Wednesday, March 28, 2018 /10:40 AM / BMI
BMI View: We continue to forecast robust real GDP growth in Senegal over the coming two years as investment flows into a range of sectors including transport, manufacturing and oil and gas. Foreign investors will continue to view Senegal as an attractive market given that we expect the reform-minded President Macky Sall to remain in power for much of the next decade.
The prospects for the Senegalese economy remain bright over the coming quarters with a broad range of factors set to continue to support economic growth in the 7.0% region. The opening of a new airport in Dakar in late 2017 is set to make the country a major West African transport hub, a goal that will be bolstered by plans to build a port adjacent to the new airport, while also boosting tourism and business services. We believe that reform-minded President Macky Sall will win another term in 2019 and the prospect for continued pro-business reforms will attract investment into a number of areas including other infrastructure projects, the oil and gas sector and a Special Economic Zone situated near to the airport and planned port. As such, we are forecasting real GDP growth of 7.6% in 2018 and 7.3% in 2019, among the highest in the region.
Bright Prospects For Transport Sector
We remain optimistic on the prospects for Senegalese economy over the coming two years and drivers of growth will be relatively broadbased as we are expecting investment to flow into a range of sectors. The transport industry will be a particular bright spot. A new airport serving the capital Dakar, located 60km east of the city, was finally inaugurated in late 2017, almost ten years after construction began in 2008. The USD575mn airport is expected to handle 3 million passengers in 2018, almost twice the number that passed through the Leopold Sedar Senghor International in 2016, with the government expecting passenger numbers to rise to the airport's capacity of 10mn over the coming years. Also boding well for the transport sector are plans by DP World to construct a new port adjacent to the airport. The Dubai-based firm currently operates the existing Dakar port but expansion opportunities are limited by its location on a peninsula.
The planned port and new airport are strategically located to serve a Special Economic Zone (SEZ), which will include an industrial park, service spaces, offices and a logistics platform. There are plans to later incorporate a commercial area, tourist complexes and residential areas. The aim of the SEZ, which will be accompanied by an incentive-driven tax framework, is to attract private sector investment into manufacturing, services and logistics sectors, among others.
The liquefied natural gas (LNG) industry also looks set to attract significant investment over the coming years as strong drilling results raise the prospect of the country becoming an LNG hub (see 'LNG Hub Prospects Heating Up', May 9). US energy firm Kosmos confirmed a major gas discovery with its Yakaar-1 well in mid-2017, with a gross resource estimate of around 425bn cubic metres (bcm) and indications of good reservoir quality. This is the sixth successful exploration and appraisal well drilled in the Senegal River fairway and adds to the Teranga and Tortue discoveries. Tortue, the first and largest discovery, has been earmarked as the anchor development in the region.
French major Total has also signed an exploration agreement for the deepwater Rufisque Offshore Profond Block.
Business Environment Underpins Investment
Our upbeat view on investment is based on a strong and improving business environment. President Macky Sall, in power since 2012, is in the process of implementing his Plan Sénégal Émergent (PSE), which aims to cut red tape, foster good governance and greater adherence to the rule of law, and improve human capital and physical infrastructure. The strong performance of Sall's Benno Bokk Yakaar (BBY) alliance in the July parliamentary election, in which it increased its majority from 119 to 125 seats (out of 150), bodes well for a continuation of reforms until the end of his first term in 2019. The parliamentary election results are also a strong indication that Sall will win a second term, which suggests that business-friendly reforms are likely to continue for much of the next decade.
This bright outlook for continued reform will encourage firms to commit long-term investment and provide financing for projects, which will be crucial given that we expect the government to rein in capital expenditure in order to bring its debt load to a more sustainable level. Indeed, total debt increased from 23.8% of GDP in 2007 to an estimated 60.0% of GDP in 2016. We are expecting debt to fall steadily over the coming years to 53.0% by 2019 as lower capital spending leads to much smaller fiscal deficits .