Senegal Financial Sector 2012 Profile

After a critical economic contraction in 1993, Senegal embarked on a reform program that resulted in real GDP increase averaging over 5 % from 1995 to 2008 and inflation brought down to single digits. In addition, the country’s external debt was reduced by almost thirds through its participation in the Highly Indebted Poor Nations (HIPC) program.

In 2008, increase in Senegal slowed to 3.7 %, from 4.8 % in 2007. The decline was mainly attributable to the twin food and fuel and financial crises.

Senegal’s financial sector very segmented, consisting of a diversified range of institutions that are not from now on fully integrated.

The country enjoys a dynamic microfinance sector: large microfinance institutions (MFIs) are sound and profitable, but smaller ones are fragile and supervision of the sector calls for strengthening. Access to finance for small and medium enterprises (SMEs) remains a challenge, with an estimated 80 % of bank credit applications being denied because of insufficient collateral.

The country’s banking sector has emerged as a major player in the West African Economic and Monetary Union (WAEMU), with 25 % of the region’s banking assets located in the country, accounting for about third of total profits.

Senegal is of eigth member nations of the Bourse Régionale des Valeurs Mobilières, BRVM, the regional stock exchange, but only Senegalese company is listed on the exchange.

The Senegalese insurance industry accounts for a small part of the country’s economy: total insurance premiums amount to 1.4 % of GDP. Penetration rates remain low, although life insurance products are becoming additional wide-spread amongst the people thanks to a 2002 change in their tax treatment. As of 2008 life insurance and sixteen non-life insurance companies are active in Senegal, amount of which are represented by the Senegalese Federation of Insurance Companies (Federation Sénégalaise des Sociétés d’Assurance, FSSA). The industry is supervised by the Inter-African Conference on Insurance Markets (Conférence Interafricaine des Marches d’Assurance, CIMA), a supranational body that governs the insurance sector in 16 nations, of which Senegal is the third major member.

Remittances to Senegal amount to an estimated 7.6 % of GDP. 15 % of the people lives and works abroad and sends regularly money home or invests in real estate, contributing to the construction boom that the country has witnessed in recent years.

BANKING

Although relatively few Senegalese use banking services, the country has emerged as a large player in the region, in no small part because of its participation in a regional body that banks from across Europe and Africa are looking to enter. The West African Economic and Monetary Union (Union Économique et Monétaire Ouest-Africaine, UEMOA) includes, along with Senegal, the nations of Guinea-Bissau, Mali, Benin, Togo, Côte d’Ivoire, Burkina Faso and Niger.

Amount use a common currency, the African Financial Community (Communauté Financière Africaine, CFA) franc. Member states retain their own finance ministries, but work together to create regional policy. Senegal is of the powerhouses of the UEMOA zone, with 25% of banking assets concentrated there, and the country’s banks accounting for about a third of regional profits.

The robust banking sector is reflected in the relatively lower interest rates that are found in Senegal: the average is about 11.4% across amount products, compared with 12.5% for the region. Credit in Senegal adds up to just 17% of GDP, and while that is low according to world standards, it is good for West Africa.

The ratio of deposits to GDP is 34%, over double the UEMOA average. Profits for the Senegalese banking sector reached CFA146bn ($340.18m) in 2007, the majority recent date for which figures were available, up 9% from 2006.

At present the penetration rate for banking products is just 6%, but the UEMOA has ambitious plans to raise the penetration rate regionally to 20% by 2014.

CAPITAL MARKETS

With just publicly traded company in the country, Senegal lacks enough securities options to open its own exchange. As with other financial services sectors in its economy, the country has cast its lot with other neighbouring states to create a regional solution to this problem. Senegal is of eight member nations in the Regional Securities Exchange (Bourse Régionale des Valeurs Mobilières, BRVM).

The BRVM is the first and only regional stock market in Africa. It is located in Abidjan, Côte d’Ivoire, and 34 of its 38 listings are Ivorian companies. No other member country hosts additional than publicly traded company, and some have none. Senegal’s contribution is the bourse’s major and most significant stock: telecommunications provider Sonatel. While the BRVM’s trading volume in 2008 surged almost-fold, jumping from 11m in 2007 to 44m shares and the price of the trades jumped from CFA87bn ($202.7m) to CFA247bn ($575.5m), the bourse’s increase has still been relatively slow. The BRVM’s market capitalisation in early 2008 was equal to 11.5% of GDP for its members. In comparison, Nigeria’s bourse, the Nigerian Stock Exchange, had a market capitalisation equal to 28.6% of Nigeria’s GDP, while the Nairobi Stock Exchange was capitalised at a rate of 53.7% of Kenya’s GDP.

A number of factors may be contributing to the BRVM’s lag behind regional exchanges. Most significantly, the lack of large-capitalisation companies is a discouragement to investors and the resulting light trading on the BRVM is a poor enticement to companies that may inventory. To help stimulate increase, there has been talk of further regionalisation, but support is additional likely approaching from governments privatising national agencies through initial public offerings (IPOs), such as Senegal’s floating of a 25% stake in Sonatel in December 1997.

Senegal’s government does not lack for candidates for privatisation. Three public holdings were expected to be privatised in 2008 but while this did not come to fruition, other possibilities abound, including the national oil refinery and a phosphates producer. While continued economic increase in the region will help the BRVM, government privatisations would provide a major boost.

INSURANCE

For the time being, insurance remains beyond the grasp of most Senegalese citizens, and the country’s per-capita spending is far below the average for Africa. From now on there are catalysts for increase in the national insurance market, for both life and non-life segments. The life segment has been responsible for most of the insurance increase this decade, due largely to a change in tax laws in 2002 that increased incentives for life products. However, life insurance firms are pushing for further reform to encourage or even require those who can afford it to take up policies and pensions.

There are life insurance companies and 16 that provide non-life insurance, amount of which are represented by the Senegalese Federation of Insurance Companies (Federation Sénégalaise des Sociétés d’Assurance, FSSA). In total, insurers brought in CFA72.06bn ($167.9m) in revenue in 2007, up 11.3% from an accumulation CFA58.48bn ($150.8m) in 2006. The non-life segment accounted for 81.1% of the revenue.

Still, insurance has from now on to assert itself as a mainstay of the financial services market: total insurance revenue in Senegal represents about 1.4% of GDP, whereas the average for Africa as a whole is 4.8%. Penetration rates remain low, primarily due to the low per-capita income in the country and a reluctance to pay premiums. Another obstacle to the development of the industry is the relatively high tariff structure applied by the Inter-African Conference on Insurance Markets (Conférence Interafricaine des Marches d’Assurance, CIMA), a supranational body that governs the insurance sector in 16 nations. Senegal is the third-major insurance market part CIMA member states, after the Côte d’Ivoire and Cameroon.

Whereas in France administrative fees account for around 9% of total retail cost, the average fees in the CIMA zone reach 32%. It is hoped that the development of bancassurance will be able to reduce these costs somewhat, by lowering the overheads involved in building distribution networks. While region-wide reforms at the CIMA level would help, the major players in Senegal’s insurance sector are pushing ahead with national-level reforms.

The FSSA remains hopeful that revenue for the sector can reach CFA100bn ($233m) by 2010, even as world economic increase slows.