Previous Quarterly Editions
Expropriation Risk: 51 52 52 48 ▼ Political Violence Risk: 48 48 48 48 ► Terrorism Risk: 40 40 40 37 ▼ Exchange Transfer and Trade Sanction Risk: 45 35 35 45 ▲ Sovereign Default Risk: 66 66 75 66 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Among sub-Saharan countries, Senegal is a leader in responding to the challenges posed by climate change. There is a recognition of the threats that rising temperatures and sea levels, and unpredictable weather, pose to this largely low-lying coastal country in the arid Sahelian climate belt. But it is also a reflection of Senegal’s strengths: a climate and geography favourable to the development of renewable power generation, high levels of economic growth, the political and financial stability to attract international funding and capital investment, and relatively strong governance and policymaking institutions.
In inland areas, temperatures routinely climb above 40 degrees Celsius during the hottest months and rainfall is concentrated heavily between late June and early September. Local agricultural and pastoralist practice is adapted to these conditions, with well-developed systems for monitoring the risk of drought and food insecurity. There is an increasing focus on strategies to counter desertification, such as planting trees well-adapted to tough conditions with a persistent risk of rainfall failure.
However, rises in temperature and the increased unpredictability in the volumes and timing of rainfall are a threat to agricultural productivity, cycles of livestock grazing and transhumance, and to rural household incomes and commercial value chains.
Climate change thus exacerbates social and economic pressures, undermines livelihoods and youth opportunities, and threatens to counteract the positive impacts of government investment in rural services and infrastructure. There is also the risk climate change contributes to eroding the bases of social and political stability.
Senegal is a partner with Mauritania, Mali and Guinea in the Organisation pour la mise en valeur du fleuve Sénégal (OMVS), which manages the waters of the Senegal river basin through a series of dams, generating hydropower that is distributed through a shared grid. Senegal has also begun to develop other renewable energy resources: last year the 158.7-megawatt (MW) Taiba N’Diaye windfarm entered commercial service, and a 100-MW extension to this project is now under study.
With a coastline exposed to Atlantic winds, Senegal is well-placed to host further windfarms. Additionally, the sunny climate has facilitated the development of solar power plants, generally funded through a blend of commercial and development bank financing. Installations at Kael and Kahone came on stream in 2021 and generate sufficient power for 540,000 people.
Measures to tackle climate change are not particularly controversial, because Senegal has not reached the stage where such policies would require the population to make hard choices or sacrifices. Close to a quarter of the population still lacks any access to electricity, some 80% of which is generated from thermal plants powered by fuel oil. Thus, at this stage the new renewable power projects are a boost to overall national generating capacity, rather than a replacement for carbon-intensive thermal generation. In any case, the output from solar plants is highly price competitive and so could bring down the cost of electricity over the longer term.
The same applies to public transport: the new electric urban rail line from central Dakar to Diamniadio is energy efficient and much less polluting than alternative road transport. But in a conurbation whose population is growing rapidly, the line’s main significance will be to provide much-needed additional transport capacity.
Overall, the government treats action against climate change and the expansion of renewable energy as high priorities. It does not prioritise this issue ahead of other concerns, which would be unrealistic for a low-income country needing to create growth and jobs. But it gives as high a priority as is realistically feasible to renewables and protection of the environment and fighting desertification.
International investment is a key part of President Macky Sall’s strategy for economic development and the creation of a more diverse range of skilled, well-paid jobs. There is little prospect Sall’s government would expropriate assets or business operations owned or operated by private investors, unless these clearly fail to fulfil contractual and performance commitments.
Some political opponents do express a more radical outlook on foreign policy. If they do well in the July legislative elections they might exert pressure for greater transparency over state approvals for international investors’ projects. But the opposition seems unlikely to try seriously to disrupt economic projects because of the impact this would have on business confidence and employment. Moreover, if the opposition wins power at the 2024 presidential election, in practice it is likely to maintain the Sall administration’s welcome for major international investors, to create growth and jobs.
Serious investors with credible business plans and who undergo normal regulatory processes will probably be in a secure position, provided they have operated within the proper rules. The opposition has exerted pressure over the role played by President Sall’s brother, Aliou Sall, in the energy sector, but they have not criticised the actual major projects now being developed by foreign investors.
TREND ►
There is a significant risk of urban protest that could turn violent if there is controversy over the outcome of the July legislative elections. Municipal elections in January saw the opposition do well in a string of cities. Although President Sall’s supporters retained the second city, St Louis, as well as Mbour and many rural areas, the opposition’s strong performance has raised expectations and left the parties of the governing Benno Bokk Yaakar (BBY) alliance on the defensive. If legislative election results do not show large gains for the opposition in the cities where they did well in January, their supporters may feel cheated and there could be large demonstrations or even riots.
As a major regional hub for diplomacy and international organisations, and thus with a large expatriate community, Dakar is clearly at risk of suffering the sort of urban terrorist attacks seen in various West African and European cities in recent years. Tourist resorts which attract many European visitors are also potentially at risk. However, Senegal’s security services are capable, and the military has strengthened its oversight of the border with Mali, where there are terrorism-related security concerns. Nonetheless, a few individuals have been convicted of involvement in militant plots and it is impossible to reduce the risk to zero.
TREND ▲
Senegal is a member of the eight-country West African Monetary and Economic Union (UEMOA), whose CFA franc common currency is pegged to the euro at a rate that France guarantees. UEMOA and other members of the Economic Community of West African States (ECOWAS) have set phased convergence criteria to prepare for a move to a new single currency for the whole region in 2027. But complex institutional and strategic issues remain to be resolved. As a stable democracy with close ties to France, the European Union and the United States, Senegal is not likely to be the target of sanctions.
The COVID-19 pandemic reduced Senegal’s previously strong rate of real gross domestic product (GDP) growth to just 1.5% in 2020. However, the economy has since rebounded, with growth of 5.5% projected for this year. The government believes it will be able to bring its deficit back down to 3% of GDP in 2023.
Next year should see the Grand Tortue Ahmeyim (GTA) offshore liquefied natural gas project start production. Kosmos Energy, partner to BP in the project, says construction is 70% complete. The project will substantially boost the export earnings of both Senegal and Mauritania and strengthen energy security. The project has been designed to provide for natural gas to be piped ashore to both countries, to supply new local power stations. The Sangomar oil project being developed by Woodside will further boost export earnings.
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