Since its last TPR in 2003, Senegal has pursued its economic development and poverty reduction policy. The Poverty Reduction Strategy Paper (PRSP) adopted in 2002 is pursuing the Millennium Development Goals set for 2015, and in particular to halve the incidence of poverty (Chapter II(2)):7 it was reduced from 57 per cent in 2000 to 46 per cent in 2006. Since 2007, Senegal has also set itself the ambition of becoming an emerging country, the main aim of the accelerated growth strategy (AGS) being to achieve average annual growth of 7‑8 per cent, in particular by means of a public and private investment rate of 30 per cent of GDP annually.8
With the IMF, Senegal acceded to the triennial economic policy support instrument (EPSI) in November 20079, and concluded a one‑year agreement in December 2008 (extended from 12 to 18 months after the third review) under the exogenous shocks protection facility.10 Senegal obtained cancellation of about half its external debt in the context of the Heavily Indebted Poor Countries (HIPC) Initiative11, and subsequently of the Multilateral Debt Relief Initiative (MDRI).12 As a result, its external debt fell from a peak of CFAF 2,530 billion at the end of 2001 to CFAF 968 billion at the end of 2007. Moreover, public development aid finances about half of public investment, or the equivalent of one quarter of the State's total annual budget13, making Senegal one of the main aid recipients in sub‑Saharan Africa.14
The various strategies and initiatives enabled Senegal to record an average annual growth rate in real GDP of 4.7 per cent over the period 2003‑2007, slightly higher than the 4.7 per cent average for the period 1994‑2002. This result is mainly due to the good performance of the services sector, while the contribution of the agricultural and manufacturing sectors was limited. Services have been the most dynamic sector since 2002, with annual growth rates between 5.7 and 7.2 per cent, owing to the boom in telecommunications, trade and transport services. From 2005 onwards, the difficulties of the Société africaine de raffinage (SAR) and of the Industries chimiques du Sénégal (ICS) have weakened manufacturing activity, which has reduced this sector's contribution to growth. Informal manufacturing activity would seem to be more dynamic than formal activity, which is dominated by State-owned or recently privatized enterprises.
According to IMF estimates, growth fell from 4.7 per cent in 2007 to 2.5 per cent in 2008, firstly because of the impact on demand of much higher food and energy prices during the period 2006‑2008, and also because of the build‑up of serious payment arrears to the private sector. These delayed payments particularly affected activities in the construction and public works sectors (4.8 per cent of GDP in 2007).
Household consumption as a percentage of GDP rose from 75.8 per cent in 1999 to 79 per cent in 2002, and then fell back to 78.3 per cent in 2007, while public consumption remained relatively stable (between 12.3 and 12.9 per cent over the same period). Total investment (public and private) increased substantially (Section 3(ii)).
Since 2000, Senegal's fiscal policy has aimed at achieving a basic surplus each year (one of the WAEMU's prime convergence criteria). In 2003, the basic fiscal balance was almost nil, then moved to ‑0.8 per cent of GDP in 2004, ‑4.2 per cent in 2006, ‑2.2 per cent in 2007 and ‑3.1 per cent in 2008. The deficits are due mainly to uncontrolled increases in expenditure: total receipts (excluding grants) were 18.3 per cent of GDP in 2004 and 20.3 per cent in 2007, while expenditure rose from 23.5 per cent of GDP to 26.5 per cent in 2007. This increase in expenditure is accounted for by the introduction of large consumer subsidies for energy and food in 2007 and 2008. Spending under the ambitious public investment programme was not reined in until well into the year 2008. However, the food subsidies were abolished in October 2008 and the authorities undertook to abolish those to butane gas by the end of June 2009.15 Rising prices on international markets since 2006 had led to poverty-reduction measures, including the suspension of VAT and customs duties on gas (with WAEMU agreement).
Furthermore, payment arrears of the government to the private sector, estimated at CFAF 174.9 billion (3 per cent of GDP) at the end of October 2008, have had a snowball effect on expenditure growth and failure to control deficits since 2006, because they have to be financed from subsequent financial years. The Government's current objective is to bring the deficit down to 3 per cent of GDP in 2009 (with a medium‑term objective of 4 per cent), in order to clear outstanding payments. An independent external audit is planned for this purpose. It has also undertaken not to accumulate arrears of internal payments within the meaning of the WAEMU definition, to limit the backlog of outstanding payments (defined as expenditure settled and not paid), to limit the amount of expenditure committed but not settled, and to limit Treasury advances to 10 per cent of the annual total of current expenditure, excluding wages, and of capital expenditure funded from internal resources, and to keep them below CFAF 30 billion at all times.
