Focus: Senegal hailed for its economic and financial stability

Focus: Senegal hailed for its economic and financial stability

Focus — Thursday, July 27, 2017

In 2017, Senegal made a name for itself on the financial markets, thanks to the trust placed in it by investors. The sale of Eurobonds emitted by the country outperformed all expectations, thanks to an increasingly stable economy and currency.

Financial stability is an issue of central importance for an emerging economy. Today, the signs showing that Senegal is moving in this direction are coming in ever-greater numbers, as are foreign investments.

A stable economy full of promise for the future 

Stable political prospects and rapid expansion are just two of the factors foretelling of the Senegalese economy's strong health. The World Bank has in fact pointed to the growth of the Senegalese economy as the 4th most rapid in sub-Saharan Africa. It shot up from 2.9% in 2009 to 7% today, with a budget deficit that has remained under control. 

The 15 billion m3 of natural gas uncovered by Kosmos Energyi 95 km north-west of Dakar and the FAR's announcement of a potential 1.5 billion barrels of crude oil at the start of this year have lent credence to the idea that Senegal is a country rich with multiple natural resources. The company Cairn has also discovered a new oil deposit.

Lastly, the gas field discovered in January 2016 is considered the most expansive in West Africa. The gas reserves are estimated at nearly 450 billion m3. 

The wealth and diversity of Senegal's soil are major assets for Senegal and its development, as they form a major source of income.

...That has very real consequences for the country.

This good health has repercussions on the economy, as well as on Senegal's attractiveness. Senegal has also moved up 31 spots in 3 years in the Doing Business rankings published by the World Bank. The country now ranks 149th. It is also considered the 9th most attractive economy for investors in 2016, from 46 African countries.

This economic dynamism can be felt in private investment. The latter exceeded the 1,500 billion CFA franc threshold in 2016. The volume of Foreign Direct Investments (FDI) has also increased by 12% in annual value terms, reaching 210.4 billion CFA francs today.

Good financial health, another driver for the country’s economy

Senegal has also issued new bonds (Eurobonds), which were very warmly welcomed by the markets. 1.1 billion dollars in Eurobonds were put up for sale to fund infrastructure development and power generation projects. Investors responded resoundingly. The sale generated 9.3 billion dollars, resulting in a decrease of the interest rate to particularly low levels: 6.25%, as compared to 9.25% in 2009  

This drop in interest rate to be paid to investors over the 16-year term is the direct result of Senegal’s strong economic performance and GDP figures these past few years.

How Eurobonds work
To secure financing for itself, States may issue sovereign debt securities. Issued in dollars, these are purchased by investors at an interest rate that depends on the country’s good economic health. The latter can then reimburse investors, based on that interest rate. Consequently, the lower the rate, the less interest country pays. 
As regards the sale of Eurobonds, a State issues a certain number of securities, but investors can buy more securities than are actually available. The sale then reaps more benefit than planned. 

New prospects opened up by monetary stability

These strong economic results are closely intertwined with the CFA franc's stability The capital resulting from the sale goes toward the Company's economic expansion and speeds up its development. This mode of financing is all the more attractive in Africa as yield levels are decreasing in Asia, Europe and America. Investors are thus more enthusiastic at the idea of buying African debt, which is more profitable.

The dynamic currently being enjoyed by Senegal is expected to continue in the years to come. The President of the Republic, S.E.M. Macky Sall has reaffirmed his determination to continue the reforms engaged, so as to make the business environment in Senegal more attractive and inform citizens about the issues at stake in the reforms.