Abstract
Public consumption has declined from 12 percent of GDP in 1996 to 10.8 percent in 1999 owing to fiscal consolidation: wage increases are moderate, and other current expenditures have grown slowly. Conversely, private consumption has increased from 75.2 percent of GDP in 1996 to 76.9 percent in 1998, and is estimated to have reached 76.6 percent in 1999. Public investment has increased from 6.4 percent of GDP in 1996 to 7.2 percent of GDP in 1998 and is estimated to have reached 8.2 percent of GDP in 1999, whereas private investment has experienced a downward slide.
III. The tertiary sector in the Senegalese economy8
A. Overview
28. The Senegalese economy is predominantly a service economy, with services accounting for nearly two-thirds of GDP in 1998 (Figure 3).9 This feature is due to structural characteristics favoring this sector, as well as impediments obstructing other production activities to support sustainable growth. As a result, a growing number of people have to depend on small, informal service activities in order to survive.
Senegal. Share of Tertiary Sector in GDP, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal. Share of Tertiary Sector in GDP, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal. Share of Tertiary Sector in GDP, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
29. A cross-country comparison shows that a dominant tertiary sector is an unusual characteristic in Africa. In the other countries of West African Economic and Monetary Union (WAEMU), the share of the tertiary sector in GDP is about 40 percent. In sub-Saharan Africa, only Eritrea, Kenya, South Africa, Zambia, and Zimbabwe have tertiary sectors with shares equal or above 55 percent of GDP.
30. Available data on employment, credit to the economy, and exports confirm the predominance of the tertiary sector in Senegal’s economy. In June 1999, 53.5 percent of the credit to the economy was absorbed by the tertiary sector. Also, according to a 1994 household survey, 55 percent of the labor force was employed by the tertiary sector10 (36 percent of the workforce in rural areas and as much as 80 percent in the urban areas). With an urban population growth rate estimated at 4.1 percent (compared with a national population growth rate of 2.8 percent), the predominance of tertiary sector employment has probably increased since this survey was undertaken. The tertiary sector also contributes significantly to Senegal’s external position, with services (mainly tourism and transport activities) accounting for over 37 percent of exports of goods and nonfactor services in 1998; in contrast, the tertiary sector in most African economies tends to be domestically oriented.
31. Several factors help explain the predominance of the tertiary sector in Senegal’s economy. First, historically, Dakar was the administrative center of the former Federation of West African States under French administration (AOF), and, at independence in 1962, the share of the tertiary sector already accounted for about 60 percent of GDP. Second, Senegal’s strategic coastal position, with good maritime service connections to Europe and the Maghreb, promotes transportation and trade activities for itself and the hinterland. As a result, Senegal has the tradition of being a trading nation, as its trading networks extend throughout west Africa and into France, Italy, and the United States, with most of the profits earned abroad repatriated to Senegal. Third, Senegal’s geographic position and natural assets, combined with political stability, encourage the development of tourism activities.
32. Foremost, though, the relative importance of the tertiary sector is due to the fragility of the other two sectors. Agriculture is subject to cyclical drought, and the amount of arable land is reduced by desertification. Moreover, inappropriate policies, with an insufficient role given to market forces, have impeded the development of new agricultural production. As a result, Senegal has not been able to find a substitute for groundnut production, after the structural decline in international prices for groundnuts in the 1980s, and the agriculture’s share in GDP has been in secular decline, falling from 11.8 percent of GDP in 1990 to only 8 percent in 1998. The development of fisheries and the slow growth of livestock activities have, to date, been insufficient to compensate for this structural decline. As a result, agricultural growth did not keep pace with population growth, and the rural exodus led to the creation of small informal services activities to survive. According to the household survey cited above, 65 percent of the jobs in the capital, Dakar, were non-salaried in 1994. Contrary to the other countries of WAEMU, the agricultural sector has hardly benefited from the CFA franc devaluation.
