Cote d'Ivoire's sustained rapid growth bucks regional economic trend

Progress on several major infrastructure projects helped sustain Côte d’Ivoire’s sixth consecutive year of solid economic growth in 2016. Works planned under the 2016-20 National Development Plan (Plan National de Développement, PND) – announced by President Alassane Dramane Ouattara following his re-election in late 2015 – will be a key driver of growth and are set to play a pivotal part in Côte d’Ivoire’s bid to achieve emerging-economy status before the end of this decade (see analysis).

The country has seen rapid growth since a decade-long bout of civil unrest ended in 2011. The largest economy in UEMOA, and the third largest in ECOWAS, Côte d’Ivoire accounts for more than 30% of the eight-member bloc’s GDP. The economy has benefitted from prudent fiscal policies, monetary stability, rising public spending and structural reforms aimed at improving the business climate and encouraging public-private partnerships.

Challenges remain, however. While the growth spurt – which looks set to continue over the coming years – has led to a modest decline in the poverty rate, other human development indicators have been slow to improve, and economic inclusion is limited, particularly outside Abidjan.

Weaknesses in some of the country’s key GDP contributors – including banking, where financial intermediation is limited, and manufacturing, where input costs restrict growth – have prompted the government to plan significant reforms, ranging from an update of the country’s banking regulations to the development of new industrial zones and further investment in infrastructure.

Strong Rebound

Since the end of the civil unrest, Côte d’Ivoire’s economy has rebounded strongly. The IMF estimates that GDP increased by an annual average of 0.4% between 2000 and 2011, and that between 2012 and 2015 the annual average rose to 9%. The fund expects real GDP growth in Côte d’Ivoire to reach 8% in both 2016 and 2017. The country had the second-fastest-growing economy in sub-Saharan Africa in 2015, with a rate of 8.5%, behind only Ethiopia, with 10.2%.

Tanzania was third, with 7%, followed by Rwanda and the Democratic Republic of the Congo, which each grew at a rate of 6.9%. By contrast, other West African economies have seen significant drops in performance recently: Ghana’s GDP growth rate – which in 2011 was among the highest in the world at 14% – was forecast to be just 3.3% in 2016, while Nigeria faced a contraction of 1.7%.

GDP per capita was CFA780,000 (€1170) in 2015, and was projected to jump to CFA840,000 (€1260) in 2016. In comparison, GDP per capita in 2012 – shortly after the end of the civil conflict – was CFA623,000 (€935). The poverty rate has also continued to drop, from 48.3% in 2012 to 46.3% in 2015. Poverty levels are expected to continue to fall as the PND is implemented and more people are able to find work that provides a living wage.

Sectoral Contributions

Between 2012 and 2016 the secondary sector – which is related to industry and the transformation of primary materials – has been turning towards becoming Côte d’Ivoire’s principal growth driver once again.

According to the World Bank, in 2012 the tertiary sector contributed 6 percentage points of Côte d’Ivoire’s economic growth, the secondary sector accounted for 1.3 percentage points and the primary sector accounted for just 0.1 percentage points. As the economy began to recover the balance returned. The secondary sector accounted for 5.1 percentage points of economic growth in 2013, the tertiary sector’s contribution fell to 3.2 and the primary sector’s expanded to account for 0.8.

For 2016, the World Bank projected that the primary sector would contribute 1.1 percentage points of the country’s economic growth, the secondary sector would account for 4.1 and the tertiary sector for 3.7. This is due to the fact that Côte d’Ivoire’s traditional drivers of economic growth – the agricultural, mining and industrial sectors – are recovering, thanks to improved crop production, a new mining code, and investments in construction and public works, agricultural processing and oil refining.

Agriculture

The agriculture sector in Côte d’ Ivoire – the world’s largest cocoa producer – expanded by 7% in 2015 (see Agriculture chapter). After a difficult 2014, primarily caused by adverse weather conditions, the sector benefitted from heavy rainfall and government policies aimed at improving the production of different crops outside of the cocoa sector, including rice, manioc, coffee and rubber. Besides the production of pineapple, which has been suffering for some time and fell by 11% in 2015, all other agricultural production reaped the rewards of the rainy season and government policies to encourage investment in agriculture and push the country closer to self-sufficiency. Coffee, manioc and cashew have been the most dynamic crops, with an estimated growth rate of over 20% in 2015, while cocoa grew by 8.7% in 2015.

