Local processing in Côte d’Ivoire encourages industrial development and diversification

 

Although civil conflict in the early 2000s led to years of deteriorating infrastructure, Côte d’Ivoire reversed the trend back to economic growth after the country stabilised its political situation in 2011. The economy has grown at a rate of 9% per year since 2011, in part due to the emergence of its burgeoning industrial sector. Côte d’Ivoire is driven by targeted government policies and rising foreign direct investment, notably supporting the creation of new industrial zones, and is set to establish itself as an increasingly important West African industrial powerhouse. The government laid out a National Development Plan (Plan National de Développement, PND) for 2016-20 with the goal of increasing industry’s GDP contribution to 40% by 2020.

Additionally, the National Restructuring and Upgrading Programme – another strategy based on technical training – was formed in 2014 to serve the specific needs of the sector until 2019. The CFA152bn (€228m) programme was designed and financed in part by the Ivorian state, in order to boost foreign direct investment and increase the overall competitiveness of small and medium enterprises (SMEs) operating in the growing manufacturing sector. Jean-Maurice Ibrahim, CEO of Distribution de Matériel Electrique Industriel et Bâtiments, told OBG, “Late payments or defaults are some of the biggest obstacle for SMEs in the country. Stronger oversight could potentially reduce cash flow problems, thus improving the financial and investment capabilities of smaller companies.”

In addition to new programmes, an investment code was established in 2012. This creates several tax benefits that apply to both new and existing companies, establishing a one-stop shop for investors, and streamlining administrative processes. Government data from 2016 shows that 70 new industrial companies benefitted from the investment code. Incentives of note include a reduction from 40% to 50% in Customs duty on imported equipment, 0% value added tax and exemptions from taxes on industrial profits for periods of between five and 15 years. The code was revised in August 2018 (see Economy chapter).

Peformance

The development of the country’s industrial base, driven by high levels of consumption and economic growth, has allowed it to increase its integration with global markets beyond its natural domestic and regional servicing.

According to data reported by the African Development Bank (AfDB) in its African Economic Outlook publication, the manufacturing sector made up 16.4% of Côte d’Ivoire’s economy in 2016, while the entire industrial sector was estimated to account for 28.8% of GDP in 2017. Industrial output continues to increase consistently, maintaining the positive trend it has been following since 2011. Exceptional performances have been seen on an regular basis in the agro-industry, fast-moving consumer goods (FMCG) industry and construction subsectors.

Local Processing

Agro-industry has significant potential to contribute added value to the industrial sector. Based on Côte d’Ivoire’s abundant and high-quality agricultural commodities, the agricultural sector has historically boosted the economic growth of the West African nation, leading it to retain a positive trade balance of 5.5% of GDP in 2017 and an estimated 3.3% in 2018, according to data published by the AfDB. Nevertheless, agro-industry remains fairly limited.

Beyond the export of raw materials, local processing is a challenge that the national authorities must tackle in order to bring higher-added value to the country and ensure desirable levels of advanced industrialisation. Significant obstacles remain in this process of industrialisation. First, administrative and operational constraints remain one of the most frequent grievances expressed by key sector players.

Ali Achkar, commercial director of Société des Tubes d’Acier et d’Aluminium de Côte d’Ivoire (SOTACI), told OBG that beyond such constraints, “high energy costs, heavy Customs procedures and a lack of concrete support from financial institutions remain key barriers to the emergence of an industrialised Côte d’Ivoire.” SOTACI is the largest steel producer in West Africa and Côte d’Ivoire, with an annual capacity of over 170,000 tonnes and turnover of CFA50bn (€75m).

“The country’s geographic position and its relatively strong network of transportation infrastructure are assets for establishing local operations,” Ramzi Omaïs, the CEO of Societé de Transformation Industrielle de Côte d’Ivoire, said in conversation with OBG.

Trade Opportunities

To help increase the competitiveness of its processed and finished products, Côte d’Ivoire entered into free trade agreements with larger markets such as the US and the EU, in 2000 and 2008, respectively. These agreements offer unique opportunities, including Customs-free access to two of the world’s largest and richest markets. However, the competition to enter such markets is high, and Ivorian companies and products must improve their performance in terms of competitiveness.

