|Select Economic and Financial Indicators||2014||2015||2016||2017e||2018f|
|Real GDP (% change)||4.1||6.5||6.7||6.3||6.7|
|GDP (USD bn)||15.3||13.7||14.7||16.1||17.9|
|Fiscal Balance (% GDP)||-5.0||-4.8||-4.2||-3.7||-3.6|
|Broad Money (% change, end period)||26.6||2.9||12.1||10.0||2.2|
|Exports (USD bn)||4.3||4.0||4.0||4.4||4.8|
|Imports (USD bn)||7.3||6.3||6.1||6.5||7.1|
|Current Account Balance (% GDP)||-9.0||-7.5||-5.3||-10.0||-7.5|
|FX Reserves (USD bn, end period)||2.4||2.2||2.1||2.2||2.3|
|Exchange Rate (average)||496.08||594.27||600.68||588.92||565.09|
Real GDP: We expect economic growth to recover in 2018 to 6.7% after a recent slowdown (2017e: 6.3% vs 6.6% in 2016) as improved construction spending and a recovery in fishing and phosphate mining activity. Furthermore, following the completion of the new airport in Dakar (opened in December 2017) we expect increased expansion in the services sector (56% of GDP). Continued execution of the Plan Sénégal Emergent (PSE) with higher investment in irrigation and better rainfall should bolster agricultural output. A strong reform agenda to lower the cost of doing business and establishment of special economic zones should raise foreign direct investment and boost economic activity.
Inflation: Largely reflecting rising crude oil prices alongside plans to trim subsidies to the state-owned refinery, we expect average inflation to trend higher over 2018 to 1.5% (2017: 1.3%). Nonetheless, we expect continued gains in agricultural production, in line with the PSE plans to boost rice production and overall food sufficiency, to continue to keep food inflation relatively subdued. Nonetheless, we are biased towards EUR strengthening (and by extension XOF appreciation) which will help keep overall inflation expectations well anchored within the UEMOA convergence target of 3% inflation.
Fiscal balance: In line with the PSE, the Macky Sall Government has proposed a 10.4% y/y rise in fiscal spending to XOF3.7trillion in the 2018 budget with capital spending up 9.4% y/y to XOF1.3trn. On the revenue side, the central government aims to reform the tax code to reduce tax exemptions and credits, introduce a tax on cement revenues and modernize tax payment and customs collection systems. In addition, government plans to digitize the land register and introduce single tax-payer IDs and expanding tax coverage. On the spending side, the PSE plan is to reduce subsidies to 0.5% of GDP, make progress on implementation of a treasury single account and curb public sector hiring. In all, we forecast fiscal deficit in 2018 to shrink to 3.6% of GDP (2017e: 3.7%).
Current account: Higher crude oil prices and heavy intermediate goods imports linked with the PSE implementation informs our expectation for further current account deficit widening over 2018 to 7.5% (2017e: 10%, 2016: 5.3%). Specifically, we expect the rise in the oil import bill to offset impact of higher exports of groundnut, phosphate and zircon leading to a deterioration in the trade balance. Despite the strong growth thrust in recent years, Senegal has recorded persistent external account imbalances on account of high food imports (21% of total imports) and a large fuel import bill (27% of imports). This trend continued in 2017 with deficit of 11.7% of GDP in the first three quarters vs. 5.8% of GDP in 2016, and largely reflects higher crude prices with imports up 17% y/y over the first three quarters of 2017 to XOF2.9trn.
Key risks to the outlook stem from tightening in the regional debt markets as well as on the global front which could inhibit the ability of the government to raise funding to finance its infrastructure projects. In addition, security risks in the region could also adversely affect investment and, hence, growth and exports. Furthermore, poor rainfall conditions could lead to weak agricultural output.