33. The secondary sector is also subject to structural handicaps that constrain its long-term development, even if its performance has improved significantly since the 1994 CFA franc devaluation. First, the Senegalese market is narrow. A population of 9 million inhabitants with low purchasing power naturally limits the development of industrial production intended to satisfy the domestic market. Second, notwithstanding the CFA franc devaluation, Senegal’s international competitiveness remains low.11 The sector benefits from overt and shadow subsidies and protectionist policies that discourage competition and the adoption of the reforms needed to improve competitiveness. Several industries (sugar, for instance) are unlikely to survive without protectionist barriers because of small size and high production costs. Also, although they have increased recently, industrial exports to neighboring countries are still not developed enough to compensate for the limited internal demand: regional industrial exports only represent 10.1 percent of industrial production. Moreover, Senegalese manufacturers encounter stiff competition from Ivoirien industrial products in regional markets. For instance, according to the IMF’ s direction of trade statistics, Senegal’s market share in Mali’s regional imports is only one-fourth of that of Cote d’lvoire.
B. Subsectors of the Tertiary Sector
34. For the purpose of this note, the tertiary sector is divided into four subsectors:12 trade, transport and telecommunications, public administration, and other services (Figure 4). According to the national accounts, informal activities account for over 40 percent of the tertiary sector output (51 percent if public administration is excluded).13
Senegal: Components of the Tertiary Sector, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal: Components of the Tertiary Sector, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal: Components of the Tertiary Sector, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Trade
35. Trade dominates Senegal’s tertiary sector, accounting for about 35 percent of its total value added in 1998. Its share in GDP currently reaches 22.1 percent, compared with 20.3 percent in 1994. After a decline in 1993 and 1994, this subsector benefited from the CFA franc devaluation, averaging an annual growth of 7.4 percent over the period 1995-98 (Table 1). This expansion was helped by the progressive liberalization of the economy, which increases opportunities for trade and enhances competition. Although some formal enterprises remain, especially in import-export activities, three-fourths of trade is now in the informal sector, according to the national accounts statistics, because most newcomers have joined this sector.
Senegal: Composition and Growth of Tertiary Sector Output, 1993-98
Senegal: Composition and Growth of Tertiary Sector Output, 1993-98
| 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | ||
|---|---|---|---|---|---|---|---|
| (In percent of tertiary sector output at constant prices) | |||||||
| Tertiary sector | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Trade | 34.7 | 33.5 | 34.1 | 35.3 | 35.3 | 35.4 | |
| Transport and telecommunications | 17.9 | 18.1 | 18.1 | 18.3 | 19.1 | 19.1 | |
| Public administration | 17.3 | 17.2 | 16.6 | 15.9 | 14.9 | 14.2 | |
| Other services | 30.1 | 31.2 | 31.3 | 30.6 | 30.7 | 31.3 | |
| (Annual percentage changes) | |||||||
| Tertiary sector | -1.1 | 1.8 | 4.2 | 4.8 | 7.4 | 7.5 | |
| Trade | -5.8 | -1.8 | 6.0 | 8.6 | 7.5 | 7.7 | |
| Transport and telecommunications | 1.8 | 3.2 | 3.7 | 6.0 | 12.0 | 7.5 | |
| Public administration | 3.0 | 1.1 | 0.3 | 0.3 | 0.8 | 2.9 | |
| Other services | 0.6 | 5.6 | 4.7 | 2.2 | 7.9 | 9.4 | |
Senegal: Composition and Growth of Tertiary Sector Output, 1993-98
| 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | ||
|---|---|---|---|---|---|---|---|
| (In percent of tertiary sector output at constant prices) | |||||||
| Tertiary sector | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Trade | 34.7 | 33.5 | 34.1 | 35.3 | 35.3 | 35.4 | |
| Transport and telecommunications | 17.9 | 18.1 | 18.1 | 18.3 | 19.1 | 19.1 | |
| Public administration | 17.3 | 17.2 | 16.6 | 15.9 | 14.9 | 14.2 | |
| Other services | 30.1 | 31.2 | 31.3 | 30.6 | 30.7 | 31.3 | |
| (Annual percentage changes) | |||||||
| Tertiary sector | -1.1 | 1.8 | 4.2 | 4.8 | 7.4 | 7.5 | |
| Trade | -5.8 | -1.8 | 6.0 | 8.6 | 7.5 | 7.7 | |
| Transport and telecommunications | 1.8 | 3.2 | 3.7 | 6.0 | 12.0 | 7.5 | |
| Public administration | 3.0 | 1.1 | 0.3 | 0.3 | 0.8 | 2.9 | |
| Other services | 0.6 | 5.6 | 4.7 | 2.2 | 7.9 | 9.4 | |
Transport and telecommunications
36. Transport and telecommunications accounted for 19.1 percent of the tertiary sector and 11.9 percent of GDP in 1998, almost twice as important as the regional average (6.7 percent of GDP for WAEMU countries, excluding Senegal).14 Transport activities represent 75 percent of measured value added of this subsector.
