Côte d’Ivoire: Year in Review 2012
Following the post-electoral crisis that brought Côte d’Ivoire’s economy to a standstill in the first half of 2011, last year was a transitional one as the country’s performance gradually stabilised, although security remained a major concern. Due in part to the introduction of the government’s 2012-15 National Development Plan (PND), the economy has bounced back from a 4.7% drop in 2011, with the IMF expecting it to have expanded by 8.6% in 2012, on the back of supportive economic management, strong external aid, and increased investment in construction, transport and oil exploration.
Debt relief from the international community has been crucial to the improved outlook, particularly in terms of the government’s broader fiscal indicators. Côte d’Ivoire reached its completion point of the Heavily-Indebted Poor Country (HIPC) initiative in June, with total debt relief reaching $7.7bn, including assistance from the Multilateral Debt Relief Initiative ($1.4bn), HIPC relief ($3.1bn) and bilateral debt forgiveness from the Paris Club creditors ($3.3bn). The World Bank has approved $300m of operations in the 2012 fiscal year, while the IMF has disbursed $324.4m since November 2011 through its Extended Credit Facility (ECF).
Despite reshuffles in March and November, domestic reforms have also helped strengthen the 2013 outlook. The IMF approved the latest ECF tranche in November 2012 for immediate disbursement, reflecting strong budget execution and the implementation of structural reforms.
Reform in the cocoa sector, which employs about 6m people, has helped improve stability, with new regulations setting the price farmers receive at CFA725 (€1.11) per kg. The broader package aims to ensure the production of high-quality cocoa, which will help reduce rural poverty and increase the purchasing power of farmers. However, recent changes in fiscal policy on the sector could deter local cocoa processing and investment.
The IMF has also been encouraging the Ivorian authorities to revise the pricing, taxation and subsidy structure of fuel and electricity to ensure adequate funding for the extension of production and distribution infrastructure. However, price increases have yet to be implemented.
With debt service levels at a more manageable level, government expenditures are gradually shifting from current to capital line items, with a particularly heavy focus on infrastructure projects in transport and utilities. Although the country still boasts some of the most extensive infrastructure in the region – particularly in terms of its electricity network – conditions have drastically deteriorated over the past 15 years. Investment to modernise the Félix Houphouët-Boigny airport in Abidjan and to overhaul the national road network are among the chief priorities.
The authorities have also enacted a new investment code that provides significant tax holidays and other fiscal incentives to new investors. Initiatives to improve the business climate are underway, with the recent creation of commercial courts and the gradual use of new Organisation for the Harmonisation of Business Law in Africa (Organisation pour l'Harmonisation en Afrique du Droit des Affaires, OHADA) regulations on collateral repossession by banks.
These measures are part of a broader effort to facilitate businesses’ dealings with the slow, opaque court system, as evidenced by the sacking of several corrupt judges last year. However, corruption remains endemic, both within and beyond the courts, and significant efforts need to be made to improve the business climate, which may indeed be worsening, according to the World Bank’s latest “Doing Business” report.
Domestic consumption has recovered robustly from 2011 and has helped to drive growth in a number of segments. Demand-side factors have also contributed to the growth rebound in 2012, though much of the year’s economic expansion has been attributable to a low-base effect from poor economic performance in 2011. Car sales are up by an astonishing 122% year-on-year as of the end of September, according to the Fédération Nationale des Industries & Services de Côte d'Ivoire. Similarly, containerised import and export flows at Abidjan’s port have rebounded to above the levels recorded in 2010 and 2011, and strong internal demand has been reflected in a projected 27.7% overall increase in imports in 2012.
The creation of a new national carrier, Air Côte d’Ivoire, and the return of services from several international airlines to Abidjan also bode well for the economy, with air traffic through Abidjan up by 28.3% at the end of October, including an impressive 47.3% rise in commercial passengers, AERIA reported.
There still remain a number of pending issues that need to be tackled if the government is to strengthen the sustainability of the economy’s performance and improve overall investment attractiveness. Progress has been slow in implementing banking sector reforms, for example. In order to address the weak financial soundness of the five majority-owned public banks, the authorities are planning to recapitalise Banque de l'habitat de Côte d'Ivoire (BHCI), privatise Versus Bank, merge Banque Nationale d'Investissement de Côte d'Ivoire (BNI) with Caisse d’Epargne, and liquidate Banque pour le Financement de l'Agriculture (BFA).
With numerous projects slated for 2013 – ranging from developing Abidjan’s port to rolling out increased 3G and fibre-optic capacity – potential investors are sure to discover a host of opportunities. What remains to be seen is the extent to which they have the wherewithal to navigate the local business climate, and whether the Ivoirian authorities can do enough to improve it.