Côte d’Ivoire: An Elephant at the Crossroads

cote_d_Ivoire_flagIn 2013, Côte d’Ivoire will be aiming to go one better than in 2012 across two fronts. The national football team will try to improve on last year’s runners-up spot in the African Cup of Nations, while the Ivorian authorities are targeting an increase in real GDP growth from 8.6% to 9%.

Having contracted by -4.7%  in 2011 on foot of the post-electoral political crisis that saw 3,000 people killed, real GDP rebounded strongly in 2012. Whether this represents a one-time recovery of lost ground or is indicative of higher trend growth remains to be seen. The Ivoirian authorities are aiming for double-digit growth rates from 2014 in a bid to position the country as an emerging market by 2020. Although slightly less bullish, the IMF expects a still impressive average growth rate of 7.5%  over the 2013-2015 period.

In June 2012, Côte d’Ivoire secured debt relief from bilateral and multi-lateral lenders totaling to $7.7bn. Combined with strong growth, this should see the debt-to-GDP ratio fall towards 60%  over the coming years, according to the IMF which manages the country’s Extended Credit Facility. In early December 2012, President Alasane Ouattara, himself a former IMF Deputy Managing Director, secured pledges of $8.6bn from the World Bank and other international partners to support implementation of the $22bn National Development Plan 2012-2015 (PND).

The PND foresees an increase in the overall investment rate from 10% of GDP in 2011 to 18% by 2013. The share of public investment will increase from 3% to 7.5% of GDP. The extent to which this public investment drive can catalyze domestic and foreign private sector engagement, for instance through PPPs, will be a key determinant of Côte d’Ivoire’s medium-term growth trajectory.

While Côte d’Ivoire is one of the most open countries in the world to foreign equity ownership, inward FDI stocks, at 26.8% of GDP in 2011, lag slightly behind the regional average. Annual inward FDI flows, at 1.44% of GDP in 2011, amount to only a third of the regional average and lag far behind Ghana’s 8.4%, for instance.

The agriculture sector proved relatively resilient during the 2011 downturn. Accounting for almost a third of GDP, and some two thirds of employment, the sector remains highly important, socially and economically. Recent reforms in the Cocoa production sector – which accounts for 40% of global output – including fixed, guaranteed prices for producers, should contribute to price stability and social inclusion.

Recent discoveries of significant oil reserves in Côte d’Ivoire and neighbouring Ghana have given rise to much optimism. In early January, Ibrahima Diaby, Head of Hydrocarbons at the Ministry of Mines, Petroleum and Energy, expressed hope that oil output can be ramped up from its current level of 32,000bpd to 200,000bpd within five years. He also envisaged a 50% increase in natural gas production. Once the new hydrocarbon code is finalized, more new and attractive opportunities are likely to open up for investors in oil and gas exploration.

While the primary sector (35.9% of GDP) remains important, it is likely that the manufacturing (12.8%) and services (51.3%)  sectors will be the more dynamic growth engines going forward. The construction, transport and energy sectors, in particular, look set for strong growth. 25.5% of PND investment is allocated to transport infrastructure with a further 5.5% allocated to each of the energy, hydrocarbon and mining sectors. Priority projects include the refurbishment of a 400km road to the Liberian border, a tramway for Abidjan, and two new container terminals at Abidjan and San Pedro ports.

Alongside efforts to address infrastructure bottleknecks, the authorities also aim to implement a wide range of state and institution building measures that should support the rule of law and improve the business environment. Recent examples include new commercial courts, the new investment code – including significant tax incentives for capital investment – and a ‘single window’ for investment. If successfully implemented, such measures should underpin long-term economic development.

After a decade of political instability and economic stagnation, Côte d’Ivoire may have turned the corner, but political risks abound. The most acute threats in 2013 include: 1) political unrest as the International Criminal Court trial of former President (2000-2011) Laurent Gbagbo begins, 2) regional conflagration if the conflict in neighbouring Mali spills over, and 3) social unrest resulting from the phasing out of fuel subsidies. Widespread small arms ownership, and disaffection with a Truth and Reconcilliation Commission seen in some quarters as meting out victors’ justice, also continues to pose ongoing security risks.

If these risks can be avoided or mitigated, and the government is successful in stimulating private sector investment and implementing structural reforms, there is no reason why Côte d’Ivoire cannot regain its reputation as a beacon of democracy, stability and prosperity in West Africa. Robust, inclusive economic growth and political stability can, in time, become mutually reinforcing.

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