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Dakar city: Senegal 2013 Focus on key sectors

2014/03/05

In the nearly two years since the election of President Macky Sall, Senegal has made steady evolution in rolling out a number of new initiatives, paving the way for continued increase. Mining and agriculture received the majority attention from policymakers and investors in 2013, and they remain the sectors with the strongest short-term job creation and revenue potential.

According to IMF projections, Senegal’s GDP is expected to rise by 4.6% in 2014, up from around 4% in 2013 and 3.5% in 2012. The improving world economy and a stable political environment are expected to contribute to accelerated increase, particularly if the security situation stabilises in neighbouring Mali. The World Bank forecasts a 5% increase in GDP in 2015, which would mark a return to the rates recorded between 2003 and 2007.

The Economic Community of West Africa States (ECOWAS), of which Senegal is a member, grew by 7% over the year, improving prospects for intra-regional trade, thanks in large part to the robust performances of Senegal’s larger peers of Ghana, Nigeria and Cote d’Ivoire, all of which are notching up rates of above 7%.

 

Focus on key sectors

 

Agriculture is the leading player in Senegal’s economy, accounting for 16.7% of GDP and employing 78% of the people and the sector is a major focus of the government’s increase plans, particularly in terms of staple crop production.

Agricultural output remains dependent on rainfalls and external pressures, leaving it susceptible to volatile swings, but recent efforts have sought to mitigate this by improving irrigation and technical support to small-scale farmers. Senegal recently became a member of the G8’s New Alliance for Food Security and Nutrition, an initiative launched in 2012 to encourage private sector investment in food production, storage and processing in the African nations that belong to the alliance. As of September, Senegal had received pledges for $134m from 10 local and international companies, which intend to invest throughout the price chain, from production to processing.

An extra key pillar of the country’s efforts to boost activity in the short- and medium-term is the mining sector. Senegal has a number of large veins in precious metals, and the country’s mining industry as well played its part in attracting investment in 2013. A new, long-term agreement was signed by the government and Teranga Gold Corporation, a Canadian firm, which holds 10 permits covering 1200 sq km in eastern Senegal and operates the only active gold mine and mill in the country, the Sabodola mine. The arrangement extends five of Teranga’s exploration licences by 18 months and raises its royalty payment from 3% to 5%.

The government is as well seeking partners for the Faleme iron ore mine, next obtaining backing from the International Chamber of Commerce to rescind a stalled agreement with ArcelorMittal. With estimates indicating the mine holds around 750m tonnes of iron ore reserves, Faleme could prove to be a significant engine of economic increase.

Outside of the commodities sectors, the country is looking to boost foreign currency revenue streams, particularly through the tourism sector. Senegal’s position makes it accessible to European visitors, although new visa requirements introduced in July made entry requirements additional burdensome for potential visitors. Tourism operators worry that the prohibitive cost of the visa and the complicated documentation requirements will deter visitors.

The government will be hoping that its plans to invest CFA62bn (€93m) in tourism during 2014 will help galvanise the industry. It will as well be looking to the Blaise Diagne airport, which is scheduled to be operating by 2015 with an initial annual capacity of 3m passengers, to provide a boost to the sector.

 

Targeting reforms

 

Boosting the country’s increase rate is crucial to improving employment levels and helping increase rural development, which has prompted the government to accelerate reforms targeting infrastructure and revenues. Efforts to roll out structural changes gained pace in 2013, inclunding comprehensive tax reform enacted in January and operational and financial restructuring at SENELEC, the electricity utility. Direct and indirect support for SENELEC accounted for 2.5% of national expenditures in 2012.

Maintaining a fasten electricity supply is crucial for Senegal, given its push to increase secondary and tertiary economic activity. The government is pursuing several alternatives to the foreign oil used to fuel its power plants, but it has from presently on to give a evolution update on key issues, such as feed-in tariffs. Part the initiatives being explored, Senegal is considering importing liquefied natural gas, while continuing to look into opportunities in renewable resources.

 

Firm foundations

 

Senegal performed well on several macroeconomic indicators in 2013. Inflation remained low, at under 1%, and is not expected to exceed 2% in 2014. The budget deficit fell to 5.3% in 2013, down from 6% in 2011, on the back of government efforts to improve its balance sheets. However, a target of reducing the deficit to 4.6% next year could prove additional difficult to achieve unless significant evolution is made in cutting energy costs.

An improved outlook in general, combined with steady evolution, prompted ratings agency Standard & Poor’s to upgrade Senegal from negative to stable in July 2013. The government’s plans to build on a solid year by maintaining its focus on addressing structural issues should steer the country towards accelerated increase, paving the way for an increase in private investment in the medium term.

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