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Country Commercial Guides for FY 2000: Senegal Report prepared by U.S. Embassy Dakar, released July 1999    Note*

CHAPTER II. MAJOR ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

The former capital of French West Africa, Senegal is a semi-arid country located at the western edge of Africa with a population estimated at more than 8.9 million in 2000. Predominantly rural and with limited natural resource endowments, the country earns foreign exchange from fish, phosphates, peanuts, tourism, and services. Its economy is highly vulnerable to variations in rainfall and changes in world commodity prices. Senegal depends heavily on foreign assistance, which in 2000 represents about 32 percent of overall government spending (including both current expenditures and capital investments), or CFA 270.8 billion (USD 416.6 million).

Since the January 1994 CFA franc devaluation, the IMF, the World Bank and other multilateral and bilateral creditors have been supporting the Government of Senegal's (GOS) structural and sectoral adjustment programs. The broad objectives of the adjustment programs have been to facilitate growth and development by reducing the role of government in the economy, improving public sector management, and enhancing incentives for the private sector.

Senegal's donors rewarded its success with continued support for the reform process. On June 18, 1998, Paris Club creditors granted "Naples terms" to Senegal, which included a 67 percent write-off of some of its pre-1983 debt stock. This was Senegal's twelfth and last Paris Club agreement, a record for a single debtor. At the fourth Consultative Group meeting in Paris in April 1998 (sponsored by the World Bank and the IMF), Senegal received pledges for program and project aid for the period of 1998-2000 of about CFA 1,200 billion (USD 2 billion). With an external debt of USD 2,495 million, and with its economic reform program on track, Senegal is looking forward to qualifying for the multilateral debt relief initiative for heavily indebted poor countries (HIPC).

Senegal's fourth ESAF program (1998-2000) approved in April 1998 for SDR 107.01 million remains on track. Macroeconomic indicators show that Senegal has turned in a respectable performance in meeting the target set under the Fourth ESAF program in 1999; annual GDP remained positive at 5 percent. Inflation was reported to be 1.2 percent, compared to 1.8 percent in 1998, and the current account deficit (excluding transfers) was hold at 7 percent of GDP. The fourth ESAF program has encouraged the GOS to focus on a new generation of reforms in governance and fiscal management, and privatization of remaining parastatals. In response to the IMF reorientation of its structural adjustment facility toward poverty reduction and growth, Senegal has declared its intention to transform its previously developed program to fight against poverty into a country reduction strategy. The IMF board could convert Senegal's current ESAF program to a Poverty Reduction Strategy by the end of year 2000. In 2000, government objectives are to reach a real GDP growth rate of 6 percent, keep inflation at less than 3 percent, lower the external current account deficit (excluding official transfers) to less than 7 percent of GDP, and hold a fiscal surplus (excluding grants) of 1.3 percent of GDP. All of these figures are consistent with IMF program projections for Senegal in 2000.

While efforts by Senegal to stick to its structural adjustment targets have been applauded and amply rewarded by donors, its limited natural resources relative to its high population growth and unemployment rates, and its rapid urbanization, could easily compromise the country's long-term development prospects. In addition, with the problem of uncertain rainfall levels, Senegal's continued reliance on agriculture, which occupies roughly 70 percent of the workforce, leaves its economic recovery fragile, and sustained growth difficult to achieve. These factors make the pursuit of sound post-devaluation economic policies crucial.

Principal Growth Sectors

Fisheries The fishing sector remains Senegal's principal economic resource and major foreign exchange earner. In 2000, the sector is expected to yield CFA 163 billion (USD 250.7 million) or about 24 percent of total foreign exchange earnings. The GOS estimates that the fishing sector employs more than 200,000 people. In addition, it also generates significant temporary employment in the informal sector, in particular through artisanal fishing. Further development of the fishing industry will depend on monitoring fishing regulations and attracting new investment to maintain and upgrade the existing fleet in order to increase catches.

Mining Mining output consists mainly of calcium phosphates, although plans to develop gold and iron ore are underway. Mining accounts for less than two percent of Senegal's GDP, but contributes significantly to export earnings and employs more than 2,500 people. In 1999, phosphates and phosphate products accounted for 15 percent of total merchandise export earnings or CFA 83.7 billion. The Government predicts that earnings from phosphates will go up to CFA 97 billion (USD 161.6 million) in 2000, an increase of 16 percent due to increase of capacity production and favorable world market prices. Phosphate mining could expand with the exploitation of the high-grade deposits of calcium phosphate in Matam, in northeastern Senegal. Peanuts

Peanut production accounts for around 40 percent of cultivated land, taking up two million hectares, and provides employment for as many as one million people. Although the peanut sector's contribution to foreign exchange earnings has dropped below those of fishing and mining, peanuts continue to play a dominant role in the overall economy as the main cash crop for many rural Senegalese farmers. The sector continues to suffer from low production due to uncertain rainfall and soil depletion. Exports of peanut products reached CFA 40.5 billion (USD 62.3 million) in 1999 and represented eight percent of total export earnings. In 2000, the Government anticipates that export sales of peanut products will be CFA 50.0 billion (USD 76.9 million), an increase of 23 percent.

