Bloomberg News

Senegal’s New Leader Faces Economic Challenge as Eurobonds Rally

March 27, 2012

Senegal’s Eurobonds rallied when President Abdoulaye Wade conceded defeat in the March 25 election. Now his successor, Macky Sall, must attract more investment to fuel economic growth.

Senegal’s economy, the second-biggest in West Africa’s monetary union, needs $1.5 billion from 2011 to 2015 to rebuild its energy industry, according to the International Monetary Fund. Last year, power cuts sparked violent protests and prompted the government to bring in 150 megawatts of emergency output, according to the IMF.

Sall, a 50-year-old geologist, “has a good understanding of Senegal’s economic strengths and the need to focus on investment in communications and energy infrastructure,” Anna Osborne, senior analyst at Bath, U.K.-based Maplecroft, a risk advisory company, said in an e-mailed note yesterday.

Winner of 65.8 percent of the runoff votes, Sall will become Senegal’s fourth president when he is sworn in next week. Wade, 85, led the West African nation for 12 years and faced protests last month after his bid for a third term in office was approved by the Constitutional Court. Sall rallied a coalition of opposition support and civil-society groups to win the vote, pledging “a new era” for Senegal, a nation that earns most of its foreign currency from tourism and exports of fish.

After his win and Wade’s concession, the yield on the $500 million Eurobonds fell 56 basis points, the most since the debt was sold in May, a day after the election and dropped 5 basis points to 7.44 percent late yesterday, according to data compiled by Bloomberg.

Spending Questions

“While investors generally expected Macky Sall to win the second round, there was some degree of uncertainty about the political transition in the country,” Samir Gadio, an emerging- markets strategist at Standard Bank Group Ltd., said in an e- mailed note to clients yesterday. “Wade’s concession of defeat even before the final results were released was probably not fully priced in, which contributed to the gains.”

A former head of the state oil company, Petrosen, and mines minister, Sall was Wade’s prime minister from 2004 to 2007. He split with the president after raising questions about spending on the 2008 Organisation of the Islamic Conference, which was overseen by Wade’s son, Karim.

“He is clearly not afraid to tackle difficult issues, and he has near universal goodwill in the country,” Jonathan Hyman, Africa analyst with the London-based Economist Intelligence Unit, said in an e-mail yesterday.

Economic Growth

Sall rallied 12 of the 14 presidential candidates that lost in the first round of the election, as well as Y’en a Marre and Mouvement 23, civil-society groups that organized anti-Wade protests, which turned violent and left at least nine people dead, according to Amnesty International.

While the coalition helped Sall’s victory, he will face a challenge of keeping it together, according to Gadio.

“Parliamentary elections scheduled for June could result in a fragmented National Assembly where no single party has a clear majority,” he said.

Sall will seek to resolve the conflict in the southern Casamance region. His first foreign trip will be to neighboring Gambia, which divides Casamance from the rest of Senegal, according to Gadio. The Movement of Democratic Forces of Casamance has been fighting for independence since 1982.

‘Sumptuous’ Spending

During the presidential campaign, Sall pledged to boost growth by attracting investors and curbing government spending and corruption.

Senegal $13 billion economy needs to grow 7 percent a year, he said in a Feb. 12 interview. The IMF forecasts expansion will accelerate to 4.5 percent this year from 4 percent in 2011.

“If the budget is used for sumptuous spending like monuments and highways, but the basic structures for development are not made, of course growth is going to stay at a weak level,” he said in the interview.

Sall promised to bring down food prices during his campaign by cutting a value-added tax from 18 percent to 10 percent, said Mamadou Alhadji Ly, an analyst at Dakar-based Consortium for Economic and Social Research. He may recoup the loss by increasing real-estate taxes, Ly said by phone from the city yesterday.

He has also pledged to scrap a tax on incoming international telephone calls, Ly said. Dakar-based Sonatel SA (SNTS), the biggest company listed on the regional West African stock exchange in Ivory Coast, said the tax may cut revenue by at least 10 percent as callers turn to Internet-based communication.

Senegal’s election, which the Economic Community of West African States said was without any major obstacles, will “ease concerns about the outlook for the democratic experience in sub- Saharan Africa, a few days after a military coup in Mali ended two decades of civilian rule,” said Gadio.

To contact the reporters on this story: Rose Skelton in Dakar via Accra at rskelton7@bloomberg.net; Pauline Bax in Abidjan via Accra at pbax@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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