Despite the BCEAO's traditionally restrictive monetary policy, the marked increase in world food (in particular cereals) and energy prices during the period 2005‑2008, notwithstanding the subsidies introduced to alleviate their impact, resulted in a sharp rise in consumer prices which reached a peak of 8 per cent (annual basis) in September 2008.
Developments in Trade and Investment
Trade in goods and services
Senegal's external current account has been in deficit since 1995, mainly because of the growing deficit in trade in goods: between 2002 and 2008, imports grew faster than exports in value terms, causing this deficit to increase from 10.8 to 21.8 per cent of GDP. The sharp rise in world energy and food prices between 2006 and 2008 has been largely responsible. This rising trade deficit has been partly offset by higher current transfers, in particular by migrant workers (US$1,030.7 million in 2007 as against US$275.5 million in 2002), and a marked improvement in the financial operations account (US$1,298 million in 2007 as against US$453 million in 2002), in particular owing to a larger influx of direct foreign investment and project grants.
The principal change in the structure of Senegal's trade since 2003 is the increase in the share of fuels, both in imports (28 per cent in 2008) and in exports (34 per cent in 2008) (Tables AI.1, AI.2 and AI.3 and Diagram I.1). This change in value terms is the result of the rise in the world price of hydrocarbons and the volumes traded. Senegal imports the bulk of the oil it needs. The Société africaine de raffinage (SAR) imports crude oil and refines it to supply the domestic market and neighbouring markets, in particular Mali, accounting for 20 per cent of Senegal's total exports. In 2006, exports were disrupted when the departure of the SAR's shareholders brought the company's activities to a halt, before it was taken over by the State in 2007 (Chapter IV(3)(i)).
The growing share of fuels in total imports has brought down that of foodstuffs, from 30 to 26 per cent between 2002 and 2008. Most of these foodstuffs ‑ in particular rice, wheat, edible oil, powdered milk and cream ‑ go to feed the urban population. Office, transport and telecommunications machinery and equipment constitute the other important category of imports. The European Communities, and France in particular, remain the principal source of imported goods, followed by Nigeria, China and Thailand (especially for rice) (Table AI.4 and Diagram I.2).
Apart from fuels, total exports remained heavily concentrated on a few commodities with little or no processing, sent to the European Communities, Mali and India (Tables AI.5 and AI.6, and Diagram I.2). They comprise foodstuffs (including fisheries products and groundnut oil) and chemicals. The share of chemicals is falling, because of the disruptions suffered by the Industries chimiques du Sénégal (ICS) company, which takes phosphates and processes them into phosphoric acid. The contract signed by the State with IFFCO, ICS's only customer, earmarks 85 per cent of the phosphoric acid production for its Indian partner and the remainder for producing fertilizers in Senegal for export to the subregion.
Total investment (public and private) increased significantly, from 16.5 per cent of GDP in 2002 to an annual average of about 21.6 per cent since 2005 (Table I.1). This increase is due partly to private investment, which rose from 17 per cent of GDP in 2003 to 20.5 per cent in 2007, and to the 104 per cent growth in public investment as a result of redirecting budget expenditure towards infrastructure. However, the overall rate of investment still fell short of the 30 per cent target set in the AGS.
According to information supplied by APIX, Senegal has seen a sizeable increase in foreign direct investment (FDI) flows since 1998 (Table I.3). There have been three separate phases: an annual average of CFAF 71 billion over the period 1998‑2001, influenced in particular by privatization operations; an annual average of CFAF 105 billion over the period 2002‑2006, resulting from the active promotion of private investment; and an annual average of CFAF 215 billion over the period 2006‑2008, driven mainly by the arrival of a third mobile operator and DP World. In principle, the authorities are expecting FDI to remain strong despite the global financial crisis owing to the opportunities available in Senegal, in particular major works projects (Chapter II(4)(ii)).