37. After expanding moderately since the beginning of the decade, growth in this sector accelerated after 1994, averaging 7.3 percent over the period 1995-98. A sharp increase of 12 percent in 1997 was mainly due to road transport activities and the dynamism in telecommunications (see below). Sixty-seven percent of the value added of this sector originates in the informal sector, essentially in road transport. The government, with the support of the World Bank, is implementing a transport policy to strengthen the sector.15
38. Road transport represents 84 percent of the transport subsector according to national accounts statistics, and has grown since the devaluation. Presently, the road network consists of 14,500 kilometers, of which 4,200 kilometers are paved, although poorly maintained. Nevertheless, the sector is developing because of an increasing demand driven by population growth and trade activity, including with neighboring countries. Road transport activities are becoming more and more informal. The so-called taxi-brousse have supplanted the formal bus companies in intercity transport services, while in Dakar and its suburban area the expansion of the so-called cars rapides (with now more than 30,000 artisan-transporters) overwhelmed the public transport company (SOTRAC), which was liquidated in late 1998. The government is now finalizing the transfer of the activities of the former SOTRAC to a private company. As part of the transport sector policy, a five-year road maintenance program has been adopted to renovate the paved and unpaved road network and to alleviate congestion.
39. Maritime transport represents 11 percent of Senegalese transport activity, according to the national accounts. The Port of Dakar is the country’s main international seaport, supplemented by three secondary ports. Activity in the Port of Dakar increased on average by 6.5 percent a year over the period 1994-98, reaching 6.44 million tons in 1998, and has benefited from the growth in trade since the CFA franc devaluation. About 5 percent of the activities of the port are registered as transit activities, mainly to and from Mali (89 percent of the transit activities). But the Port of Dakar’s competitiveness continues to be limited by weak maritime transport policies and decision-making capabilities, inadequate management and regulations, marketing problems, and overstaffing. The Second Transport Sector Project of the World Bank plans to address these structural weaknesses.
40. Essentially because of decrepit physical infrastructure, railway activity (4 percent of the transport value added) has been broadly constant in recent years despite the economic growth. The rail network includes 1,058 kilometers of track, consisting essentially of the Dakar-Bamako line. This line recently suffered major problems because of its poor physical infrastructure, resulting in a contraction of international freight of 12.1 percent in 1999. Since 1997, negotiations have been undertaken with the Malian railways to privatize the operations of the Dakar-Bamako line.
41. Senegal’s dozen regional airports and four international airports have experienced a traffic increase since 1995, thanks to the growing number of tourists and the development of freight activities. After several failed attempts, Air Senegal was privatized in March 1999, and it is planned to privatize the airport’s management from 2001 onward.
42. Telecommunications is presently a buoyant activity in Senegal. The average annual growth of fixed lines was 17.2 percent over the period 1994-98, while cellular phone activity has experienced an extremely rapid development since its inception in 1997: at end-1999, the number of cellular phones already represented one-third of the fixed lines. According to a 1997 World Bank study, Senegal is the most competitive country in the WAEMU region for telecommunications services, offers the best quality and the largest range of telecommunications products, and has one of the most modern communication infrastructures in sub-Saharan Africa. The privatization of the telecommunications company (SONATEL) in 1997 and the commitments by the buyer to implement an intensive investment program are expected to strengthen this sector.