Tourism

The tourism industry has come to play an important role in the economy as the government has sought to diversify its sources of foreign exchange. Since the government began actively promoting Senegal as a tourist destination, especially in European markets, but also in the U.S. ethnic market, earnings have grown steadily. The peak of the tourist season is November-March, when Senegal's climate is very attractive. In 1999, more than 500,000 tourists came to Senegal, earning the country some CFA 80.0 billion (USD 123.0 million). French investors dominate foreign investment in hotels and other tourist facilities. Government Role in the Economy The government is still by far the country's largest employer and highest consumer, with a 2000 operating budget of CFA 321.8 billion (USD 495 million). Over one third of the budget comes from grants and other foreign transfers. The government's 2000 budget priorities remain the same as in previous years. Its investment program focuses particularly on public service infrastructure (the quaternary or fourth sector which includes roads, water, and health), on agriculture, and on the service sector (tourism, trade, transport, telecommunications). Senegal is almost entirely dependent on foreign aid to finance public investment.

After a timid start in 1995, the government's privatization program gained momentum. To date, the water company SONEES, the telecommunications company SONATEL, the phosphate mining company SSPT, the textile company SOTEXKA, the building construction company HAMO, the national airline company Air Senegal, and the electricity company SENELEC have been successfully privatized. The sales of other key parastatals such as the peanut processing company SONACOS and several hotels have been delayed as the result of the lack of interested buyers and procedural errors. A number of important measures have been implemented since 1998, including partial liberalization of the import of petroleum products, elimination of special privileges granted to the monopoly petroleum refinery SAR, and revision of the pricing and taxation system for petroleum products.

Balance of Payments

During 1999, Senegal's balance of payments situation improved slightly. Revenues from exports reached CFA 612.1 billion (USD 941.6 million) in 1999 compared to CFA 569.4 billion (USD 876.0 million) in 1998, an increase of nine percent in dollar terms. Imports grew at a similar rate of nine percent. The current account deficit (excluding official transfers) increased slightly from 6.9 percent of GDP in 1998 to 7.0 percent in 1999.

Infrastructure Situation

Senegal's transportation infrastructure is better developed than that of most of its neighbors. Leopold Sedar Senghor (LSS) airport at Dakar-Yoff is one of the principal international airports in West Africa and can handle all types of aircraft on its two runways. LSS airport serves more than 24 international airlines, although no U.S. carriers currently offer service. LSS handles approximately one million passengers per year, and moves more than 24,000 metric tons of international airfreight. There are direct flights to Europe and North America, and frequent flights to other African countries. Secondary airports are located in the regional cities of Saint Louis, Tambacounda, Kolda, and Ziguinchor. Senegal participates in the multinational airline, Air Afrique, and there is a domestic air network operated by Air Senegal. Air Senegal has exclusive internal traffic rights, in addition to its rights to serve neighboring countries. Air Senegal was privatized in 2000, with Royal Air Maroc as the new operator. Royal Air Maroc will hold 51 percent of shares, the Government of Senegal 20 percent, the employees 5 percent, and other private investors 24 percent. Air Senegal currently has a fleet of two airplanes (a Dash-8 and a 20-seat twin engine.) There are some 30 private runways in Senegal, which must comply with the same security regulations as public airports.

Senegal's rail network, while antiquated and inefficient, carries more than three million tons of cargo per year. The Dakar-Bamako rail route, jointly operated by the "Societe Nationale des Chemins de Fer du Senegal" (SNCFS) and the "Societe des Chemins de Fer du Mali" (SCFM), presents great trade and investment potential with 95 percent of its traffic in freight and the remainder in passengers. The joint company has been scheduled for privatization since 1998. In contrast with the international rail links, the national rail line (Thies-Saint Louis-Kaolack) was discontinued because of its lack of profitability. The Dakar-Saint Louis route is currently not operating, although there are prospects for eventual resumption to take advantage of tourist traffic.

Senegal inherited a relatively modern maritime infrastructure from the French colonial period. Dakar has one of the largest deepwater seaports on the West African coast. Dakar's port has more than 9,000 meters of quays and 43 berths, of which 40 are suitable for ships of up to 40,000 MT. The port is one of the few in Africa with floating dry dock, and container, cereal and dedicated phosphate terminals. It has a fishing pier with sites reserved exclusively for cold storage and repair and maintenance of fishing fleets.