Côte d’Ivoire – Strong Growth Dented By Weak Cocoa Prices


Thursday, November 09, 2017 5:35 PM / BMI Research


BMI View: Côte d'Ivoire will continue to see strong economic growth in the coming quarters, driven by the construction, transport and mining sectors. However, weak cocoa prices will add headwinds to the agricultural sector, leading to a modest deceleration in headline growth relative to recent years.


Economic growth in Côte d'Ivoire is set to remain robust despite the likelihood of a mild slowdown in the coming quarters. Foreign investment into the construction and transport sectors will drive economic expansion, supported by a number of key projects. Moreover, while still small, significant opportunities in the mining sector owing to a favourable business environment will encourage investment and lead to production gains.


The agricultural sector, however, will act as a dampener given the drop in the price of cocoa, which is the country's greatest export earner. This will squeeze earnings for farmers, boding poorly for future production. As such, we forecast GDP growth of 6.4% and 7.1% in 2017 and 2018 respectively, down from an estimated 9.5% in 2016.  

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Credit and Foreign Investment Will Buoy Construction and Transport Sectors

Despite a number of high-profile military mutinies in early 2017, investment into the country has remained robust in recent quarters, particularly into the infrastructure and transport space. For instance, Chinese firm Sinohydro is in talks with the government to build three more hydroelectric dams.


Similarly, ongoing improvements at the port of Abidjan over the coming four years, including the addition of a second export terminal and the expansion of the connecting canal, are expected to cost over USD700mn.


Road construction will also be buoyant, supported by a USD803.1mn loan from the African Development Bank awarded in December 2016. Robust investment from the private sector is likely to plug the gap that lower government infrastructure spending will cause (see 'Wider Deficit On Weak Cocoa And Army Bonuses', June 21).


Mining Offers Small But Growing Bright Spot

While mining currently contributes a small share to the overall economy, our Mining team believes that the sector has significant upside potential. BMI forecasts robust gold production growth in the coming years, owing to new production from Endeavour Mining's Agbaou mine as well as a number of smaller units.


We also note upside risks to our forecasts given that the country's favourable investment environment. The introduction of a new mining code in 2014 will increase transparency for investors, and improvements in infrastructure – particularly the power supply – are likely to attract more investment into the sector.


Greater gains in the mining sector will be seen in the medium-to-long term, with Perseus Mining's Yaoure gold project gold project set to begin production in 2020.   

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Weak Cocoa Prices Will Dampen Agricultural Earnings

The most notable headwind to growth in the coming quarters will be the persistence of low cocoa prices, which will squeeze farmer incomes and likely lead to subdued investment in future yields, possibly dampening production in 2018. Furthermore, given that the majority of Ivoiriens are employed in the agricultural sector, reduced earnings are also likely to dampen consumer spending.


That said, we note that the medium-term outlook for the agricultural sector is still relatively bright. Prospects for the processing industry are likely to brighten after the government concluded a number of cocoa processing deals with agribusiness companies in 2017, including Olam International and Cargill, which already have significant processing operations in the country. 

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