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Doing Business In Africa: Senegal

Doing Business In Africa: Senegal

Situated on the westernmost tip of Africa, Senegal is a country that has long been associated with European and transatlantic trade due to its geography.

Colonized by the French in the 1850s, Senegalese territory was one of the first in Africa to come under European domination. In the century of French rule that followed, Senegal became deeply influenced by its colonial power and upon independence in 1960 adopted many of the organizing forms of French government.

For the first 20 years of Senegal’s independence, the country was led by its first president Léopold Sédar Senghor, a French-educated academic-turned-politician who was to become one of Africa’s leading thinkers during the 20th century. Though of a mind to promote a form of African socialism, Senghor remained deeply tied to France. As a result Senegal remained very much under French tutelage his entire administration – thus avoiding a catastrophic foray into radical socialism of the type that beset many newly independent African states.

An additional point in Senghor’s favor is that while he initially dismantled the mixed presidential-parliamentary form of government in favor of a presidential system he dominated completely, Senghor allowed a relatively open and democratic multiparty political system to develop. While Senghor remained president for 20 years until 1980, the democracy that emerged under his rule would turn out to be a strong and confident one that electorally endorsed Senghor’s hand-picked successor, Abdou Diouf, in 1981.


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Diouf continued his predecessor’s liberalizing policies and in 2000, he peacefully turned over power to the political opposition led by Abdoulaye Wade when he lost that year’s presidential election. Wade, in turn, turned over power peacefully in 2012 when he lost a bid to win a controversial third term as Senegal’s president. Thus, Senegal has established that rare thing in Africa – a stable, multiparty democracy with a history of turning over political power peacefully according to the dictates of the electorate.

Ease of Doing Business

Given all this, what are business conditions like in Senegal? According to the World Bank, Senegal currently ranks 152nd out of 183 countries on its Ease of Doing Business Index – a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses. By way of comparison, the U.S. ranks 4th for ease of doing business, right after Singapore, Hong Kong, and New Zealand.

What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. The bank defines business-creation costs as the time and money involved in the series of legal steps an entrepreneur must take to establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process and establish in-country averages.

When this metric is applied to Senegal, the bank finds that Senegal ranks as 101st out of 183 in ease of starting a business, making Senegal a relatively difficult country to start a legal commercial enterprise. To start a business in Senegal, one has to complete four bureaucratic procedures that take a total of eight days and cost almost $667. Additionally, Senegal requires startups to have $2,132 in operating capital before they can commence operations.

Figure 1:

How the World Bank Measures Ease of Starting a Business

        Fig 1 Ease of Business Graphic WB

Using similar metrics for other aspects of business operations, the bank ranked Senegal in a number of other areas. For ease of obtaining a construction permit, Senegal ranks 117th out of 183. It takes the completion of 16 procedures and an average of 210 days at a cost of $4,784, — about four-and-a-half times Senegal’s per capita income. Clearly, obtaining construction permits is a significant problem and a major obstacle to business creation and expansion in this country.

Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Senegal does even worse, ranking 167th out of 183 countries. To register property in Senegal requires completion of six bureaucratic procedures that take, on average, 122 days and cost 20.6 percent of the property’s financial value in fees and other costs.

Senegal also does poorly when it comes to obtaining credit. It ranks 152nd out of 183, making the country one of the more difficult places in the world to obtain credit. Here, as depicted in Figure 2, the bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges. If lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the bank, credit should be more readily available. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong. In Senegal, creditors have weak legal rights and there is very little credit information available on the general population.

Figure 2:

How the World Banks Conceptualizes Credit Acquisition

Fig 2 Ease of Business Graphic WB

When it comes to protecting investors and minority shareholders Senegal continues to do poorly. Here, the country ranks 167th out of 183 countries – making it a poor one for shareholders. Senegal received this score because while it has moderately strong disclosure requirements for corporate officials, it has little in the way of director liability laws and is a relatively difficult place to bring shareholder lawsuits.

Senegal does even worse when it comes to paying taxes. The World Bank estimates that pleasing the tax man in Senegal requires a total of 59 payments over the course of a year which take up to 666 hours to complete and can consume up to 46 percent of a company’s profits. Accordingly, Senegal’s tax burden is ranked 170th out of 183 nations – one of the worst in the world in this category.

Fortunately, when it comes to engaging in cross-border trade, Senegal receives a much better score. In Senegal, to import goods into the country one needs five documents for customs officials to inspect. On average, it takes 14 days to import goods into Senegal costing $1,940 (excluding tariffs) per container shipped into the country.

