Chapter 1. Growth Performance, Outlook, and Challenges 1
- Alexei Kireyev, and Gaston Mpatswe
- Published Date:
- October 2013
Senegal’s growth was relatively strong during 1995–2005, but the more recent growth performance has been disappointing. A number of structural obstacles will need to be addressed to put Senegal back on a higher and sustainable growth path.
Growth Performance Over the Past Twenty Years
Three growth periods can be identified over the past twenty years. Economic performance was poor in the early 1990s, before the 1994 CFA franc devaluation. Senegal then recorded a period of strong growth in 1995–2005, with growth averaging 4.5 percent (Figure 1). This average masks relatively large fluctuations (although less than during the previous decades) reflecting volatility in agriculture output, with growth approaching or exceeding 6 percent certain years or dropping below 3 percent. Due to a series of exogenous shocks starting in 2006 (i.e., food and fuel global prices, global financial and economic crisis, and, more recently, the electricity sector crisis and drought in the Sahel), growth decreased to an average of 3.3 percent in 2006–11.
Figure 1.Senegal: Real GDP Growth, 1990–2011
Source: IMF staff estimates.
Senegal’s growth was less favorable than that of fast-growing sub-Saharan Africa (SSA) countries. Although growth in Senegal since the mid-1990s has been better than in a number of West African Economic and Monetary Union (WAEMU) countries and strong enough to ensure an increase in per capita income, it has fallen short of the authorities’ target under successive poverty reduction strategies and has been much lower than that of fast-growing SSA economies such as Cape Verde, Ethiopia, Rwanda, Tanzania, and Uganda (Table 1).
|Average growth rates||Average per capita growth|
Activity has increased faster in the tertiary sector. This has been particularly the case in transport and telecommunication, which together have contributed by about one percentage point to GDP growth (Table 2). Whereas the share of the tertiary sector in GDP has increased significantly, the share of the secondary sector has remained about constant and that of the primary sector (including agriculture) has decreased. The observed productivity increase in agriculture and the structural shift toward the services sector suggest that Senegal has experienced a pattern of economic transformation quite typical in developing countries.
|Sectors real growth rates1||Contribution to real growth1||Shares of GDP2|
|Public works and housing||6.6||8.7||4.8||0.2||0.3||0.2||3.1||3.7||4.3|
|Transport and telecom||−2.0||9.8||8.2||−0.2||0.8||1.0||6.9||7.4||10.6|
Growth has been driven mainly by public investment and remittances-fueled private consumption (Table 3). Remittances grew by more than 20 percent per year between 1995 and 2005 and have become a major source of external financing for the economy. Public investment also grew substantially between 2000 and 2005. The export sector, however, performed relatively poorly (see the note on external stability).
|Annual growth rates1||Share of GDP2|
Annual percentage change.
Nominal growth rates.
Growth has been factor-intensive. A growth accounting exercise suggests that growth is mostly explained by factor accumulation (Table 4).2 Total factor productivity (TFP) actually declined before the mid-1990s, and again since 2006. It grew only modestly during the decade of robust growth (1995−2005). A number of factors could explain this poor productivity performance. First, the TFP decline in the past five years coincides with the deterioration of Senegal’s doing business and governance indicators, which could have affected the productivity of both public and private investment. Second, large and increasing remittances might have been invested in sectors less likely to spur growth (such as housing and informal trade).
|Output and productivity growth|
|Real GDP growth||1.3||4.5||3.3|
|Real per capita growth||−1.5||1.8||0.6|
|GDP per person employed1||−1.7||1.4||0.2|
|Agriculture output per worker2||−0.6||0.6||1.7|
Percent change in GDP per person employed (constant 1,990 PPP$).
Percent change in agriculture value added per worker (constant 2,000 US$).
Medium-Term Growth Outlook and Challenges
The medium-term growth projections in the program assume a return to positive TFP growth. Growth is projected at 3.7 percent in 2012, 4.3 percent in 2013, and an average 5 percent per year over 2014−17. Given the demographic trends and the assumptions made on investment, such a growth path implicitly assumes that ongoing and planned reforms will improve economic efficiency and restore TFP growth to levels comparable to those observed in 1995−2005 (Table 5).3
|Real GDP growth||3.7||4.3||5.0|
|Real per capita growth||1.0||1.6||2.3|
|Total factor productivity||−0.5||0.1||0.9|
|Total factor productivity||−0.1||0.6||1.3|
Obstacles to higher and sustainable growth have been identified. The authorities are finalizing their new growth strategy, which was not available at this writing. The previous one (the Accelerated Growth Strategy) focused on five priority sectors: agriculture and agribusiness, fisheries, tourism, clothing and textiles, and telecommunication and information and communication-enabled services. Some of these sectors, such as agriculture and tourism, are likely to remain the focus of the new strategy given their strong development potential:
Agriculture and agribusiness. The authorities and World Bank staff see important opportunities for growth in horticulture for exports, and in rice and other cash crop production and livestock development, primarily for the domestic market. A favorable climate for year-round fresh vegetables and fruit and a relatively short distance to the European market put Senegal in a very good position. The potential for efficiency gains in the agriculture sector is large, as illustrated by the relatively low cereal yields (Table 6).
|excl. South Africa|
However, this will require modernizing the sector, which is primarily composed of small, family farming, and relies heavily on rainfall and the use of traditional production techniques. Obstacles to access to land and credit, which limit potential involvement of private businesses, will need to be addressed too.
Tourism. Given its natural endowment and cultural heritage, as well as its proximity to Europe, the potential for the development of business and cultural tourism is substantial. Senegal scores fairly well in terms of the number of tourist arrivals (Figure 2), but poorly regarding receipts per tourist (Figure 3). The sector has lost substantial market share in Africa over the last 15 years. This trend can probably be reversed, but it will take a range of measures to improve the offer and market the destination.
Figure 2.Number of Tourist Arrivals (Thousand), 2003 and 2006
Figure 3.Average Receipts per Tourist Arrival (US$ Current), 2003 and 2006
Improving energy and transport infrastructure is critical for growth prospects. Significant progress has already been achieved in upgrading Senegal’s infrastructure, particularly in information and communication technology, but substantial challenges remain in transport and energy. The latter are expected to be addressed in the coming years through a number of large projects. These include the Blaise Diagne International Airport, the Dakar—Blaise Diagne International Airport highway (with possible extensions to Mbour and Thiès), and the Diamniadio Economic Special Integrated Zone. These projects will help deal with the excessive concentration of economic activity in the Dakar area, which makes up more than half of the Senegalese economy in less than 1 percent of the national territory. Large investments to restore power supply and increase generation capacity with more cost-effective technologies should also help lower the cost of doing business, especially in manufacturing; the cost of electricity in Senegal is indeed among the highest in SSA (Figure 4).
Figure 4.Electric Power Transmission and Distribution Losses (% of output), 1990–2006
More generally, there is significant scope for further improvement in the business climate. The development of a dynamic private sector in Senegal is still hampered by a range of issues. Despite the progress made in a number of areas (e.g., creation of a one-stop shop for business registration, easing of administration procedures for exports and imports), Senegal still ranks only 154th out of 183 countries surveyed for the 2012 Doing Business report. Reform efforts are especially needed in the areas where Senegal still lags well behind comparator countries, such as paying taxes, registering properties (Figure 5), protecting investors, enforcing contracts, and dealing with construction permits. More generally, a more effective provision of business-friendly public services would contribute to private sector development.