Previous Quarterly Editions
Expropriation Risk: 34 34 34 34 Political Violence Risk: 44 40 38 36 Terrorism Risk: 42 43 41 42 Exchange Transfer and Trade Sanction Risk: 40 40 40 40 Sovereign Default Risk: 44 42 40 38
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The confrontational mood that dominated Senegalese politics during the run-up to the presidential election in February 2019 has slowly cooled over the subsequent months. Political debate has now moved on from President Macky Sall’s successful bid for a second term to more mundane policy issues. In what was essentially the final chapter of the election saga, President Sall pardoned the former mayor of Dakar, Khalifa Sall (no relation), whose controversial imprisonment on charges of financial mismanagement prevented him from being a formidable challenger who may well have taken Sall to a second round. Khalifa Sall has signalled his determination to make a political comeback and appears to have retained his formidable support in urban areas. In another sign of the calmer political atmosphere, however, the opposition has not challenged the government’s postponement of local elections for administrative reasons and indicated a readiness to discuss preparations for the rescheduled polls. An encouraging economic outlook has also helped to defuse political tensions. Real GDP growth was close to 7% in 2019, while inflation was only 1.3%. Much of the economic optimism is linked to the country’s relatively new hydrocarbons sector. BP is continuing to develop the Grand Tortue Ahmeyim offshore gas field that sits astride the maritime border with Mauritania, with production set to begin in 2021 or early 2022. Production from the SNE field, where Woodside has taken over as the operator, is now expected to start in 2022. Production has been slightly delayed, but only because Woodside and its partners have decided the field is sufficiently promising to justify buying a floating offshore production facility rather than leasing one. Senegal and the other seven members of the West African Economic and Monetary Union (UEMOA) are likely to become the founding participants in the planned West African common currency known as the Eco, which was announced by President Macron at the end of 2019. With its strong growth and a budget deficit of around 3%, Senegal is in a relatively comfortable financial position, by regional standards, and the government has begun to put in place the policies that will be required to sustain careful fiscal management once the gas and oil revenues start flowing. As part of preparing for this income, a new system of programme budgeting is being introduced in 2020. Each ministry will be allocated a small number of key tasks, such as the provision of basic education, or the construction and maintenance of the country’s road network. Each minister will be allocated a funding envelope for the set of programmes for which their department is responsible, and they will 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.
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Senegal’s strong tradition of good governance has kept the expropriation risk relatively low for a long time, but the need to attract the foreign capital for developing its offshore hydrocarbon assets is an added incentive to ensure a pro-business environment. The government is helped by the absence of any serious domestic political pressure for tougher action against foreign companies, and there is no indication that any kind of economic nationalism is likely to gain traction once oil production starts. However, it is worth noting that the government toughened the contract terms for its latest round of offshoring licencing in November, arguing that recent discoveries have reduced the risk for exploration companies.
Street demonstrations are not uncommon across Senegal but reflect the resilience of civil society and democratic culture rather than a deep antipathy to the government in general or Sall in particular. The risk of injuries to protesters or police can never be ruled out, but the authorities are mostly restrained in their response. In Casamance region, in the south, some former separatist rebels dabble in armed criminality, but a peace process has effectively ended any residual political violence.
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Although Senegalese Islam has deep traditions of tolerance and is culturally open-minded, the authorities still have several reasons for a measured concern about the risk of jihadist terrorism. The country has been a major contributor to the military effort to stabilise Mali and fend off militant violence there and it 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 and the conviction of 15 Senegalese on terrorism-related charges in 2018 underlined the risk of online radicalisation.
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Planning for the new Eco continues as it prepares to replace UEMOA’s existing CFA franc currency. It will initially begin by keeping the current fixed parity to the euro, backed by a French treasury guarantee. Eventually, however, there is expected to be a move to a floating basket valuation once other West African countries that are not members of UEMOA join the new currency. While the rebranding of the CFA franc is relatively easy, many of the big decisions required for the longer term move to a floating West African currency remain to be settled. The current UEMOA members will not want to abandon the monetary credibility and discipline imposed by their shared central bank, the politically independent Dakar-based Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO). Arrangements for a new central bank for West Africa have yet to be finalised, but President Sall is likely to play a leading role in shaping the outcome.
The transition to programme budgeting is part of the government’s determination to avoid the experience of other countries that have overspent while waiting for oil wealth to arrive. As such, it is an example of Sall’s fiscal prudence that plays well with international lenders. The government is also keen to maintain Senegal’s reputation for caution in order to protect its credit rating, which affects not only public borrowing costs but also private sector investors seeking funds for capital intensive projects.
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