The cost to export goods is somewhat lower. Senegal requires six documents to be inspected by customs officials. The total cost (excluding tariffs) is $1,098 per container, with delivery taking up to 11 days from point of origin. Compared to global averages this nets Senegal a ranking of 67th out of 183 on ease of engaging in cross-border trade.

Senegal returns to pattern when it comes to contract enforcement. It ranks 148th out of 183 countries. On average, reports World Bank analysts, it takes 44 legal procedures to take a contract from dispute to resolution, at the cost of 780 days — or a little over two years — spent in court or otherwise attending to legal issues. The financial cost of pursuing a contract claim, says the bank, typically accounts for 26.5 percent of the value of the claim.

Finally, in terms of closing or liquidating a business, Senegal ranks 79th out of 183 countries. On average, it takes three years to fully close a business at a cost of seven percent of the value of the estate with a recovery rate of 32 cents on the dollar.

Table 1 presents a summary of these rankings as well as Senegal’s overall ease-of-doing business rating. Senegal is not an easy place to do business as it ranks near the bottom in most of the categories the World Bank measures. It does best in the area of cross-border trade.

Table 1:

World Bank Ease of Doing Business

Assessment and Rankings: Senegal

Table 1 Senegal Ease of Business

 

Prospects

Despite having some of the elements of instability that perennially threaten African growth and prosperity elsewhere on the continent, Senegal’s ability to avoid the worst in terms of armed conflict and civil unrest has been a valuable component of the country’s success. This is in no small part due to the country’s now strong tradition of democratic politics, which has served as a mechanism to divert what might have otherwise become a zero-sum gain over resources into a mutually beneficial, win-win system of accommodation, negotiation, and compromise. As a consequence, like elsewhere in Africa that has adopted and maintained strong democratic norms – such as in Botswana – corruption is much less a problem in Senegal than elsewhere in Africa.

That being said, Senegal is still a relatively poor country dominated by its agricultural sector – which is highly vulnerable to fluctuations in weather. In an effort to diversify the economy away from agricultural production Senegal has developed a valuable phosphate mining sector, a lucrative source of hard-currency earnings, as well as a commercial fishing sector that has so far struggled to compete effectively against wealthier, more efficient Asian competitors.

Other parts of the Senegalese economy are also beginning to develop. Tourism, for instance, has become a new leading sector and the government has made a great effort to promote Gorée Island, which in 1978 was designated a UNESCO World Heritage site. Since then, 200,000 people visit the island annually, providing a major source of income for the people of nearby Dakar – Senegal’s capital.

Figure 3:

Senegal Economic Growth,

Percent Increase, 2003 – 2013

Senegal GDP Growth

 

Looking ahead, Senegal has several obstacles to overcome. First, while its annual gross domestic product growth is now averaging just over 4 percent a year, this number still lags behind Africa’s more dynamic economies. This means that when it comes to attracting investor dollars Senegal is likely to fall behind countries like Kenya, Ethiopia, or even other West African states. Thus, the country’s first priority should be to continue its liberalizing reforms in order to make business conditions more attractive to both Senegalese entrepreneurs and outside investors. These could stand to be improved, especially in the area of property acquisition and construction permits.

Second, even though Senegal has had currency stability through its membership in the CFA franc monetary zone, it remains to be seen whether that overvalued currency is of much merit for a poor, export-dependent economy with little in the way of valuable commodities in great demand on world markets. While leaving the currency zone may prompt a great deal of uncertainty and instability in the long run, the resulting devalued currency Senegal would be forced to adopt would greatly add to the country’s competitiveness on world markets.

Third, even though Senegal has so far been able to avoid much in the way of conflict and violence both at home and with its neighbors, it is in a dangerous, unstable geopolitical region rife with conflict. Neighboring Mali collapsed into political rebellion and civil war in 2012, prompting French military intervention in 2013. Mauritania, Senegal’s neighbor to the north, endured a series of military coups in the last decade while Guinea, Senegal’s neighbor to the south, has also recently been affected by a series of destabilizing coups and civil unrest. Further afield, the simmering insurgency in Western Sahara and the brutal civil wars in Sierra Leone and Liberia serve as reminders that West Africa remains a dangerous place.

Still, despite all that, prospects for Senegal are reasonably good. The absence of overly divisive political conflict and its strong, stable democracy are a rarity in the region. If the government can needlessly burdensome rules that hold back business development, the future should be relatively bright for Senegal and its people.

Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider, Mint Press News and BAM South.