Infrastructure

The construction and public works sector has also been going through a period of growth thanks to a series of investments by the government. The construction sector is expected to have expanded by around 20% in 2016 following a sustained infrastructure push, although this still represents a slowdown compared to the 40% seen in 2012, following the end of the decade-long civil conflict. Infrastructure upgrades were among the largest contributors to growth in 2016. In October 2016 ground was broken on a CFA46bn (€69m) bus station in Abidjan, which is set to become the biggest facility of its kind in Africa. Scheduled to open within two years, the station is expected to have capacity to handle more than 25m travellers annually.

Renovation works on the railway linking Abidjan to Ouagadougou – the capital of Burkina Faso – began in 2016, with a view to increasing the annual volume of cargo transported between the two countries five-fold. An extension of the Abidjan-Yamoussoukro highway to Côte d’Ivoire’s second-largest city, Bouaké, is also planned. Major extensions to the Abidjan and San Pedro ports, and Félix-Houphouë tBoigny International Airport, are also in the works (see Transport chapter).

Industry & Mining

After sharp decreases in mining growth, the sector has been rebounding. Mining shrank by 25.8% in 2012, grew by 14.7% in 2013, and then fell into the red again in 2014 with a 3% contraction. However, the World Bank expects the sector – once one of the biggest contributors to GDP and Côte d’Ivoire’s overall economic growth – to have expanded by 17.1% in 2016, following a rise of 12.5% in 2015. The government is also hoping to leverage a number of improvements in infrastructure and input accessibility for raw materials to help boost industrial production, which has only comprised around a fifth of GDP in recent years (see Industry & Mining chapter).

Previously one of West Africa’s biggest industrial centres, the country is also working with the African Development Bank (AfDB) on the Industrial Sector Competitiveness Enhancement Project, a CFA10bn (€15m) initiative that seeks to improve the trade competitiveness of Ivorian industrial firms on both a regional and wider global scale.

The programme, which aims to increase the industrial contribution to GDP to 40% by 2019, is particularly pertinent given the implementation of the EU’s Economic Partnership Agreement with ECOWAS, which will see trade between the two blocs slowly liberalised over the coming years.

Post-Conflict Planning

The government’s economic policy has been predicated largely on a post-conflict plan for emergence and reconstruction that was implemented between 2012 and 2015. The 2012-15 PND achieved notable results, maintaining peace, re-establishing social cohesion and paving the way for reconciliation. It also brought strong, sustained and inclusive growth that reached 9%, with modest reductions in poverty rates, in part due to a push to overhaul the business environment and enact engineering projects, including more than 300 km of paved highways and 5000 km of rural roads.

The public spending campaign behind the infrastructure push led to the creation of 30,000 new jobs in 2013 and a further 40,000 in 2014, bringing the number of jobs in the formal sector to almost 800,000. Many of these positions were also created by increased recruitment as part of improvements in access to education, which saw the gross school enrolment rate rise from 76.2% in 2008 to 94.7% in 2014, according to figures from the IMF.

Second Pnd

The 2016-20 PND was launched in December 2016, and benefits from the support of a number of international finance institutions, including the African Development Bank (AfDB) and the IMF, which signed a financing agreement with the government of Côte d’Ivoire in late 2016 for a $658m support programme. The overall target of the new development plan is for Côte d’Ivoire to become an emerging market by 2020, with a solid industrial base to support economic growth.

The PND envisages three potential macroeconomic frameworks, depending on how the national and regional socio-political and economic environments evolve. The three scenarios have been labelled “elephant at rest”, “triumph of the elephant” and “emerging elephant”. Success will require continued political stability and strong public investment, with the private sector making a strong contribution to economic growth and job creation.

Additionally, the 2016-20 PND aims to address the fundamental structural issue of access to financing for small and medium-sized enterprises (SMEs). Such businesses represent over 80% of all registered firms, yet they account for a relatively small proportion of bank loans, GDP and employment (see analysis). Improving access to finance is a twoway street. “Since the promulgation of the Finance Law 2016, all registered companies are required to maintain proper accounts and use only chartered accountancy firms. This is likely to drive a need for accounting services for SMEs, which have been poorly served,” Abou Bakar Ouattara, director-general at Goodwill Audit and Consulting, told OBG.

