Senegal faces perhaps its most fraught presidential elections yet when voters go to the polls on February 26. The west African state has stood out as a bastion of democracy and stable politics in a volatile region for much of the period since its independence from France in 1960.
But concerns about autocracy and corruption have grown recently. In June last year, thousands of protestors took to the streets of Dakar, the capital. The unrest was triggered by proposals from president Abdoulaye Wade to introduce a post of vice-president and reduce the proportion of votes needed to win the election, and thus avoid a run-off, from 50% to 25%. Critics viewed the latter as an attempt by Mr Wade to exploit the presence of numerous opposition parties and feared that the vice-presidential post was being lined up for his son Karim, who many believe is being groomed to succeed his father.
That the 85-year-old president, who is ending his second term after first coming to power in 2000, is running again is contentious in itself. His opponents claim he is barred from doing so because of a constitutional amendment in 2001 that restricted presidential reigns to two terms. “He does not have the right to run for a third term – our constitution expressly forbids him,” says Moustapha Niasse, a leading opposition candidate and prime minister between 2000 and 2001, before falling out with the president.
The government’s supporters insist otherwise, stating that since Mr Wade’s presidency began before the amendment, his first term was exempt from the two-term limit.
Businesses worry
Mr Wade’s popularity has seemingly waned since 2000. Many Senegalese, as the protests demonstrated, are uneasy at the prospect of him remaining in power until 2019, which is when the next presidential term will expire. Analysts are split, however, about whether any of the main opposition blocs, which have failed to unite and pick a single candidate, would win enough votes to dislodge him.
The prospect of violent elections has worried businessmen in the country. “For the first time since I’ve followed politics, I think there are some risks,” says Cheikh Tidiane Mbaye, head of telecommunications group Sonatel, Senegal’s biggest listed company.
Opposition politicians are blunter, even claiming that Senegal could collapse into the state of near-civil war witnessed in west African neighbour Côte d’Ivoire following disputed elections there in late 2010. “Senegal has seen its democracy slaughtered in the past 11 years,” says Mr Niasse. “If President Wade stays on there will be trouble in this country like that in Côte d’Ivoire.”
Most commentators believe such threats are exaggerated. Still, Senegal’s reputation for clean government has been dented in recent years. It fell from 71st place in Transparency International’s corruption index in 2007 to 105th in 2011. Macky Sall, another former prime minister under Mr Wade and now an opposition candidate, says that graft has been particularly prevalent on major infrastructure projects, which have been the responsibility of Karim Wade since he was appointed to the cabinet in 2009. As a result, says Mr Sall, Senegal is one of the most expensive countries in Africa for building roads. “[Corruption] is the reason we don’t have a direct link between growing investments [in infrastructure] and the economic growth rate,” he says.
Despite this, analysts are largely hopeful, based on Senegal’s long-standing peace and democratic traditions, that violent clashes in February will be avoided and that Mr Wade will step down if he loses. He has, after all, already made some concessions, including dropping the plans that set off June’s strife.
Good governance
For all its recent political tensions, Senegal still stands out among west African states for the strength of its institutions. Among the eight members of the West African Economic and Monetary Union (WAEMU), whose central bank is based in Dakar, it is viewed as the leading diplomatic power, particularly given the instability over the past 10 years in Côte d’Ivoire, the bloc’s biggest economy.
Senegal’s media, civil society and opposition parties largely operate without interference from the government, which they freely criticise in public. Supporters of Mr Wade claim the mere fact that June’s short-lived protests took place testifies to the country’s democratic bent. “It’s actually a strength of our democracy that on the eve of every major election, people demonstrate a lot,” says Abdoulaye Diop, Senegal's highly respected finance minister.