Public administration
43. While the expansion of the tertiary sector to a large extent resulted from the growth of public administration during the 1970s and the 1980s, the reverse was true during the last decade. The share of public administration declined steadily during the 1990s, falling from 17.3 percent of GDP in 1990 to 14.2 percent in 1998. Its average annual growth rate over 1994-98 was only 1.1 percent, while the other components of the tertiary sector grew on average by 6.1 percent. This development is the direct consequence of the adjustment policies, which have tightened control of the civil service size and the wage bill in a context of rapid economic growth.
Other services
44. In Senegal’s national accounts, the category “other services” includes property, household, and enterprise services, hotel and restaurant activities, and the bank and insurance industries. In 1998, they accounted for 19.5 percent of GDP and 31.3 percent of the tertiary sector. The contribution of this subsector to GDP is twice as large as the regional standard (9.1 percent in C6te d’lvoire, 9.5 percent in Benin, and 7.5 percent in Togo, for instance). One of the explanations for this major difference is that Senegal’s national accounts incorporate the services of owner-occupied dwellings in the real estate services (the former representing approximately 8 percent of GDP), which are not taken into account in Cote d’lvoire, Mali, and Togo.16 The “other services” activities have been expanding quickly in Senegal since 1995, with an average growth rate of 6.0 percent.
45. According to the balance of payment statistics, tourism receipts in 1998 reached CFAF 100 billion in 1998, equivalent to 3 percent of Senegal’s GDP, and the number of tourist arrivals, mainly from Europe, was about 350,000 in that year. The sector has benefited from the decline in hard currency prices for tourism in Senegal in recent years, the closeness to Europe, and the opening up to charter flights, which contributed to the increase of 43 percent in the number of arrivals between 1992 and 1998. Tourism in Senegal, however, is a mixed success. Although Senegal is receiving the highest number of tourists in the subregion,17 results are somewhat disappointing in light of the size of investments made in the sector. Moreover, tourism infrastructure is still predominantly held by the public sector and privatization is slow in being implemented. Nonetheless, the stabilization of the political situation in Casamance, a major tourist area, could stimulate the tourism sector. A strategic development plan has been adopted to promote tourism and is focused on promoting Senegal’s image abroad, improving accommodations and attractions at all the major tourism sites, revitalizing investment in the sector, and setting up a monitoring system.
46. The financial sector was restructured successfully between 1989 and 1991 after a severe crisis led to the closure of several banks. However, financial intermediation remains low in Senegal, compared with others countries with the same level of development. An emerging microfinance sector, encouraged by international donors, is also actively involved in the financing of the informal tertiary sector activities.
C. Tertiary Sector and Growth of the Economy
47. The average real growth rate of the tertiary sector reached 5.9 percent during 1995–98 and 6.9 percent if the public administration component is excluded. The tertiary sector by itself contributed to 84.1 percent of the national economic growth over the period 1997–98, a significantly higher figure than its share in GDP (Figure 5).
Senegal: Tertiary Sector Contribution to GDP Growth, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal: Tertiary Sector Contribution to GDP Growth, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
Senegal: Tertiary Sector Contribution to GDP Growth, 1990-98
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A003
48. Apart from the specific dynamics of each subsector, two main reasons explain the accelerating growth in the tertiary sector over recent years. First, the reallocation of production factors in the Senegalese economy favors the tertiary sector. The drift away from the countryside is accelerating, and the new urban workers are mainly being absorbed by the tertiary sector. Also, a significant part of private investment in the country in the latter years has benefited service activities, including in relation with the privatization of the telecommunications company, some hotels, and the Dakar port, and the opening of road transport and cellular communication to the private sector. Second, the productivity of the tertiary sector itself has increased during recent years, even if it remains low.