One of these agreements is the African Growth and Opportunity Act. Signed by the US and sub-Saharan countries in 2000, and renewed in 2015 for a period of 10 years, it aims to deepen the trade and investment ties between the continent and the world’s largest economy. Its primary effect has been lower trade barriers between the two markets.

A series of economic agreements, called the Economic Partnership Agreements, have also been signed between West African countries and the EU, focusing on finished processed goods rather than the existing commodity-based trade. The agreement is packaged with a dedicated Development Programme to support and prepare Côte d’Ivoire for gradual opening of its market – notably through sub-programmes such as the Programme for Trade and Regional Integration Support). This allows ECOWAS countries to export 100% of their goods duty-free to the European market. Similarly, through this programme European countries will be allowed to export 75% of their finished goods duty-free to ECOWAS countries. Despite difficulties in the harmonisation of trade systems in the ECOWAS economic bloc, which are primarily due to economic discrepancies among constituting members, the country’s long-term development goals are tied to that of the union. Considering its key positioning in the ECOWAS economic union, as a prominent transport hub and one of the largest economic powers in the union, Côte d’Ivoire can export its industrial finished goods to the region on a highly competitive basis.

Logistical Challenges

A major development focus for improving the country’s competitiveness is the streamlining of port operations. “The port of Abidjan is undergoing an extension to increase its capacity, as demand is soaring,” Frédéric Tailheuret, CEO of cable manufacturer Société Ivoirienne de Câbles, told OBG. “The main issue which needs to be addressed is the logistics around the port,” he added.

Côte d’Ivoire is ranked 162nd out of 190 countries in the World Bank’s 2019 “Doing Business” report in terms of ease of trading across borders. The Abidjan Autonomous Port in particular faces heavy congestion during the agricultural export season, leading to blockages in the trade flow. To tackle this, logistics-related projects are planned to smooth transit and shipping.

As such, new container terminals at the Abidjan Autonomous Port and the San Pedro Autonomous Port are scheduled to be built. Discussion is ongoing on the construction of both a dry port in northern Côte d’Ivoire as well as a major road between the two ports of Abidjan and San Pedro that will enhance access. Lastly, the Vridi canal is being deepened and extended, and will soon be able to accommodate larger ships which weigh up to 150,000 tonnes, an increase from the current capacity of 50,000.

Cocoa

Cocoa is an integral commodity in Côte d’ Ivoire’s economy and is historically the country’s lever for economic development. Côte d’Ivoire is the world’s leading producer of cocoa, and the crop contributes around 40% of export revenue and supports as many as 2m small cocoa farmers.

Despite diversification and processing efforts led by the national authorities, the country remains dependent on price fluctuations. The government attempted to limit the risk to Ivorian farmers through a sector reform in 2012 that secured a minimum rate for growers. The country’s production in 2018 stood at 2m tonnes for an International Cocoa Organization (ICCO) daily price of $2185 per tonne as of November 2018.

Excess supply in global markets have unfortunately impacted prices, particularly in 2017 when the price per tonne fell from $3000 to $1900, as per figures posted by the African Development Bank. The prices eventually began to recover in 2018, but the price drop led the government to reduce its budget for the 2017 fiscal year by 10%, and also had a knock-on impact on Côte d’Ivoire’s national budget for 2018.

The upward trend of 2018 minimised the loss, however, prices have yet to recover to their pre-2017 levels. This drop was primarily caused by an excess of supply in the global market; there were 370,000 tonnes of excess cocoa beans produced in the 2016-17 season. Beyond supplying cocoa to global markets, Côte d’ Ivoire is looking to establish itself via increased innovation through local processing. Significant investments and capital expenditures, as well as installation of quality standards, are needed to make this innovation take place. The national government aims to reach a level of 50% local processing by 2020. To accomplish this, it will cooperate with neighbouring cocoa producer Ghana and the AfDB to increase processing, and develop logistics and transportation, primarily through building new storage facilities as well as improving quality standards on a more expansive scale.

Foreign direct investment is already evident, as seen in 2015 when major cocoa producer French group Cemoi opened the first chocolate factory to be established in the country. With an annual capacity of 10,000 tonnes of finished product, the factory followed the 2015 entry of Singapore-based Olam International in San Pedro, which launched a $70m primary cocoa-processing plant with annual capacity of 70,000 tonnes.

