Senegal on the Way to an Emerging Economy: Transformation, Inclusiveness, Equity

IMF News, February 10, 2015

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Published: February 10, 2015

Introduction and context

Speech by Christine Lagarde, Managing Director, International Monetary Fund.
Location and dates: Dakar, Senegal, January 30, 2015; published February 10, 2015.
Key framing:
- Senegal has strong democratic institutions, respected legal and education systems, dynamic civil society, and a strong civil service.
- Senegal is at a critical turning point: foundations for growth exist but current growth is “neither vigorous nor inclusive enough” to unlock potential, reduce poverty, and secure youth prospects.
- Government strategy: “Plan Senegal Emergent” is described as “ambitious yet feasible” for reaching emerging economy status.
IMF context:
- The Fund held an “Africa Rising” conference in Mozambique convening political, business, and civil society leaders from 42 African countries and other parts of the world.
- The IMF has a membership of 188 countries and serves as a platform for cross-country knowledge exchange.

1. The road forward for “Africa Rising” — implications for Senegal

Macro and growth performance:
- Average Senegalese growth has been “3-4 percent annually,” described as insufficient to spur private-sector job creation and prosperity.
- Historical underperformance: average growth over the last thirty years “hovered around 3.5 percent.”
- Demographics: “45 percent of your population under 14 years of age.”
Global environment and headwinds:
- Recent IMF forecasts project global economic activity “weaker than we had projected only a few months ago,” despite lower oil prices and firmer activity in the United States and the United Kingdom.
- Headwinds identified:
- Asynchronous monetary policies in advanced economies (U.S. monetary normalization; easing in Japan and the Euro Area) with potential negative spillovers to emerging markets and global financial stability.
- Persistently lower oil prices: negative for oil exporters; opportunity for oil importers to reform energy subsidies.
- Persistence of geopolitical tensions (examples: Ukraine, the Middle East, Nigeria, Mali).
Regional outlook:
- Growth forecasts for Sub-Saharan Africa revised down due to lower oil and commodity prices, yet the region is still expected to post “close to 5 percent” growth in 2015—the world’s second highest after emerging Asia.
Ambition:
- Government target: “7 to 8 percent” growth envisaged in “Plan Senegal Emergent” and comparable to growth recorded by Asian tigers and fast-growing African economies.

2. Building on the success of peers — lessons for Senegal

Two overarching conclusions from international experience:
- Achieving emerging economy status within the next two decades is “achievable.”
- No country succeeds in all reforms at all times; each has a distinct reform record.
Implementation challenge:
- Senegal has had many strategic plans but often failed in implementation (quote attributed to Minister Ba).
Three key lessons to heed:
- Prudent fiscal management and macroeconomic stability:
- Successful takeoffs improved public spending and public investment management, which helped unlock private and foreign investment.
- Warning: higher spending without these components often led to higher debt with sub-par outcomes.
- Empirical reference: countries that saw an increase of “at least 5 percent in per capita growth rates” include India, Guyana, Sri Lanka, Cape Verde, Mauritius, and Uganda.
- Export expansion through openness to foreign direct investment (FDI):
- Successful episodes of growth were accompanied by dramatic export increases driven by significant FDI rises—typically from an average of “1 percent of GDP to about 4 percent.”
- Improving the business climate and supporting small- and medium-sized enterprises is critical.
- Building institutions and human capital:
- Growth must increase overall well-being to avoid income imbalances and social strain; lack of jobs and limited human-capital investment can undermine reforms.

3. Senegal: building to the future — the need for a “big push” of reforms

Preconditions noted as positive:
- Strong government ownership of a development program and political consensus for reforms.
- International community pledges: “more than US$7 billion” to help finance the program.
Call for a “big push” to create a critical mass of reforms and accelerate growth.
Three policy dimensions for the “big push”:
- Strengthen public financial management and bridge infrastructure gaps:
- Need for additional fiscal space for public infrastructure and social spending.
- Fiscal space should be widened by increasing revenues and rationalizing spending rather than by simply accumulating more debt.
- Reallocate spending from low-priority items (poorly planned capital spending, untargeted electricity subsidies that benefit mostly the rich) to high-priority public infrastructure and investments in human capital that benefit the poor.
- Strengthen the business climate to accelerate structural transformation:
- Regulatory reform has begun; Senegal was “amongst the top reformers in 2014” per World Bank Doing Business Indicators.
- Despite reforms, Senegal remains in the bottom ranks among African peers on the investment climate.
- Recent FDI levels in Senegal: “about 2 percent of GDP,” much lower than the “7 percent of GDP” levels recorded in many lower and middle-income countries in Sub-Saharan Africa.
- Policies should broaden regulatory reforms and support small and medium enterprises to create formal-sector jobs for youth.
- Make growth more inclusive:
- Pro-active social policies are required to build human capital and ensure inclusiveness.
- Target creation of opportunities for youth and women to bridge “the terrible gulf between young people’s aspirations and their accomplishments.”
- Gender progress: laws requiring electoral lists to include equal representation of men and women have bolstered political gender diversity.
- Remaining challenges:
- Senegal ranks “77th out of 142 countries on the 2014 World Economic Forum Gender Gap ranking.”
- Patriarchal structures limit women’s access to justice, decision-making, economic empowerment, and security.
- Emphasis: higher female labor-force participation contributes to economic growth.

Conclusion and IMF engagement

Overall judgment:
- Senegal is “at a turning point”; government goals are ambitious but achievable; risks are substantial but manageable; opportunities are vast.
- Urgent priorities: inclusive, job-rich, and sustainable growth that empowers youth, women, and the poor.
IMF support:
- The IMF will continue technical assistance, capacity building, regular policy advice, peer-learning, and stands ready for new program engagement if desired.
Closing metaphor: Senegal’s rise to emerging economy status would mark a milestone for “Africa Rising,” but it requires collective effort—“only if we sail together on this boat, ‘Senegal’ can we claim the brighter, more inclusive future.”

Senegal on the Way to an Emerging Economy: Transformation, Inclusiveness, Equity by Christine Lagarde, Managing Director, International Monetary Fund (Dakar, Senegal, January 30, 2015; published February 10, 2015).