Index trend
Previous Quarterly Editions
Expropriation Risk: 52 52 52 52 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:33 33 33 33 ►Exchange Transfer and Trade Sanction Risk: 45 44 44 44 ►Sovereign Default Risk:82 83 83 83 ►
Overall Risk Temperature: 57 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
The global rules-based international order has had a mixed impact on Senegal. On the positive side, international norms of human rights and democratic accountability are inscribed in law and deeply internalized in political rhetoric and debate, if not in practice. President Bassirou Diomaye Faye, inaugurated on April 2, campaigned on a platform emphasizing institutional and constitutional reforms. He aims to reduce the power of the presidency, strengthen freedom of speech and bolster the independence of the judiciary. Whether or not his administration accomplishes these goals, the ideas that motivate them resonate in the country.
However, Faye and newPrime Minister Ousmane Sonko — potentially the real power in government — have been fiercely critical of the impact of global economic governance on Senegal’s economy. Like most African countries, the rules-based international order has not benefited the average Senegalese citizen. Instead, it has facilitated net capital outflows, reinforced export dependence, inhibited the development of a manufacturing sector and contributed to agricultural stagnation. This is despite comparatively high growth figures over the past decade, averaging 5% since 2012; however, headline growth figures have not translated into substantial job creation or livelihood improvements. Senegal dropped 14 places on the United Nation’s Human Development Index between 2011 and 2022, to 169 out of 189 countries.
Although the new administration has no ambition to challenge fully the rules-based order, it is likely to push for a fairer deal for Senegal. The administration may be constrained in renegotiating existing contracts with current investors, but future investors — especially in the extractive sector — may face more forthright demands for revenue-sharing and greater pressure to ensure higher levels of local employment and clearer benefits to host communities. The new administration may also seek more from existing international agreements, such as Senegal’s current fishing accords with the European Union, which have negatively impacted local employment.
In terms of foreign policy, this will likely translate into a more neutral international stance, downgrading relations with France while attempting to maintain good ties with Western countries overall. This will likely be accompanied by more aggressive efforts to secure foreign investment from elsewhere, especially the Middle East. The new administration may also look to better promote regional integration within the Economic Community of West African States but could also moderate former President Macky Sall’s hardline stance on regional juntas.
TREND ►
The expropriation risk is limited. Despite the new administration's radical rhetoric, its economic program is overwhelmingly reformist rather than revolutionary, with an emphasis on reducing the debt, streamlining budget procedures and improving administrative efficiency. If promises to bolster judicial independence are implemented, expropriation risks may become among the lowest on the continent.
Furthermore, the new administration is unlikely to move aggressively on its most controversial economic proposals — renegotiating oil and gas contracts and withdrawing from the CFA monetary zone, a currency pegged to the euro whose exchange rate is guaranteed by the French treasury. For the former, it has already walked back campaign declarations, now suggesting that any move away from the CFA would only occur in consultation with other CFA-zone member states. Faye's official program is also clear on both a multiyear timeline and its ultimate realization being contingent on fulfilling key macroeconomic criteria.
Faye’s administration also faces real constraints in reopening oil and gas contracts, especially a joint liquified natural gas project with neighboring Mauritania that would require the latter's consent for any renegotiation. For other contracts, such as the Sangomar deepwater oil field, new contract negotiations could prove costly, as they could delay production and potentially deter other investors.
Local political observers are sceptical that Faye will make serious moves in this direction; however, an effort may be made to obtain better terms from ongoing discussions with potential investors in the Yakaar-Teranga bloc, from which oil major BP has recently withdrawn.
Faye’s victory substantially reduces the risk of political violence or unrest in the coming months. Recent protests and their repression were the fruit of a three-year-long political crisis between the former president and the former opposition, whose most prominent figure is the current prime minister.
With Sall out of the picture and most of the 1,000 opposition activists, including Faye and Sonko, now released from prison, the main drivers of tension have abated.
However, the new administration faces many obstacles to implementing its reform program, including powerful vested interests, institutional hurdles and structural imbalances in Senegal’s economy. There are few easy policy solutions to these problems, meaning that many in Faye’s enthusiastic voter base could grow disillusioned with the lack of progress in the coming years. This could provide the seedbed for future unrest and popular mobilization.
The terrorism risk is moderate as regional jihadist insurgencies approach the Senegalese border. Credible reports suggest that Mali-based jihadists have at times entered Senegal’s southeastern Kedegou region for refuge and resupply. Artisanal mining communities in the region are potential vectors for jihadist infiltration and expansion.
The government has been aware of the threat for some time. It has significantly increased its security presence in the region and public investment to address the economic causes of insurgency. The Senegalese state is significantly better-resourced and capable than its Malian neighbor; however, that may not prevent an insurgency from developing in the Kedegou or Tambacounda regions in the coming years.
Meanwhile, the terrorism risk in urban areas, especially Dakar, is currently limited. Regional jihadists have not employed urban terrorism for years, although this is always subject to change.
The risk in the coming months is limited and nearly nonexistent as long as Senegal remains within the CFA franc zone.
As noted above, there is only a very low risk that Senegal unilaterally breaks with the CFA in the coming months; however, if this were done outside of a negotiated well-telegraphed process, the short-term costs could be significant, and the new currency would likely suffer major depreciation in its early days. One potential warning sign of an abrupt departure from the currency would be a dramatic degradation of relations with Paris.
The likelihood of Senegal leaving the CFA zone will nevertheless increase over time. While this will increase uncertainty over monetary policy and capital flows, if well managed it could benefit the Senegalese economy.
So far, Faye’s official program and Sonko’s statements suggest that the new administration will approach the question pragmatically.
A core element of the new administration’s economic plan is to reduce the debt load. This is significant, at 72% of GDP, with debt service costing 47% of domestic revenue.
Their main strategies for doing so include raising revenues by expanding the local tax base and boosting export revenues. These may prove difficult to accomplish, at least in the short term. Budgetary austerity would clash with the administration’s goals to both address cost-of-living concerns and boost growth.
The result is that politics may interfere to some extent with debt reduction. At the same time, new revenues from oil and gas fields — expected to come online later this year — may give the administration some fiscal space unavailable to other governments in a similar situation. Also, Senegal’s expected 8% GDP growth this year will lower the debt-to-GDP ratio, making it more sustainable.
Nonetheless, there is a moderate risk of a clash with the International Monetary Fund (IMF), as the new administration will likely introduce subsidies on a range of essential goods to offset inflation and address immediate cost-of-living issues. This could affect the release of expected IMF funds as part of Senegal’s current set of programs with the institution.