Exchange Rate Structure
|Target||XOF655.957 to EUR1|
|Type of intervention||Via Central Bank|
|FX Products||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Daily trading volume (USD mn)||n/a||n/a||n/a|
|Average trade size (USD mn)|
|Settlement cycle||T+2||Max 90 days|
|FX Market Structure||BCEAO’s exchange regime is free of restrictions on payments and transfers for current international transactions, apart from restrictions maintaned for security.|
|Non-resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||No restrictions||n/a|
|Resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||No restrictions||No restrictions||n/a|
|Primary Market||Treasury bills||Treasury notes||Treasury bonds||Central Bank bills||OMOs|
|End use||Government financing||n/a||Government & infrastructure financing||n/a|
|Maturity structure||7-days to 2-years||3- to 10-yrs|
|Daily trading volume||Limited trading||n/a|
|Average trade size||Limited trading|
|Ecobank local affiliate contact details:|
Ecobank Sénégal, km 5 Avenue Cheikh Anta Diop, Centre Douanes, Dakar
Tel: +221 33 859 99 99
|Government debt (% GDP)||54.2||56.9||57.4||57.1||55.6|
|External debt (official creditors, % GDP)||37.3||40.3||37.7||42.6||41.1|
|External public debt stock (USD bn)||5.7||5.5||5.6||6.6||6.9|
|Share of total sub-Sahara debt (%)||2.3||2.2||1.9||2.1||2.0|
Senegal has the second largest banking sector in the Union Economique et Monétaire Ouest Africaine (UEMOA), after Côte d’Ivoire. At end-2015 there were 24 banks in Senegal, 20 of which had locally incorporated balance sheets. The remaining four banks passported their balance-sheets from elsewhere in UEMOA: Diamond Bank (from Mali), Orabank (from Côte d’Ivoire), Banque pour le Commerce et l’Industrie (BICI, from Mali) and the relatively new Coris Bank International (from Burkina Faso). By end-2015 Senegal’s total banking sector assets had grown by 18% year-on-year, in local currency terms, to an equivalent of USD8.8bn. Asset growth was driven by a 27% year-on-year rise in commercial banks’ holdings of Treasuries, as well as a 10% year-on-year increase in loans and advances to customers.
Key balance sheet items, USD millions
|Short Term Loans||1,270||1,306|
|Medium Term Loans||1,906||1,860|
|Long term Loans||350||280|
|Ordinary Debit Accounts||682||615|
|Interbank activity balances||1,545||1,535|
Senegal’s banking sector is loan-driven
Like Côte d’Ivoire, Senegal’s banking sector is loan-driven, with loans and advances accounting for more than half of total assets. Loans and advances to customers grew by 10% year-on-year, in local currency terms, to an equivalent of USD4.8bn in 2015. In 2010-15 credit grew by 11%, in local currency terms. The main growth driver has been wholesale lending activities – primarily to SMEs and local and multinational corporates – which accounted for 90% of total outstanding credit at end-2015 (see chart below).
Funding is reliant on customer deposits
Commercial banks’ balance-sheet funding is reliant on customer deposit liabilities, which accounted for more than 80% of all funding liabilities at end-2015. That year customer deposits grew by 20% year-on-year, in local currency terms, to an equivalent of USD6bn. Sight deposit liabilities (current and term) dominate commercial banks’ funding, accounting for 77% of total customer deposit liabilities, which is a constraint on banks’ ability to create longer term assets.
Lending drives bank earnings, but NPLs remain high
In FY2015 total gross annuity revenues from loans and advances accounted for 61% of total gross revenues, highlighting banks’ reliance on loans for revenue generation. Moreover, total net revenues from funding activities accounted for 67% of total net revenues. Funding costs remain stable, with banks spending only one third of gross annuity income to fund their balance sheets; this funding stability is a characteristic of the UEMOA region.
However, Senegalese banks have continued to demonstrate elevated operating inefficiencies, with staff costs and expenses accounting for 59% of net revenues. In addition, loan losses and provisions for classified customer loans exert a drag on commercial banks’ income statements. In FY2015 loan losses and provisions for classified customer loans impaired 66% of net funded revenues, over three times the level in Côte d’Ivoire (20%). At end-2015 Senegal’s gross non-performing loans (NPL) ratio stood at 19.5%, with the result commercial banks delivered just 18% of net revenues as bottom line in FY2015.
Hydrocarbon & mineral production
Senegal’s mining sector is focused on the production of gold, phosphates and cement. The country produced an estimated 10 tonnes of gold in 2016, all of which was exported. New investment at Teranga Gold’s Sabodala project aims to increase annual production to more than 30 tonnes by 2022, while a new gold mine in the Kedougou region aims to produce 4 tonnes per year from 2018. Senegal is also a leading producer of cement, with estimated output of 2.9 million tonnes in 2016, both for domestic consumption and for export to the sub-region. The country is a major producer of phosphate rock, with output of 473,000 tonnes in 2016, and is a hub for processing this rock into phosphoric acid, the key ingredient in fertiliser. Senegal has substantial reserves of other minerals, notably titanium, zircomium, manganese and iron ore, but these have yet to be fully exploited. In 2015 the country produced 387,000 tonnes of titanium ore, 364,000 tonnes of salt and 62,101 tonnes of zircomium ore.
