On The Ground Insight: Alexa Lion, Sub-Saharan Africa analyst at FrontierView is currently on a research trip to Cameroon, Côte d’Ivoire, and Senegal. Here are her latest insights.
Small and stable
I write as the voice of the muezzin resonates throughout Dakar, calling the vast majority of the population to prayer. Senegal is a bastion of stability in Francophone West Africa and one of the only African countries to have avoided a coup or any type of violent transition since its independence from France in 1960. Many credit Leopold Senghor, Senegal’s first president and most famous poet for planting the seeds of stability, though I suspect there is a cultural element to the peace as well.
Senegal is called “la terre de la Teranga,” meaning “the land of hospitality,” and it shows.
Senegalese are incredibly friendly, and Dakar exudes warmth as a city. Its brand of Islam is particular, influenced by a somewhat unorthodox Sufi brotherhood whose members mingle with street vendors, businessmen and casual passersby who crowd Dakar’s sinuous streets and give the city its unique energy.
As neighboring Mali faces an Islamist insurgency in the North, Côte d’Ivoire recovers from a decades-long civil war, and Guinea, Liberia and Sierra Leone grapple with Ebola, Senegal stands out as a reliable and safe investment destination in the region. The country’s population is 14.5 million, and nominal GDP is only US$ 15.8 billion, yet Senegal’s international footprint surpasses its size on paper.
Senegal is indeed most attractive when taken in the wider context of the West African Monetary Union (WAEMU), which also includes Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Togo. Although Côte d’Ivoire is the largest economy in the zone, representing about 40 percent of WAEMU’s GDP, Senegal is well-positioned to serve the region as a hub – from both a logistics and a management standpoint.
Dakar: the logistics hub of the future
“Le port du futur,” or “the port of the future,” seems to be on everybody’s mind during my visit. A major infrastructure project that would widen the port of Dakar’s berths and deepen its waters, the port of the future underscores the dynamism in the construction sector as the government seeks to position Dakar as a hub for the region.
Dakar is the first port of call for West Africa from the U.S. and Europe, and operations, while imperfect, are streamlined enough to avoid the levels of congestion seen in Abidjan. The average ship wait time decreased from 14 days to a maximum of six days after DP World became involved in port handling. Wait time is expected to be reduced further to 48 hours once the port’s facelift is finished.
Moreover, a multimillion new airport project is expected to be completed this year for an official opening in 2016. This development will allow Senegal to do more to take advantage of its geographical location. The flight time to Paris is a mere five hours; New York City is nine hours. A light-rail train will connect the new airport to the city center, minimizing disruptions upon arrival.
Increasingly sophisticated business infrastructure
Multinational corporations looking to operate in Senegal will benefit from a vast array of business services as large audit and management consulting firms have a presence in Dakar. I met with the managing director of a major bank who mentioned the high level of competition in the Senegalese banking sector. More than 20 banks are operating locally, and the country is expected to have several new banks enter the market in 2015. As the level of competition increases, so does the quality of service for bank clients. Commercial bank lending rates, which are about half as much as they are in Abidjan, have also decreased as a result.
The same dynamic applies to the telecoms sector, which is one of Sub-Saharan Africa’s most developed. Telecom rates are much lower than in neighboring countries because of competition among major providers. There is the increasing possibility of a fourth provider entering the market soon, which would further lower prices, boost government revenue through entry taxes and deepen mobile penetration by offering consumers more choices.
Government plans to transform Senegal into the region’s teleprocessing center are well underway with the country at the intersection of major fiber optic cables that serve the entire west coast of the continent. This initiative not only brings revenue to the government but also enhances the quality of the connection and creates opportunities for investment in the ICT sector.
Dakar’s business services, a well-developed banking system, relatively cheap credit and reliable connectivity, are a boon to multinationals’ local operations, but the benefits come at a price. Income tax is much higher than in Douala and Abidjan. The city’s overall income tax bracket is 30-35 percent (some expats told me the rate is up to 46 percent), whereas income tax in Abidjan falls between 20 and 25 percent. Value-added tax (VAT) in Dakar is also high at 18 percent and is hurting small businesses that rely on the tourism sector. While the cost of living in Dakar is high, quality of life is better than in many other West African cities, which explains why so many expats choose to live in Dakar.
Senegal’s role among eight countries in one system
During my visit, business stakeholders cited Senegal’s unique characteristics, including security, stability, a resilient economy and developed business services as major reasons for foreign investment. I was reminded time and again of the importance of considering the country in the context of its role in WAEMU.
Multinationals who compare Côte d’Ivoire to Senegal usually end up focusing on the former because of its large size. However, the common currency, interbank market and corporate law between all WAEMU countries means that no two countries are mutually exclusive. In fact, they benefit from each other’s’ different structures – one country’s weakness is often another’s strength.
Should Senegal be just as competitive in the cashew market as Côte d’Ivoire, or Côte d’Ivoire as attractive to the mining industry as Senegal, the entire union would be more exposed to global shocks. WAEMU is not a perfect buffer, but it contributes to Senegal’s appeal: a stable, resilient country that is at the logistical heart of Francophone West Africa.
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