Senegal

RISK ASSESSMENTS

POLITICS

Government Stability/Internal Conflict
Furor Erupts Over Constitutional Change
Political tension is on the rise in Senegal, a result of a deteriorating energy situation and the government’s failed attempt to alter the constitution ahead of the polls set for February 2012. President Abdoulaye Wade proposed that the threshold for victory in the first round of presidential elections be lowered from 50% to 25%. This would effectively preclude the possibility of a run-off and, given the divisions in the opposition ranks, make Wade’s election to a third term in office all but certain. The government also proposed to the parliament a creation of the post of vice-president. It was widely suspected that the 85-year old Wade intended to appoint his son Karim, the most powerful cabinet minister, to the vice-president position, making him his running mate in the presidential elections and the most possible successor.
In response, fierce anti-government protests and riots erupted in the capital Dakar, a rare event in the normally stable country. The government was forced to withdraw the controversial bill, even though the ruling Senegalese Democratic Party (PDS) and its allies hold a comfortable two-thirds majority in the parliament. The protests revealed the extent of significant discontent with Wade’s record in office and unease at the meteoric rise of his son in a nation not used to family succession of power. The anger has been magnified by rising living costs and the dismal state of the national energy provider, Senelec. Only days after riots over proposed constitutional amendments, the government was forced to deploy the army to key points in the capital as the Senegalese took to the streets to protest ongoing power cuts.
The government’s humiliating retreat, coupled with public anger over rising living costs, has emboldened the opposition and civil society activists, and even mobilized a new youth movement intent on bringing down the president. More protests and street violence will follow in the next six months but the government will be reluctant to use lethal force against the protesters, in light of the upcoming elections. Taking into account the relative stability of past decades, the violence is not expected to snowball into serious civil strife.
Elections 2012: Open Race
Despite sustaining a hard blow to his electoral chances, Wade remains defiant. The chances of his withdrawal from the presidential race are slim, despite a renewed constitutional challenge against his candidacy by the opposition. The 2001 constitutional amendments limited the presidency to two consecutive terms in office, which should technically make Wade’s third term illegal. However, he was first elected into office a year before the amendments were passed and his supporters argue that the regulation cannot be applied retroactively. The constitutional court has to decide on the issue by January but is considered unlikely to rule against the government.
It is also less likely that the ruling party would switch to another candidate with only six months remaining before the elections. Diminishing this possibility is Wade’s complete control over the cabinet, which did not allow any of the ministers or party leaders to develop a distinguishing public profile, save for his son Karim. Heading the massive portfolio covering infrastructure, transport and international cooperation, Karim controls a large portion of the budget but the rumors of possible family succession have upset other party leaders who have also laid their eye on the top job.
The ill-fated constitutional proposals encountered opposition from his own legislators and Wade’s campaign could be in trouble if his party appeared not fully on board with his candidacy. But the question that remains is whether the opposition can take advantage of Wade’s woes? The answer is a cautious yes, but only if the leaders of the United to Boost Senegal, the main opposition alliance, agreed on a joint candidate. A split opposition vote enabled Wade to clinch the 2007 vote with 56% in the first round.
Reaching consensus will be challenging. The largest party in the alliance is the Socialist Party (PS), which ruled Senegal from its independence to 2000 and is tainted by corruption scandals accumulated through decades in power. Its long-serving leader, Ousmane Tanor Dieng, is hardly a fresh face but he has not yet shown willingness to step aside in favor of more popular colleagues such as Khalifa Ababacar Sall, the mayor of Dakar. It is equally uncertain whether the PS might back a more attractive candidate from an allied party. Macky Sall, a prime minister under Wade (2004 to 2007), now a mayor of Fatick, is generally considered a likely leading challenger.
Wade has lost considerable ground in Dakar but retains a considerable degree of popularity in rural areas, owing to the program of state subsidies that boosted farm output and income. As a result, the elections remain open. And until the opposition leaders, many of which are former associates of Wade, present a coherent electoral program, it will remain unclear whether a change in government would also bring about substantial changes in government policy.
Investment Profile
More Spending On Energy
The government is frantically looking for ways to prop up the struggling energy sector as the elections approach. A source of widespread anger, power cuts that can last 20 hours at a time could seal Wade’s electoral fate. Senelec is being choked by a $589 million debt and by a legacy of years of mismanagement and underinvestment. Its reliance on diesel power generators makes it one of the most expensive systems in Africa, at an enormous cost to the economic activity and investor confidence. High prices of oil this year have put Senelec in an impossible situation as the company cannot meet the costs of fuel, while day-long power cuts are no longer an option in the middle of the electoral season.
The IMF recommends that the government prioritizes expenditure and boosts revenue to finance investment in the energy sector. A coal fire plant is planned for 2014 but Wade will need solutions with immediate impact due to political considerations. The government has set up a special fund to pay for fuel imports and the lease of generating capacity using budget revenues, donor cash and receipts from a tax on telecommunications traffic. The authorities hope that the extra capacity will be put in place just a few weeks before the elections.
This short-term measures may keep people off the streets but with risks to the fiscal targets, as additional spending on energy projects grows to 3.1% of GDP this year. The 2011 budget deficit is projected at 6.9 % of GDP, with 2% covered by domestic borrowing. The IMF says some scope for higher fiscal shortfalls remains but insists that mid-term targets be set at below 4% of GDP.
ECONOMY
Power Cuts Risk Undermining Growth
Growth will tick up to 4.5% in 2011, up from 4.2% last year, supported by public spending on infrastructure projects. Power cuts and the high cost of food and fuel imports are among the main risks to the economic outlook. Imported pressure will push the inflation to 3.9% in 2011 before climbing down to 2.5% in 2012. An inflated import bill will also outweigh the export receipts and widen the current account deficit to 8.2% of GDP.
Additional energy spending on energy projects will weigh on debt sustainability, though the risk of debt distress remains low. External public debt stands at 30.8% of GDP. Donors have scaled down their commitments, concerned that the government was prioritizing grandiose infrastructure projects over social spending. This makes recourse to more non-concessionary borrowing likely over the next year.