Senegal is a gas producer but has yet to realise its potential as an oil producer, despite making discoveries in the Diam Niadio oilfield (1961), the Dome Flore heavy oilfield (1967) and the gas-rich Gadiaga field (1997). However, following extensive deepwater exploration UK independent, Cairn Energy, has discovered contingent reserves of over 640mn barrels of crude oil, while US independent, Kosmos Energy, has discovered huge gas reserves straddling the borders of Senegal and Mauritania. These fields are expected to start oil production in 2021, with current reserves able to support production of over 50,000 bpd. International oil companies such as BP, Total and Kosmos are also considering plans to transform Senegal into an LNG-importing hub in order to supply gas to the rest of the region.
Senegal consumed an estimated 2.5mn tonnes of petroleum products in 2016, a 7% increase on the previous year. Diesel is a key source of fuel for the transport and electricity sectors, which account for 45% of the country’s fuel consumption. Senegal’s only refinery, Société Africaine de Raffinage (SAR), can process 27,000 bpd and produce around 1.2mn tonnes per year of petroleum products. However, the refinery is only able to operate at half of its capacity, making Senegal import-dependent for fuel.
Soft commodity production
Senegal is a middle-ranking agricultural producer, lacking the scale of cash crop and food production of its UEMOA neighbours. Production of the country’s leading soft commodity, groundnut, rose to a record 1.067mn tonnes in 2015/16, 40% above the average of the previous five seasons. Most peanuts are exported raw, with just 67,000 tonnes of peanut meal and 45,000 tonnes peanut oil being produced in 2017. Senegal is also a small producer of cashew nuts, with estimated output of 45,000 tonnes in 2017, and of cotton lint, with estimated output of 16,000 tonnes in 2016/17. Senegal is West Africa’s sixth largest producer of milled rice, with output estimated at 680,000 tonnes in 2016, most of which is for domestic consumption. Senegal has a dynamic horticultural goods sector which is seeking to challenge the dominance of Kenya and Ethiopia for market share of the EU’s organic fruit and vegetable market.
Senegal’s imports totalled US$5.5bn in 2016, 2.1% lower than the previous year. The single largest import was petroleum products (worth US$667mn), around 40% of which was re-exported to the sub-region. The country also imports large volumes of crude oil (worth US$418mn in 2016), most of which is refined into products in the country’s refinery, SAR. Given the relative underdevelopment of Senegal’s manufacturing sector and its role as a trade entrepôt, the country imports large volumes of capital goods and industrial raw materials, both for internal consumption and re-export, including machinery & vehicles (US$1.1bn), electronics (US$344 mn), and iron & steel (US$301mn). Senegal is also dependent on food imports, importing US$825 mn worth of grains, flour, palm oil and dairy products in 2016. These imports included US$325mn worth of rice imports (7.8% of Africa’s total), predominantly from India and Thailand, as well as 4.2% of Africa’s wheat imports, 3.2% of its maize imports and 3% of its palm oil imports.
Senegal’s exports totalled US$2.6bn in 2016, on par with the previous year. Frozen fish and seafood have overtaken petroleum products as Senegal’s leading export, largely owing to the fall in oil prices in recent years. Senegal exported US$365mn worth of frozen fish in 2016, most of which went to the sub-region, the EU and South Korea. Gold remains the second most valuable export, worth US$329mn in 2016. Re-exports of petroleum products, worth US$262mn, were the country’s third largest export, of which US$96mn was sold via bunkering (refuelling ships) and the remainder was exported to landlocked neighbours. Senegal is a major exporter of Portland cement and clinker (worth US$209mn in 2016), almost all of which goes to neighbouring Mali and The Gambia. Phosphoric acid (used in making fertiliser) worth US$197mn, and precious ores (zirconium & titanium), worth US$100mn, are the other key mineral exports. Senegal is also a minor exporter of soft commodities, including tobacco (US$114mn) and groundnuts (US$56mn).