Monetary Stability

One of the country’s principal attractions as an investment destination is its relatively high level of monetary stability, which is particularly important given the impact the increase in interest rates has had on emerging market currencies elsewhere in Africa. Côte d’Ivoire’s membership in UEMOA ensures a stable macroeconomic environment (see analysis). Under the Dakar-based Central Bank of the West African States (Banque Centrale des Etats d’Afrique de l’Ouest, BCEAO), the bloc’s banking regulator, the region’s currency – the West African CFA franc – is pegged to the euro at a rate of €1:CFA655.67, guaranteed by the French Treasury.

There have been downward pressures on the CFA, in part a reflection of euro exchange rate fluctuations against the dollar, prompting some analysts to suggest a devaluation in the medium term may be on the cards. According to a research note by Ecobank in Q4 2016, “there is also a growing concern that the [CFA] is still overvalued and that devaluation is necessary to boost export competitiveness”. Still, the monetary peg has afforded the UEMOA region – and Côte d’Ivoire – a sizeable measure of currency stability in contrast to other markets around the region and helped limit inflationary pressures.

Bank Financing

According to the World Bank, bank financing to the private sector was worth only 70% of GDP in Côte d’Ivoire in 2015, well below the global average of 88% in 2016. Furthermore, in a challenging environment, lenders have proved hesitant to grant loans to smaller clients, such as SMEs, which are often less transparent than the larger companies in areas such as governance, accounting and management processes (see analysis).

The BCEAO has maintained its key refinancing interest rate at 2.5% since September 2013 in a bid to follow European Central Bank rate movements while taking into account regional inflation rates, enabling credit to the economy to continue to grow.

At the same time, the BCEAO has been increasingly providing loans to commercial banks in the region. Indeed, loans from UEMOA’s central bank have reached 9% of banks’ liabilities. The BCEAO has also been providing more loans to the eight governments that make up the economic union. The low interest rate since September 2013 coupled with the zero capital requirement for UEMOA government securities provide an incentive to further borrow from the BCEAO and invest in government securities.

UEMOA’s fiscal deficit has been widening in the past few years, but the IMF expects it to fall under the 4%-of-GDP mark should the regional authorities agree on a fiscal consolidation policy and the need to improve public financial management practices. With adequate national fiscal stabilisation policies, the regional fiscal deficit should continue to fall, with total public debt to stabilise at 40% of regional GDP. In 2015 Côte d’Ivoire had a fiscal deficit of 3%, well below the 3.7% target prescribed by the common monetary policy, though it is predicted to widen to upwards of 4%, largely due to increased public investment in infrastructure and interest payments.

Public Financial Management

The government’s sound and prudent budgetary and public financial management capacity is widely recognised. International credit rating agency Moody’s maintained its “B+” rating in 2015 and 2016 (see analysis).

Despite the fiscal deficit widening from 2.2% of GDP in 2014 to 3% in 2015 – and being expected to reach 4% by the end of 2016 – the Ivorian authorities maintain a comparatively strong reputation on fiscal matters. The public debt-to-GDP ratio improved from 74.5% in 2011 to 46.3% in 2014, thanks to reformed public spending, as well as a rise in investment and consumption.

In 2015 increased public spending, particularly on infrastructure projects, brought a modest rise in the ratio to 49.1% of GDP. This contributed to the widening of the deficit, although with 10% of government revenues absorbed by it, public debt remains manageable, according to the World Bank. Côte d’Ivoire’s debt levels are perceived by international financial institutions to be only moderately elevated. By comparison, Ghana’s debt reached 70% of GDP, and 40% of its government revenues are absorbed by public debt.

In February 2015 the country issued a $1bn eurobond – the country’s second in as many years – that was oversubscribed four-fold. The bulk of the funds have been designated towards major infrastructure projects, according to government statements. In a separate fundraising initiative, Côte d’Ivoire issued CFA300bn (€450m) in sovereign Islamic bonds in 2016.

Due to the strength of the dollar, the government also announced in August that it would not be issuing normal debt on the international market, but would instead look to secure CFA550bn (€825m) in funding from the regional market. The bonds will be listed on the Abidjan-based stock exchange, the Bourse Régionale des Valeurs Mobilières (BRVM), which serves eight West African markets.

The boost to the BRVM’s sovereign debt markets comes after a busy year for the West African bourse. For example, the exchange has doubled its market capitalisation to more than CFA7trn (€10.5bn) since 2012. The authorities have also introduced several initiatives aimed at increasing market participation, including a mobile market application that is capable of providing real-time stock quotes.

