While trailing the world-beating performance of its near neighbour Côte d’Ivoire, Senegal’s economy has seen stellar growth since 2014, benefiting from one of Africa’s most stable political systems, as well as significant infrastructure investment.
Although restrictions related to the coronavirus outbreak will impact the economy, the country is still set to be one of Africa’s best performers in 2020, trailing only Uganda and Ethiopia among the continent’s largest economies. And with some of west Africa’s largest oil and gas projects due to come on stream from 2022 onwards, the country’s economic prospects look rosy.
Senegal is the second largest economy in the West African Economic and Monetary Union (Waemu) after Côte d’Ivoire, and the fourth largest in the wider Economic Community of West African States (Ecowas).
The country enjoys the distinction of never having experienced a successful coup since independence in 1960, with three major political transitions since then. President Macky Sall, first elected in 2012 and widely respected for introducing much-needed economic reform, secured re-election for a second term in February 2019, even as opposition figures claimed he used his influence to make it harder for popular rivals to challenge him at the ballot box.
Economic stability
Senegal’s political stability has been matched in recent years by its improving economic fortunes. The country’s economic growth averaged 6.4% a year between 2014 and 2019, according to the International Monetary Fund (IMF). While the economy had been forecast to grow by 6.8% in 2020, the IMF cut its forecast for the year to 3% in the wake of the coronavirus outbreak. Growth is expected to recover to 5.5% in 2021.
Inflation stood at just 0.2% in 2019, while high public investment in infrastructure, agriculture and energy kept the fiscal deficit at around 3.6% of gross domestic product (GDP) in 2018 and 2019, according to data from the African Development Bank (AfDB).
The government had wanted to bring the deficit down to 3% in 2020, so that the country could meet the convergence criteria for the Waemu region (where a single currency called the CFA franc, which is pegged to the euro, operates). Yet the impact of the coronavirus outbreak on the economy is set to see the deficit rise to 5.6% for the year, according to the IMF.
According to the AfDB, total public debt amounted to 54.7% of GDP in 2018 – up from 47.7% in 2017. Unemployment rose to 14.6% in 2018, driven by the low labour force participation of women (only 21%) and the weak entry of young people into the jobs market (18%).
Senegal’s economy has traditionally centred around agriculture, mining and industrial manufacturing. Formerly one of the world’s largest producers of peanuts, the country has diversified over recent decades into other crops including cotton, sugarcane and rice. Phosphates, agricultural products and commercial fishing are among its key exports.
Infrastructure investment
Much of the recent strong economic growth has been credited to policies under the Emerging Senegal Plan (ESP), an ambitious national development strategy intended to transform Senegal into an emerging market economy by 2035. The plan is based on three pillars: the structural transformation of the economic framework, the promotion of human capital, and good governance and rule of law.
The plan has prompted significant investment in the country’s infrastructure, notably a new $575m airport in the capital, Dakar, which opened in 2017, together with improvements in business regulations. As a result, Senegal has risen to 123rd in the World Bank’s most recent Doing Business rankings, from a low of 178th position before the launch of the ESP.
“Senegal’s strong economic performance during the past few years has been partly driven by public investment in new infrastructure, including new airports and new motorways, under [the ESP],” says Victoria Billing, the British ambassador to Senegal. “A major overhaul of the country’s infrastructure has happened, which has certainly made it more attractive to foreign investors.”
Yet Senegal’s foreign direct investment (FDI) levels remain low compared with its regional peers; the country secured $629m in inward FDI in 2018, up from $587m in 2017, according to the United Nations Conference on Trade and Development. Net FDI inflows increased to 2.6% of GDP in 2018 from 1.3% in 2016, according to the IMF.
Improvement programmes
The second phase of the ESP – which spans from 2019 until 2024 – includes three programmes for implementation at a national level. Under the zero slums programme, 100,000 new subsidised homes will be constructed throughout the country; under the zero waste programme, investment in solid waste collection and treatment in urban areas will be accelerated, making the cities clean and healthy places in which to live; and under the creative cities programme, cultural industries will be placed at the heart of urban development.