Cashew

Another significant agricultural commodity in Côte d’Ivoire is cashew nuts. The country is the top producer of cashews globally, with 770,000 tonnes produced in 2018. Largely, it exports raw cashew nuts rather than processed ones. Cashew is an emerging sector in Côte d’Ivoire, greatly driven by rising prices, demand and consistently high rates of consumption in the US and the EU. This strong performance is partly due to government measures implemented in 2013, pushing for cashew production and local processing industry. The country looks to increase its processing capabilities from 100,000 tonnes per year to 300,000 tonnes, at minimum, with the aim of reaching a total of 100% local processing by 2020.

Moving beyond successes in production, processing remains a sizeable challenge for this sector of agro-industry. The country is thus making efforts to avoid losing value added to countries such as India and Vietnam, where Ivorian raw cashews are currently being shipped to processors.

For instance, the government set up a national regulator in 2012 – the Regulatory Authority for Cashew and Cotton – providing credit guarantees, aiming to boost added value through the support of processing equipment upgrades, as part of the PND. Furthermore, in 2016 it launched an export support programme to process cashews locally. This programme consisted of bonus tax payments, CFA400 (€0.60) per kg, as well as tax breaks to processors. The measure is expected to last up to five seasons, with the possibility of a two-year extension in future years. Beyond this, however, authorities will need to take into account the primary factors that make this process difficult. Among other reasons, Côte d’Ivoire’s lack of global competitiveness is partially due to its high energy costs, poorly-trained workforce and lack of technological advancement.

Poultry

Poultry consumption per capita per year increased from 0.43 kg in 2006 to 1.99 kg in 2015, according to the Ivorian Poultry Interprofessional Union, while annual production is estimated at 35m.

The increase in consumption may be viewed as a direct result of a growing population and an expanding middle class. The sub-sector, however, faces numerous challenges. “We’re currently working on improving access to poultry by reducing prices, extending the distribution network and improving quality,” Alphonse Coffi, COO of SIPRA (Société Ivoirienne de Productions Animales), told OBG. “That said, there are a number of challenges facing the continuous growth of the sector. First, there is the issue of quality and norms that need to be addressed. Second, the cost of energy remains an important challenge,” he added. In an effort to tackle some of these challenges, as well as achieve food safety and self-sufficiency, the government has implemented a number of anti-poverty measures since the political stabilisation that followed in the years after 2011.

More specifically, regarding the poultry sub-sector, the government introduced the Poultry Recovery Plan in 2012 in order to support the sector and limit imports.

Cotton

The government aims to reach a rate of 25% local cotton processing by 2020, however, the sector faces similar challenges encountered elsewhere in the industry. Despite access to high quality raw materials, local processing is limited by energy costs, logistical constraints as well as a lack of training and skilled manpower. According to government data, cotton production in Côte d’Ivoire has risen by 25%, up from 328,000 tonnes in the 2016 season to 412,000 tonnes in 2017. The government set a new target of 600,000 tonnes produced annually by 2020.

In 2017 it proceeded with the privatisation of the state-owned Ivorian Company for the Development of Textiles for CFA13bn (€20m) in an attempt to establish a textile cluster that would aid in minimising transportation costs. Private sector management was seen as more efficient and more capable of investing in development. “While it is true that the government’s work on the agro-pole system is promising, the sector needs to go through professionalisation to ensure its development,” Siontiamma Jean-Baptiste Silué, secretary general of Intercoton, the sector’s key special interest organisation, told OBG. “We still need to address financing and insurance for producers and processors, and go beyond the equilibrium price mechanism we set up by having a state-sponsored fund dedicated to cotton,” he added.

Industrial Zones

Despite efforts made to develop industrial zones, after years of deterioration and lack of maintenance they require pressing upgrades, especially to necessary infrastructure. To address this, as well as boost the industrial sector’s contribution to GDP, the government is working on rehabilitating existing industrial zones and building new ones. “Rehabilitation projects in industrial zones around Abidjan allow us to make the most of limited space by optimising activities,” Youssouf Ouattara, general manager of the Management and Development Agency of Industrial Infrastructure, told OBG. “Ultimately, Côte d’Ivoire’s industrial activity will have to be decentralised,” he said.

This is particularly evident in a CFA20bn (€30m) plan focused on the Yopougon Industrial Zone, which began in 2015. The Yopougon Industrial Zone covers 645 ha, and houses key manufacturing sites which account for 80% of Côte d’Ivoire’s industrial capacity.

