info@ceoworld.biz
Saturday, April 13, 2024

CEOWOLRD Header

Senegal

Verified
Senegal Flag

GDP: USD27.7bn (World ranking 109)
Population: 17.3mn (World ranking 71)
Form of state: Republic
Head of government: Macky Sall (President)
Next elections: 2024, Presidential

Strengths

  • A fast-growing economy with a projected GDP growth of +8% in 2024
  • Diversified investments in agriculture, electricity production, information technology and transport are stimulating development
  • Although there were protests and tensions in the run-up to the presidential election, Senegal has a history of peaceful power transitions, so it is possible to view the process as a continuation of democratic dialogue in the nation

Weaknesses

  • Senegal faces liquidity challenges due to its heavy dependence on imports and the limited size of its economy compared to hydrocarbon projects
  • Despite a history of peaceful transitions, political tensions are expected to persist after the presidential election, potentially impacting foreign investment and the overall business environment
  • Senegal faces a shortage of skilled local labor and heightened dependence on international oil companies to keep offshore projects afloat

Economic overview

One of the fastest-growing economies in Africa

Despite further delays in major offshore upstream natural gas projects, Senegal’s GDP is expected to have grown by about +5% in 2023 and to accelerate to +8% in 2024 on the back of the start of LNG production and a new legislature that will benefit from higher revenues. The presidential election in February is the political cornerstone of the year and arrives after an ultra-long presidential campaign coupled with the exclusion of the main opponent for judicial reasons and unprecedented protests and repression throughout 2023. Our forecast for Senegal’s GDP growth for 2023–2024 reflects the economy’s strong fundamentals, continued IMF support and the assumption that oil and gas production will go online in H1 2024. Ongoing investment in agriculture, electricity production, information technology and transport will have a multiplier effect on the whole economy.

Year-on-year inflation reached a multi-decade high of +14% in November 2022, largely on account of food price increases, then cooled down gradually and is expected to average 4% in 2024. The CFA franc is pegged to the euro at 655.96 units per EUR1 and hence moves in tandem with EUR-USD swings. The National Assembly passed the 2024 budget bill, which meets the IMF’s deficit objective of 3.9% of GDP and reinforces policy commitments for fiscal consolidation and debt sustainability. The budget law includes a consistent growth in tax income to 20% of GDP by 2025, as well as a progressive phase-out of untargeted energy subsidies, with a pledge to reduce them to 1% of GDP in 2024.

Trade balances, public debt and borrowing trends indicate deteriorating liquidity

Senegal is heavily dependent on imports of food and crude oil and is thus exposed to international commodity price developments. Import-price volatility along with adverse domestic weather conditions preserved a structural trade deficit for a long time, but this may come to an end when oil projects begin. Hydrocarbon-related investment and exports represent more than half of the forecasted GDP growth over the next two years, which may offer substantial support to projected fiscal revenues and government spending. Given the current fiscal constraints, the IMF recommended that sustained fiscal consolidation efforts continue through the medium term by increasing fiscal revenues, phasing out energy subsidies by 2025 and limiting the use of the budgetary reserve envelope, allowing authorities to limit the fiscal deficit to around 5% of GDP.

The public and private debt composition and the borrowing trend point to a deterioration of liquidity in the medium term, with Senegal’s debtors now owing more than 15% of GDP to private creditors and foreign governments on a bilateral basis. The corresponding amount was less than 5% of GDP in 2013. Public debt as a share of GDP has doubled in ten years, from 37% to an estimated 75% in 2023. International reserves remain stable at around the equivalent of USD3bn, but the hard currency pool between West African Economic and Monetary Union members partly mitigates liquidity risks.

The presidential election in February is a political cornerstone after an ultra-long campaign and protests

In February, Senegal’s voters will elect a new president after Macky Sall served the maximum two terms allowed. In a subregion plagued by coups in previous years, the country has distinguished itself through peaceful power transitions in recent decades. However, political tensions are likely to continue even after the election, with an effect on foreign investment and the overall business environment. In 2023, protests took place particularly in Dakar and the hinterland, as well as in the southern province of Ziguinchor, with several arrests and clashes between the Senegalese military forces and the secessionist Movement of Democratic Forces in the Casamance (MFDC).

The current lack of skilled local labor and the likelihood that the government will demand strict adherence to using local suppliers and subcontractors complicate Senegal’s goal of 50% local content for the oil and gas industry by 2030. Contract risks in the hydrocarbons sector have decreased as the government has pushed out many smaller operators to make room for better-resourced firms. Others who fail to reach an agreed-upon work schedule risk losing their concessions if they lack beneficial political ties and, more recently, discussions between a big operator and the government failed, resulting in the restart of an international arbitration process. The chances of expropriation are typically modest. Commercial dispute resolution is improving because of the introduction of a commercial court, but the judiciary remains understaffed and susceptible to political pressure, making contract enforcement more difficult.

CEOWORLD magazine - Insights - Senegal