Foreign investors have been unperturbed in the run-up to the polls, say government officials. “I don’t think they’re nervous,” says Aminata Niane, head of Apix, the state agency responsible for infrastructure and attracting investment. “We explain to investors that Senegal is a strong democracy where people can express their feelings, especially when they’re against the authorities’ decisions. We have strong institutions. This is the most important thing. At the end of the day, these institutions are not under threat from politicians.”
Macroeconomic stability
Aside from its usually calm and sophisticated political system, Senegal’s biggest draw for investors is its macroeconomic stability. Gross domestic product (GDP) rose 4.6% annually in real terms in the decade to 2007, according to Exotix, an emerging markets securities firm. Growth slowed in 2008 and 2009 due to the sharp rise in global oil and food prices and fewer European tourists visiting. But the economy has recovered; it expanded about 4% last year and is expected to do the same in 2012. Economists say this pace of expansion is especially impressive given that the country has few natural resources, particularly in comparison with regional neighbours such as Ghana and Nigeria.
Senegal’s buoyancy led GDP per capita to increase from $800 in 2006 to $1100 in 2011, making it the richest French-speaking west African country by this measure. Inflation, like that in the rest of the WAEMU, is low, averaging about 3% in 2011. And the west African franc, because of its peg to the euro, is far steadier than most other African currencies.
The Senegalese government’s fiscal discipline has slipped in recent months. The budget deficit widened from 4.5% of GDP in 2010 to 6.9% last year. Critics say this was a result of it deciding to ramp up spending before the elections.
Nonetheless, Senegal’s balance sheet remains sound. Public debt was cut from 78% in 2000 to 41% last year, thanks to high growth, better revenue collection, controlled expenditure and a debt relief agreement with external creditors in 2004. While this ratio has grown from 24% in 2006, it is the same as Ghana’s and significantly lower than Kenya’s. Analysts are confident such a level of debt is sustainable, especially if the economy keeps growing at its current pace.
Eurobond success
The government’s prudence in the past decade has left the country with arguably the best public finances in the WAEMU, a group that also includes Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Togo. Of the eight, Senegal is the closest to reaching all the convergence criteria set by the central bank (which has laid down maximum levels for arrears, debt-to-GDP ratios and budget deficits, among others). “Senegal, according to many international organisations, has one of the most stable macroeconomic environments in Africa,” says Mr Diop.
Senegal’s good economic management was vindicated in May when it placed itself firmly on the international financial map by issuing a $500m, 10-year Eurobond. The deal, the country’s first major international bond and which yielded 9.1%, attracted $2.4bn of orders, despite being issued just as the eurozone crisis was starting to play havoc with global markets.
Senegal, which used the debt to fund a toll road in the Dakar municipal area, is unlikely to come back to the international market this year, as it only issues such deals when it has specific infrastructure projects to finance (although this policy could change if a new government is installed in February). But Mr Diop says that it could print a sukuk, or Islamic bond, for the first time shortly before the elections. He says the finance ministry wants to issue the equivalent of $200m in west African francs and euros and use the proceeds to support the budget. Analysts say this would be a far-sighted move by Senegal, whose population is 95% Muslim, helping to diversify its investor base and launch a west African Islamic finance market.
Push for FDI
The Eurobond was particularly attractive to investors who had been unable to get exposure to the country in the past. Portfolio investments are difficult because of the small size of the local bond market and the lack of Senegalese stocks on the BRVM, the regional bourse.
As such, Senegal is attempting to attract more foreign direct investment (FDI). Net FDI inflows remain slight, totalling $130m in 2011. But the government has made the economy one of the continent’s most open in recent years and wants foreigners to invest in infrastructure projects and the telecommunications, agriculture, tourism and nascent mining sectors. Unusually for a sub-Saharan African state, it places almost no restrictions on foreign ownership of companies. “There’s no discrimination in Senegal between foreign and local investors in terms of incentives, access to land or access to any facilities,” says Apix’s Ms Niane.
