October 2020, with the post-election violence of 2010-11 that claimed more than 3000 lives still fresh in the memory. Mr Ouattara has suggested the election may be postponed by two to six months due to the impact of coronavirus on the country.

The president stoked fears last year by publicly considering running for a third term, in contravention of the two-term limit mandated by the country’s constitution, but later backtracked, stating in March that he would not seek re-election. He has instead thrown his support behind a presidential bid by Mr Gon Coulibaly.

“Many of [Mr Gon Coulibaly’s] party members doubt he has either the political clout or sufficient popularity to lead the party to victory,” said the International Crisis Group in a report published in May.

Meanwhile, attempts by Mr Ouattara to sideline prominent would-be opponents – including former ally Guillaume Soro and former president Laurent Gbagbo – risk further provoking intercommunal violence around election time. This has already been on the rise in the past two years, according to the International Crisis Group.

Currency conundrums

Côte d’Ivoire is one of eight francophone states in west Africa, the others being Benin, Burkina Faso, Guinea-Bissau, Mali, Niger, Senegal and Togo. Together they make up the West African Economic and Monetary Union (Waemu), an economic bloc founded in 1994. The countries have used the West African CFA franc – anchored by the Senegal-based Central Bank of West African States (BCEAO) – as their currency since their independence from France.

In a bid to foster further public debt sustainability, in 2015 Waemu states agreed to a surveillance framework by late 2019, that centres on lowering central government deficits to 3% of GDP, cutting inflation to a maximum of 3%, and reducing public debt-to-GDP ratios to 70% or lower. Faced with the coronavirus outbreak, however, the members have decided to suspend such requirements until the crisis dissipates.

On April 21, they announced plans to issue joint Treasury bonds (dubbed Covid-19 bonds) on the regional financial market, with the support of BCEAO. These have a maturity period of only three months and the funds raised will take care of immediate spending related to the pandemic. Under the new arrangements, Côte d’Ivoire issued a CFAFr180bn bond on April 27.

The CFA franc – initially pegged to the French franc and later the euro – has been credited by many with delivering significant economic benefits to the Waemu region since its adoption in 1945. Under the currency’s framework, at least 50% of the BCEAO’s international reserves are held by the French Treasury, which in turn guarantees the currency.

Unlike many other African nations, the CFA franc zone countries in west Africa (a similar currency, also named the CFA franc, is used by a bloc of six central African states) have been characterised by low inflation and low budget deficits, with the currency only being devalued once in its history. In the case of Côte d’Ivoire, the IMF estimates the country will have inflation of just 1.2% in 2020.

Eco disagreement

Yet the currency has faced opposition for many years within west Africa and elsewhere, with critics portraying it as a relic of colonial rule; in its original iteration, CFA stood for ‘colonies françaises d’Afrique’, or French colonies of Africa, before changing to ‘communauté financière Africaine’ (African financial community).

In December 2019, Mr Ouattara and French counterpart Emmanuel Macron announced the currency would be replaced in 2020 by a new currency, the eco. The currency is intended to retain many of the features of the CFA franc, while removing the requirement for keeping reserves in France, with the country no longer having a representative on the BCEAO’s board of directors, monetary policy or Waemu’s banking commission.

The move came as a surprise, especially to the larger West African Economic Community of West African States (Ecowas), which had also planned to launch a common currency, also called the eco, in 2020.

A strong disagreement has arisen in early 2020 between Waemu countries – including Côte d’Ivoire and Senegal – and leading members of Ecowas – including Ghana and Nigeria – about whether the proposed eco currency should continue to be pegged to the euro, with the latter two countries preferring the greater flexibility that comes from a floating currency.


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