The government’s balance sheet has also benefitted over the past year from the part privatisation of several of the country’s banks in a bid to bolster the sector’s financing capacity. Public stakes were sold in Nouvelle Société Interafricaine d’Assurances Banque, Versus Bank and Banque de l’Habitat de Côte d’Ivoire, although a planned divestiture of Caisse Nationale des Caisses d’Epargne has been delayed (see Banking chapter).

Covering Costs

In addition, analysis of the earning-to-spending ratio reveals that Côte d’Ivoire’s taxation system is such that public revenues are sufficient to cover regular expenditure and that the state only borrows to finance major investment projects, which has been the case since 2012 for various infrastructure and public works programmes.

Still, current spending has risen incrementally in recent years, and with a handful of large projects now in the pipeline there may be greater pressure on the deficit in the near future. There was a 2.4% increase of public spending in GDP in 2015 and a further 0.7% in 2016, in large part due to higher security spending following the terrorist attacks in Grand Bassam in March 2016.

There is also increased pressure on the Ivorian authorities to raise public spending to meet their political promises of implementing national medical coverage and free education for children aged 6-16. Such reforms are likely to weigh heavily on the government’s budget, in addition to the existing large-scale infrastructure investment projects. In January 2017, a brief mutiny by soldiers over back pay and benefits – which resulted in tense moments in several cities where troops temporarily took control – highlighted the challenges faced by the government over maintaining its spending levels.

Donors

More traditional multilateral and bilateral donors have also played a key role in bolstering funding, particularly for the government’s larger infrastructure projects. Since the PND was unveiled, the government has moved to tap funding for its ambitious project pipeline from a diverse range of sources to realise its target of financing 62% of the PND’s initiatives from private investment.

The government held a conference in Paris in May 2016 to promote the 2016-20 PND, attracting $16bn in capital from the private sector for more than 180 ventures and drawing commitments from key international backers to provide $15.4bn in loans and grants for project roll-outs. Lenders include the World Bank, which pledged $5bn, the AfDB ($2.3bn) and the Islamic Development Bank ($1.8bn).

Rising Investment

In the immediate aftermath of the conflict, foreign direct investment (FDI) in Côte d’Ivoire rose from $286m in 2011 to $478m in 2012. According to the Investment Promotion Agency of Côte d’Ivoire (Centre de Promotion des Investissements en Côte d’Ivoire, CEPICI), the onestop shop set up to facilitate foreign investment in the country – the Guichet Unique de l’ Investissement en Côte d’Ivoire – collected CFA669.7bn (€1bn) in FDI in 2015. This surpassed the 2015 target of CFA500bn (€750m) CEPICI had set itself.

In 2014 France was the top foreign investor in Côte d’Ivoire, accounting for 40% of FDI that year, or €139m, according to France’s Ministry of Economy and Finance, primarily investing in infrastructure. It was closely followed by Angola, (10%, €33m), Libya (7%, €26m), the Netherlands (5%, €19m) and Togo (5%, €19m). Angola primarily invested in manufacturing, the Netherlands in the production and distribution of electricity and gas, Togo in banking and Libya in the communications sector.

Moroccan Role

However, other countries are also playing an expanding role. For example, as testament to the rising influence of Morocco in sub-Saharan Africa, particularly West Africa, companies from the kingdom accounted for 22% of new FDI in Côte d’Ivoire in 2015, ahead of French firms, which accounted for 16%. This is in part a reflection of the Moroccan government’s concentrated push to boost economic links with francophone West Africa.

Morocco’s King Mohammed VI made three official visits to Côte d’Ivoire between 2013 and 2015, and furthermore two economic forums were also convened between Moroccan and Ivorian investors, the first held in February 2014 in Abidjan and the second in January 2015 in Marrakech.

Trade

In 2015 Côte d’Ivoire’s exports increased by 15.6% compared to 2014, according to the World Bank, and its imports rose by 11.5%, primarily due to a strong economic recovery which put many Ivorian goods – including coffee, cocoa, cashew, bananas and rubber – on the regional and international market, but also generated strong domestic demand for goods and equipment imported from abroad.

Important imports in 2015 included cement, electrical household equipment, and construction machines and materials; this was in line with the needs of the economy, based on its growth pattern since 2012, which has been primarily driven by infrastructure or public works projects and the expansion of the real estate market around Abidjan.