Under the second phase, the government wants to stimulate private investment and accelerate the economy’s structural transformation. But the impact of the coronavirus has prompted a greater focus on economic self-sufficiency.
“Obviously, if there is one lesson to be learned from this crisis, it is that you have to count on yourself first,” Amadou Hott, the Senegalese economy minister, said in a recent interview with local media.
“We need to accelerate the correction of certain trends in our economy, in particular our dependence on the outside world, by producing more and consuming our products, and building solid foundations for exporting,” he added. “It is about encouraging measures and initiatives that will implement new ways of producing on a small and a large scale.”
Responding to Covid-19
Mr Sall announced a state of emergency on March 23 in response to the coronavirus outbreak, closing the country’s entry and exit points, introducing restrictions on businesses and banning inter-regional travel.
While the government began easing restrictions in early May, the impact of restrictions on everyday life has prompted popular anger, with demonstrations and looting breaking out in early June in Dakar and Touba, an important pilgrimage site and trading hub. As The Banker went to press, Senegal’s death toll from Covid-19 was below 100.
In March, the government established a $2bn economic and social resilience programme to mitigate the impact of the crisis. It included paying the electricity bills of 975,000 households for six months and the purchase of food for one million households. According to Reuters, following the demonstrations in early June, transport and infrastructure minister Oumar Youm announced that the government would give CFAFr3bn ($5m) to sectors that had been hit particularly hard by the crisis, including taxi drivers.
“It is still too early to tell [about Covid-19’s impact],” says Cemile Sancak, IMF resident representative in Senegal. “The condition of the economy will depend on the duration of the crisis. Our working assumption for now is that the major impact of the pandemic will start to subside in the second half of 2020. With the relaxation of the containment measures, the economy will start to gradually return to normal activity in the second half of 2020 and 2021, with some sectors – such as tourism – likely needing more time for recovery than others.”
Ms Sancak notes that besides domestic supply and demand being constrained by pandemic containment measures, external remittances from expatriate Senegalese – a crucial source of revenue for the country – had also faced a severe shock.
“The hardest-hit sectors will be hospitality and restaurants, transport and retail – bringing tertiary sector growth to zero – while the primary and secondary sectors will suffer from lower demand,” she says. However, she adds that the country’s long-term economic prospects remain positive and that it should be able to capitalise on its relatively good economic diversification.
Oil and gas resources
Senegal’s nascent oil and gas industry also provides grounds for economic optimism as the impact of coronavirus restrictions starts to recede.
Long ignored by the international energy industry, the UK’s Cairn Energy made the largest oil discovery of 2014 off Senegal’s coast. This was followed by the discovery of west Africa’s largest offshore gas deposits between Senegal and Mauritania by US-based Kosmos Energy.
According to the IMF, between 2014 and 2017, oil and gas reserves estimated at more than 1 billion barrels of oil and 40,000 billion cubic feet of gas were found in Senegal (most of it is shared with Mauritania).
The country’s Sangomar oil and gas field is being developed by a joint venture that includes Cairn Energy-subsidiary Capricorn Senegal, state-owned oil company Societé des Petroles du Sénégal (Petrosen) and Australian exploration companies FAR and Woodside Energy. Work on the field started in early 2020.
Meanwhile, Kosmos Energy and BP are jointly developing a liquified natural gas initiative, called Greater Tortue Ahmeyim, the deepest offshore project in Africa and expected to produce up to 10 million metric tonnes of LNG a year.
Commercial production from Greater Tortue Ahmeyim had been slated to begin in 2022, with production from Sangomar following in 2023. But President Macky admitted in an interview with the Financial Times in late-June that such projects could face delays of up to two years due to the coronavirus crisis.