Improving infrastructure has long been one of the government’s priorities. It felt that attempts to develop the private sector would fail without better infrastructure. As such, several major public-private projects are under way in Dakar, including the $570m toll road part-funded by the Eurobond, a new $780m international airport, and a $515m upgrade of the port, already one of the biggest in the region. The toll road, which will eventually be extended to the Mali border, and the modernisation of the port are likely to entrench Senegal’s position as a gateway to west Africa by boosting its integration with landlocked neighbouring states such as Mali, Burkina Faso and Niger. The airport, expected to be finished later this year, should see Senegal become the region’s second aviation hub after Nigeria.
The government has also encouraged investment in telecommunications. This has resulted in internet penetration being higher in Senegal than South Africa, the continent’s biggest economy, says Sonatel’s Mr Mbaye. “As far as the internet is concerned, we have the best network in the [west African] region,” he says.
Power problem
An acute power shortage is a major problem, however. The country ranks a dismal 133 out of 142 countries by electricity supply, according to the World Economic Forum’s latest competitiveness report. Ongoing power cuts were part of the reason for the protests in June and led to the offices of state-owned electricity firm Senelec being attacked in some cities. “With electricity, we’ve been in crisis for the past two years,” admits Ms Niane. The government is trying to solve the issue by privatising electricity generation and producing more hydroelectricity.
Senegal’s overall infrastructure, however, remains impressive by African standards. “When you put electricity aside, after 2012 Senegal will be comparable to north African countries and South Africa in terms of infrastructure, and far ahead of other west African states,” says Ms Niane.
Senegal’s efforts to boost infrastructure have already started to pay off. The country has one of Africa’s most developed service sectors, which is vital given its small extractive industry. It is a highly popular west African destination for European tourists. And the telecommunications sector is thriving, with many call centres for French firms having been established in Dakar and mobile phone companies having grown rapidly in the past five years.
The banking system is also flourishing. Competition is fierce thanks to Senegal having 19 lenders, despite its population of just 13 million. Nigeria, which has 160 million people, has just 24 banks. But there is still plenty of scope for expansion, chiefly because Senegal’s banked population amounts to less than 20% of the total. “The competition is stiffer than in other countries in the WAEMU zone,” says Yves Coffi Quam-Dessou, head of Ecobank Senegal. “But the banks can make the cake bigger by banking more people. There’s a long way to go.”
The mining industry is growing, too, albeit from a small base. Senegal is soon expected to become one of the world’s 10 biggest phosphate producers. And it has big deposits of iron ore, although the global downturn has put miners off exploiting them fully.
Contagion from Europe
The government is particularly keen to develop agriculture, which constitutes almost 20% of GDP and is thought to be the main source of income for 85% of the population. The sector is seen as crucial to reducing widespread poverty in rural areas and weaning the country off food imports.
Much progress has been made since 2008, when Mr Wade’s administration launched a programme, praised by the UN as a model response to the global food crisis, to make Senegal self-sufficient in food production by 2015. By next year, rice production is expected to reach 1 million tonnes. It was less than half that in 2008.
The Senegalese economy is vulnerable to a slowdown in Europe, its main trading partner. Recession there would affect investment flows, tourism and remittances to Senegal. Yet Mr Diop says the country is better placed to withstand external shocks today than it was in 2008, thanks to its solid public finances and expansion of ties with Asia in the meantime. But he is not taking the threat lightly. “We will be affected by a major economic crisis in Europe given the special relationship we have,” he says. “We are preparing to deal with this.”
The most immediate concern, however, is next month’s election. A peaceful and transparent poll will go a long way towards serving as a buffer against a downturn in the developed world. Not having much in the way of raw materials, Senegal has had to entice investors through its political maturity, the strength of its institutions and its prudent fiscal management. A fraught election could damage all it has gained in the past 10 years. “Senegal has always had an advantage because of its democracy,” says Mr Sall. “It’s an advantage that we must absolutely preserve and it’s why we pray 2012 will not prove a breaking point for out stability.”