Job Creation

In 2013 the unemployment rate for the year stood at 6.7%, according to the National Statistics Institute. Two years later, Côte d’Ivoire’s Agency for the Study and Promotion of Employment cited a fall in the unemployment rate to 5.3% in 2015.

The World Bank has estimated that approximately 400,000 new workers will enter the job market every year, which can largely be attributed to the country’s sizeable youth population. Estimates from the bank put the proportion of the country’s population that is aged between 15 and 24 at 21% as of 2016, which will require a significant rise in employment opportunities for new graduates.

Business Environment

The past five years have seen Côte d’Ivoire aggressively reform its business regulations, in a bid to streamline administration, reduce fiscal burdens, improve infrastructure access and more broadly boost private sector activity. The country’s ranking on the World Bank’s Doing Business index has reflected that, showing a steady improvement from 177 in 2013 to 147 in 2015 to 142 in 2017.

Although it lags behind other major continental markets such as Ghana (108) and Kenya (92), the country ranks above the continent’s largest economy, Nigeria, and is the second-best ranked in Francophone West Africa overall, after Mali. In 2015-16, some of the biggest gains have been seen in the governance and transparency pillars, including contract enforcement and insolvency legislation.

The country has also been working on a number of other issues to improve the business climate. The BRVM, for example, is expected to soon launch a regional SME-specific exchange, for example.

This programme has been three years in the making, and the BRVM also plans to set up a $2bn fund aimed at encouraging SMEs to go public. SME exchanges have traditionally seen a relatively slow take-off in African markets, with similar efforts in Ghana, Nigeria and Kenya thus far attracting only a handful of listings and limited trading. However, the BRVM’s strong performance in recent years suggests that it may indeed enjoy a smoother launch (see Capital Markets chapter).

The country has also been actively looking to improve access to online services in order to reduce the bureaucratic burdens for businesses while also improving governmental efficiency. Launched in 2012, the national e-Gov programme – an intranet system that connects approximately 50 ministries and public institutions – is designed to facilitate better coordination and increased collaboration among government entities, for example.

In late 2015, Côte d’Ivoire announced three e-Gov programme goals for the medium to long term: assigning a single identifier to each user to ease administrative follow-up, achieving paperless administration and providing public servants with a database to centralise administrative documents such as birth certificates and diplomas. Streamlining the Customs process is also a priority. “We have taken several steps towards digitalising Customs procedures,” Issa Coulibaly, former director-general of the Customs General-Directorate, told OBG. “The single window for external commerce already allows importers and exporters to access all necessary information and forms, and has the capability to track their requests in real time. The next step, which will begin a trial phase in 2017, is online payments.”

In summer 2016, the government launched a new World Bank-supported programme to create an online platform that reduced the time it took for business inspections for issues such as sanitation standards and licensing. Indeed, efforts to improve internet access and reliability gained pace in 2016, with work beginning on the third and final tranche of the National Broadband Project in April. The countrywide, 7000-km network of fibre-optic cable is being rolled out by French industrial groups Bouygues and SagemCom, together with Morocco’s Cegelec Maroc. The project is set to come on-line in 2018. Valued at €175m, the broadband initiative is expected to reduce fixed-internet costs and boost penetration. In addition, Côte d’Ivoire is looking to support the increased digitalisation of the private sector to provide impetus for growth, following the launch in July 2016 of a CFA131bn (€196.5m) National Fund for Innovation with support from the AfDB to promote digital transformation across private businesses, SMEs and start-ups.

Outlook

Since 2012 Côte d’Ivoire has been enjoying one of the highest economic growth rates in the region thanks to a combination of factors, including monetary policy stability, significant public investment in infrastructure and, more recently, recovery in both the agriculture and mining sectors, which remain the two historical breadwinners.

Côte d’Ivoire looks set for further sustained highsingle-digit growth in the coming years – likely outpacing Ghana and Nigeria, the other major West African markets. The IMF forecasts growth rates of 7-8% up to 2020, driven by the government’s 2016-20 PND, which has received strong financial backing from international financial institutions and other multilateral donor agencies.

However, there are some economic headwinds that risk slowing this growth rate – including fragilities in the banking sector, regional inequalities and a continued dependence on commodity exports – but Côte d’Ivoire appears to have weathered the slowdown that has afflicted so many other economies in the region and on the continent.