Another industrial zone currently being developed is PK 24 outside of Abidjan, for a cost of CFA60bn (€90m). Work on the new area started in 2015, and PK 24 is expected to become a critical component of Côte d’Ivoire’s industrial landscape, securing the Greater Abidjan Area’s place as the industrial heart of the country. At 62 ha, it is the first stage of a wider 940 ha development, with 200 ha being built by the China Harbour Engineering Company (CHEC) through a Public-Private Partnership agreement. Upon completion, PK 24 will be the country’s largest industrial zone. The area will accommodate several Chinese industrial companies, notably CHEC itself.

Similarly, Brassivoire, a new €150m joint-venture brewery between Dutch beer company Heineken and specialist distributor CFAO, built its production facility in PK 24 in 2017. Additional restoration and upgrades will cover the industrial zones of Vridi and Koumassi, also on the outskirts of Abidjan. Other new industrial zones will also be set-up in the city of Bouake, in central Côte d’Ivoire, for an estimated cost of CFA100bn (€150m), as well as in Bonoua, San Pedro and Yamoussoukro by the Agency for Management and Development of Industrial Infrastructure (Agence de Gestion et de Développement des Infrastructures Industrielles, AGEDI). Institutionally, AGEDI was created in 2013 to manage industrial zones, mainly by building new zones primarily through land development as well as by administrating its occupants’ affairs. As for financing, the industrial zones will be financed through the Fund for the Development of Industrial Infrastructure (Fonds de Développement des Infrastructures Industrielles, FODI). Created in 2014 to secure funding for works and management of industrial zones, in 2015 FODI signed a CFA21bn (€32m) loan deal with the Société Ivoirienne de Banque, a subsidiary of Moroccan bank Attijari Wafa, and Banque Atlantique de Côte d’Ivoire, a subsidiary of Moroccan bank Banque Populaire du Maroc.

FMCG

A number of multinationals – particularly those active in the consumer products industry – have established bases of production in Côte d’Ivoire. Unilever, Nestlé, Heineken, La Bel and Cemoi have all increased their production and distribution, largely in the economic capital of Abidjan. This is in order to better access the city’s consumer market and expand even further into the wider West African market.

Between 2013 and 2018 Côte d’Ivoire became a regional centre for a number of FMCG firms that were seeking to gain access to West Africa’s 350m-strong population and tap into the rising consumption levels of the Ivorian middle class. In 2016 the Anglo-Dutch company Unilever opened a CFA6bn (€9m) mayonnaise factory in Abidjan, with a production capacity of 10,000 tonnes. The company also announced further investments in soya, maize and poultry in northern Côte d’Ivoire. Similarly, Brassivoire established a new CFA100bn (€150m) brewery with an annual capacity of 160m hectolitres. Construction, which began in September 2015, was completed in 2016, and the brewery was officially inaugurated in April 2017.

However, despite the announcement of such projects by important FMCG players, the dominant approach remains taxing imports of products for distribution in the region as is the case of Swiss institution Nestlé, who built a CFA6bn (€9m) distribution centre for its Ivorian operations in the Yopougon Industrial Zone. This is primarily resulting from the obstacles FMCG manufacturers face when looking to invest in the country, especially when those obstacles are related to high energy costs and dealing with increasingly disorganised logistics and supply chains.

Outlook

Côte d’Ivoire’s push to encourage local processing is the bedrock of its future industrialisation; it provides an opportunity for the country to go beyond the export of agricultural resources in their raw form, specifically cocoa and cashews. This will allow the country to add value to its economy and increase revenue from the industrial sector.

Using a wide array of governmental measures ranging from fiscal incentives to administrative simplification and bonus payments, the Ivorian national authorities’ objective is to increase local processing and reach the goals it has put in place for 2020. Beyond processing, there are major infrastructural projects that aim to provide the necessary logistical environment for the country’s emerging industrial base to rise in global competitiveness levels.

Significant efforts remain necessary to increase competitiveness, in particular when it comes to tackling energy costs, training the Ivorian workforce and allowing better access to the appropriate financing.

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The Report: Cote d’Ivoire 2019

Industry & Retail chapter from The Report: Cote d’Ivoire 2019

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