Senegal’s Positive Economic Story Is Attracting Foreign Investment

Kurt Davis Jr.
Written by Kurt Davis Jr.

 

Senegal is moving forward,  and the country’s positive economic story is obvious to any investor who has spent time in Dakar during the last two years.

The $575 million airport is a welcomed site in the West African market, while the problems that plagued the new hub such as water and power cuts are a thing of the past.

The electronic check-in and immigration facilities, complete with a new business lounge, make for pleasant modern upgrades. The airport is symbolic of Senegal’s economic progress.

Infrastructure as an ambition

The country is moving forward at pace. Mobile penetration has surpassed 100 percent by most calculations, with many Senegalese carrying two mobile phones. Water and power cuts no longer plague the city of Dakar. Infrastructure investment, as promised by President Macky Sall when elected in 2012, remains central to the ambitious growth strategy for this country.

The private sector complaints about infrastructure have slowly quietened during President Sall’s administration as new infrastructure development boosts capacity and productivity for the average Senegalese business.

Cost remains a major issue for the government, with the growth in debt to GDP in the last several years. The International Monetary Fund (IMF) relayed soft warnings to Senegalese officials last year.

That said, the $10 billion worth of orders for a $2.2 billion Eurobond in March 2018 to fund infrastructure and pay down other debt indicates a theoretical buy-in by the market into the Senegalese growth strategy.

Changing dynamics of foreign investment

France has long dominated foreign investment in this West African country. But this is gradually changing with Turkish president Recep Tayyip Erdogan announcing that Turkish companies had deals in Senegal totalling $580-plus million.

Data from the United Nations shows that most new foreign investment projects in the last 15 years are from the Middle East and Far East, including $2.8 billion from the United Arab Emirates, $1.2 billion from South Korea, $695 million from China and $653 million from India.

The attractiveness of the Senegalese market may have began with the government commitment to infrastructure investment, but it is best underwritten by the political stability in the country.

Economic story
French President Emmanuel Macron with Senegalese President Macky Sall. Photo – AP – Mamadou Diop

President Sall is guiding a relatively peaceful growth story with economic growth north of six percent in each of the last three years. Foreign direct investment has also nearly doubled in the last five years to approximately $540 million in 2017.

Foreign investors are fuelling a major boom and placing boots on the ground in the process. Dubai-based DP World, which runs the Port of Dakar, will also build and manage Senegal’s new seaport.

India’s Jindal Steel & Power has signed an agreement to build a $550m, 350MW coal-based power plant. Nigeria’s Dangote Cement makes cement at its local $400m plant. Turkey’s Summa manages the Dakar international airport and Morocco’s Attijariwafa Bank is one of the biggest banks in country.

The Chinese are unusually not as present here as they are in other countries, but that is sure to change with government efforts in recent months.

Playing the oil card correctly

Senegal’s future is also buoyed by recent oil and gas discoveries, specifically those by Kosmos Energy and Cairn Energy. Kosmos Energy’s discovery of 11 to 15 trillion cubic feet (tcf) of gas off the shore of Mauritania and Senegal provides significant revenue potential and a pathway to the development of gas-to-power plants.

Cairn Energy completed nearly 10 successful wells in Senegal in three years. The country went from being an afterthought among oil and gas explorers to a new arrival in 2014 (with Cairn making the biggest offshore oil discovery globally that year) and a star in 2017 (with Kosmos and BP’s discovery of 11 to 15 tcf of gas).

International advisors and observers have cautioned Senegalese officials to the challenge of developing these resources and the “resource curse.”

This curse, also known as the “paradox of plenty”, references situations where a country with an abundance of natural resource sadly falls into a spiral of lower economic growth, decreasing scores on democracy, and trailing results on development outcomes.

Analysts largely pick on Nigeria and Angola as the examples of the resource curse and its pitfalls. But the reality for oil and gas countries of costly infrastructure development and construction to support the newly discovered resources is already partly in motion with Senegal’s large infrastructure investment to date.

There are some analysts that suggest that the growth in infrastructure spending on the government books will not be as massive as a percentage for Senegal relative to other African countries.

Strong institutions and a different outcome

Investors and executives in Senegal are very much optimistic on the country. Senegal is by no means their first venture into an oil and gas country.

These business leaders learned from pitfalls in other natural resource-rich countries and point to stronger institutions and a belief in a different outcome in the country.

President Macky Sall, a former geological engineer and chief executive officer of the Senegalese National Oil Company, PETROSEN, is the right leader according to many advisors and international players in the country.

Locals are supportive of President Sall but are not fully sold on the oil and gas story, Cairn and Kosmos’ large role in the energy development in the country, and the massive growth and transformation story.

Locals digest the growth in smaller doses compared to the quick and grand transformation being advertised to the international audience. Those Senegalese may be onto something.

Asteady and thorough growth strategy managed by strong institutions will produce different outcomes (relative to other stories on the continent).

Kurt Davis Jr. is an investment banker with private equity experience focused on Africa and the Middle East. He earned an MBA in finance, entrepreneurship and operations from the University of Chicago and J.D. in tax and commercial law at the University of Virginia’s School of Law. He can be reached at kurt.davis.jr@gmail.com.