Previous Quarterly Editions
Expropriation Risk: 34 34 34 34 Political Violence Risk: 40 38 36 38 Terrorism Risk: 43 41 42 40 Exchange Transfer and Trade Sanction Risk: 40 40 40 42 Sovereign Default Risk: 42 40 38 40
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The COVID-19 pandemic transformed the country’s political mood and its economic climate in the space of just a few weeks. The government moved relatively quickly to impose severe lockdown measures in Dakar that stopped almost all inbound travel and banned large gatherings. It also began to apply the system for monitoring, testing and tracking cases of infectious disease that it established after the Ebola epidemic in neighbouring Guinea. Dakar quickly became a key African centre of expertise in testing for COVID-19, with the city’s Fann hospital acting as a specialist treatment and research centre. The country’s political class has been united in backing the measures taken to fight the pandemic, but in a country with a lively culture of debate, President Macky Sall is sure to face opposition criticism if there are perceived shortcomings in the state response now that the virus has entered the wider population. The virus will impact a new system of programme budgeting that is being introduced this year, under which each ministry will be allocated a funding envelope for the set of programmes for which their department is responsible, then be answerable for the completion of these functions within the allocated budget. The aim is to develop a culture of accountability and careful management that will help future governments to resist political pressure to over-spend, but this is now of secondary importance given the virus crisis. Before the virus struck, President Sall made a two-day visit to neighbouring Mauritania during which he and President Mohamed Ould Ghazouani signed several bilateral agreements. The two countries share important offshore hydrocarbon fields, but in this instance the most important agreement covered fishing. The fisheries sector has long been a source of tension, most recently because Mauritania banned access for thousands of Senegalese fishermen last year despite a 2018 agreement to share fishing ground, and the new deal should remove a significant irritant to bilateral relations.
TREND ► OUTLOOK ►
Just as major oil and gas projects are being developed in the country for the first time, the COVID-19 pandemic has depressed world demand for hydrocarbons. President Sall’s determination to learn the lesson from other countries who spent projected new oil revenue before it had been received means the impact of lower prices will be limited, but any prolonged downturn in demand will be a setback to the government’s development plans. BP has delayed delivery of a floating LNG vessel for the Grand Tortue Ahmeyim project that Senegal shares with Mauritania, delaying production by a year, while the developers of the Sangomar oil project, which is fully within Senegalese waters, may also put back the start of production. In addition to the oil sector, the government is keen to sustain foreign investor interest in power generation from gas and renewable sources, as well as in other sectors including transport, agricultural processing, tourism and financial and professional services. The hope is that once the pandemic crisis has passed, Senegal can move quickly to revive its attraction as one of the most stable and economically resilient investment destinations in West Africa. As such, the priority is to retain the confidence of potential foreign investors and this keeps the possibility of expropriation low.
TREND ▲ OUTLOOK ►
Senegal has a culture of street politics and demonstrations that occasionally leads to clashes between protesters and the police, particularly in deprived urban areas. The socio-economic pressures resulting from the lockdown against the virus could spark outbreaks of protest, especially on the periphery of the capital, but the authorities will work hard to police these in a restrained manner. The residual aftermath of armed separatist activity in Casamance region a decade ago sometimes manifests itself as violent criminality, but even this has become marginal.
TREND ▼ OUTLOOK ►
Although Senegal has so far been spared the jihadist terrorism that has hit much of the Sahel and several West African capitals, the risk remains a serious one. Porous borders cannot completely be sealed and a few individuals have been seduced by extremist ideas at variance with the deeply pluralistic, moderate, and tolerant culture of Senegalese Islam. In terms of external risk, the country has been a major contributor to the military effort to subdue militant violence in Mali and also has a close relationship with France, which maintains a support base facility in Dakar. In addition, the city is one of the most important diplomatic and economic hubs in West Africa, and Senegalese coastal resorts attract Western tourists. Although there have been no terrorist incidents so far, Senegal remains a potential target.
Even before the pandemic crisis made it unlikely that currency reform would be completed this year, there was uncertainty about some aspects of the new Eco currency planned by Senegal and the other seven members of the West African Economic and Monetary Union (UEMOA). The UEMOA plan, which was devised by Côte d’Ivoire’s President Ouattara, a former deputy managing director of the IMF, and agreed with France in December 2019, will see the Eco replace UEMOA’s existing common currency, the West African version of the CFA franc. Nigeria and some other non-UEMOA members see the plan as a usurpation of a similar and earlier plan for an Eco that has been agreed by the Economic Community of West African States (ECOWAS), although UEMOA says that it expects to see an eventual merger of the Eco versions. At the outset, UEMOA plans to maintain its present monetary arrangements and institutions, meaning a fixed peg to the euro, its independent joint central bank, and a common capital market and banking commission. The plan is that eventually, when other countries are ready to join, the Eco’s peg to the euro will be replaced by a floating exchange rate basket that includes the euro, the dollar (USD), and other currencies.
Senegal was in a strong position before the COVID-19 pandemic, with the economy growing by 6% in 2019. The country had a policy agreement with the IMF but has not needed financial support from the Fund before now. In the long term, it can still look forward to continued growth and arrival of first-time revenues from oil and gas sales. However, while the long-term fundamentals remain solid, the pandemic has transformed the immediate position by slashing trade and tourism revenues while requiring substantial health and social support spending at a time when foreign investors will be pulling back from new commitments. As a result, the government has now requested 220 million USD in urgent crisis support from the IMF’s Rapid Credit Facility and Rapid Financing Instrument. The Fund’s response has been swift and positive, and the immediate help will be important in meeting health service costs.
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