49. The economic literature has frequently claimed that a relative expansion of the service sector has a deleterious effect on economic growth. As summarized by Dutt and Lee (1993), several arguments have been suggested to buttress this assessment. First, the fact that services perish upon production should imply that increased spending on them would lead to a reduction in the accumulation of capital and, consequently, to a slowdown in the economic growth rate. Second, it has been argued that, since in services production labor is the end product, the possibly for increasing productivity is far more limited in that sector than in sectors producing goods, where labor is a factor of production. Third, it has been claimed that manufacturing activity is an engine of economic growth because it generates technological change that favorably affects the whole economy, while service sector expansion, by reducing the share of manufacturing, reduces the effectiveness of this engine. Dutt and Lee have investigated whether this negative relation was reflected in the data, using a cross- section analysis from a large set of countries for the period 1961-89. The conclusions of the authors were balanced: they found that a relative expansion of the service sector had a positive or negative impact on economic growth depending on how the role of the service sector in the economy is measured. Notably, they found that if the role of the service sector is measured by the average service share in employment, it was negatively correlated with real GDP growth in the 1960s and 1970s but not during the 1980s.
50. Several arguments, however, suggest that, in Senegal’s case, the tertiary sector does not have a negative impact on economic growth. First, as already mentioned, the growing share of the workforce involved in the tertiary sector originates in the primary sector, where productivity is very low, and not in the secondary sector. Moreover, as was demonstrated in a recent study,18 because productivity in the secondary and tertiary sectors is higher than in the primary sector, it is likely that the development of the tertiary sector has increased the overall productivity of the Senegal’s economy. Second, in an economy more constrained by demand than supply, an expansion of the service sector may, by generating demand, increase the rate of economic growth. Third, government interventionist policies have prevented the primary and secondary sectors to grow at their full potential; this has not been the case for the expansion of the largely unregulated tertiary sector.
D. Prospects and Conclusions
51. To reduce the high level of poverty and to absorb the many newcomers into the labor market, growth needs to accelerate in Senegal. Because of its predominance in the economy, the tertiary sector should propel Senegal’s economic growth, without, however, neglecting the other two sectors. This strategy implies a change in the attitude of the government and the donor community toward this sector, and an enhanced interest in its strengths and weaknesses, so that the structural reforms needed to encourage its development can be implemented.
52. Because of its structural deficiencies, an acceleration of growth is not likely to come from the primary sector. Even if the secondary sector appears to have been relatively dynamic after the CFA franc devaluation, with a growth path broadly equivalent to the tertiary sector, the structural weaknesses of this sector, as highlighted above, remain. And it is unlikely, with present policies, that such a growth level can be sustained: the industrial growth of recent years was mainly due to the increased use of the available production capacity after years of stagnation. The construction sector benefited from a recovery in public investment and private housing, which, although likely to stay at a high level, is not expected to continue to grow as fast as in recent years.
53. The tertiary sector is still suffering from a large array of structural handicaps that constrain its development. Very small urban or rural enterprises dominate the transport, trade, and informal “other services” categories and most of them are locked in a vicious circle whereby demand deficiency depresses supply, and vice versa. Because of a lack of capital, know-how, technology, and available credit, as well as a low level of factor productivity, these enterprises generate only very low incomes, thus prolonging poverty. Low incomes depress demand. In turn, insufficiency in demand deters productivity enhancing investments that would increase income levels.
54. However, without this informal production, the survival of the poorer segments of the population might not have been possible, particularly in light of the rapid migration to urban centers in Senegal in recent years. Also, given the prohibitively high entry cost of creating industrial jobs in the modern sector and the low level of foreign direct investment in Senegal, any meaningful poverty reduction strategy will have to be based on a furthering of these small enterprises in the tertiary sector.
55. The challenge is to fashion an appropriate mix of policies that removes impediments to the accumulation and efficient allocation of saving and investment (including in human capital). This policy mix will include increasing productivity and allocative efficiency in order to better use the limited resources. To the extent that this can be accomplished relatively quickly, growth could be enhanced without immediate increases in saving and investment. The policies will have to tackle supply and demand simultaneously in a parallel fashion. This entails, foremost, to convince policymakers that export-led growth will not be sufficient to eradicate poverty and that the engine of growth in the Senegalese economy lies with these small enterprises in the tertiary sector. Hence, the authorities’ efforts should be directed at furthering the domestic market, lifting the constraints on the ability to increase supply, and, in particular, removing the legal and administrative hurdles and other policy distortions that slow domestic production and demand. On the supply side, a significant effort should be undertaken to make small credits available, to invest in infrastructure (roads, means of transport, water and electricity supply, telecommunications, facilitating the availl-ability of computers and access to the internet, etc.), and to provide simple hands-on education and training. On the demand side, policies should be directed, inter alia, at encouraging enterprises in the modern sector and the public sector to purchase supplies locally.
References
Jean-Claude Berthelemy, Abdoulaye Seek, and Ann Vourch, 1996, Growth in Senegal, a Lost Opportunity? (Paris: Development Center of the Organization for Economic Cooperation and Development).
CEFTE, 1997, “Programme d’Appui Régional à l’Intégration des Pays de l’UEMOA (PARI)”, rapport final Sénégal, (Bruxelles).
Amitava Krishna Dutt and Keun Young Lee (1993), The Service Sector and Economic Growth: Some Cross-section Evidence, International Review of Applied Economics 7, 311-329
World Bank, December 1997, “Senegal, The Challenge of International Integration” (Washington: World Bank).
World Bank, 1999, “Second Transport Sector Project to Republic of Senegal” (unpublished; Washington: World Bank).
Prepared by Pierre van den Boogaerde and Vincent Caupin.
This chapter uses Senegal’s national account statistics, which continue to suffer from weaknesses, especially concerning tertiary sector. This sector includes disparate activities, and a significant part of its output is produced by the informal sector. Thus, national accountants dealing with this very difficult issue often have to use proxies to estimate the value added of activities. As far as possible, national accounts figures have been compared with other information available in order to confirm or invalidate the trends.
Direction de la prévision et de la statistique, Ministère des Finances, Enquête sénégalaise auprès des ménages, 1994/95. These figures seems credible. Although several studies indicate that about two-thirds of the active population is working in the agriculture sector (e.g., the African Development Indicators report compiled by the World Bank puts agricultural employment at 70 percent for 1990), these last figures are not in accordance with the agricultural share in GDP (less than 10 percent) and with the urban population (44.4 percent in 1996).
Even with a 50 percent devaluation of the CFA franc, competitiveness remains hampered by the large share of imported inputs in the production of the industrial sector and the high level of productivity-adjusted labor costs in the formal sector.
Senegal’s statistics exclude public administration and household production from the tertiary sector. Here, household production is incorporated in the subsector “other services”.
These figures were established for 1987.
Part of the discrepancy is explained by some countries’ not including telecommunications in this subsector and by the lesser importance of transport activities in landlocked countries. Nonetheless, the gap with Côte d’lvoire remains analytically unexplained.
Following up on a transport sector adjustment loan (PAST), a transport sector loan (PSTII) of the World Bank for 1999-2004 was approved in January 1999.
For owner-occupied accommodations, Senegal’s national accounts evaluate a service of owner-occupied dwellings. A recent workshop on GDP harmonization among WAEMU member countries estimates that the incorporation of these services would lead to a 5 percent increase in the stock of Cote d’lvoire’s GDP. This methodological discrepancy explains only three-fifths of the difference between the two countries, and some further evidence may suggest that this subsector might be somewhat overvalued in Senegal’s national accounts.
And the seventh hightest in the whole of Africa, according to the World Tourism Organization.
Berthelemy, Seek and Vourch (1996). According to these authors, urban migration appears to be one of the major determinants of long-term growth in Senegal.
