Trade Deficit To Persist
BMI View : Merchandise trade figures from Senegal's national statistics agency have confirmed our view that the country's relative lack of natural resources and uncompetitive economy will perpetuate a deep current account deficit over the coming years. Remittances from the country's large diaspora will not be able to offset a deep trade deficit, and BMI predicts a current account shortfall worth 9.3% of GDP in 2013.
Unlike many of its resource-rich neighbours, Senegal has a diversified economy which is not dependent on a single export product. While the country's consumer-focussed economy has protected Senegal from the sort of 'boom and bust' growth common in Niger or Gabon, it has left the country with few internationally competitive exports with which to pay for surging import demand.
While Senegal's trade deficit (which we estimate reached 24% of GDP in 2012) is partially offset by remittances from the country's large diaspora, BMI predicts that a large current account deficit is likely to persist over the medium term.
|Peaked, But Hardly Narrowing|
|Senegal - Current Account Balance, % Of GDP|
The current account shortfall temporarily widened to 10.4% of GDP in 2012 due to a poor harvest necessitating higher food imports, but we forecast that the deficit will narrow only marginally - to 9.3% - in 2013. Unless Senegal's export industries can become significantly more competitive, BMI forecasts a current account deficit of around 9.0% over the duration of our 2013-2017 forecast period.
|The Wares Of Senegal Inc.|
|Senegal - Top Exports, CFAbn (LHS) & Share Of Total Exports In 2012, % (RHS)|
While Senegal is not as reliant on a single industry as Niger (uranium), Gabon (oil), or Mali (gold) there are several key goods that play a major role in the country's export basket. Senegal 's long coastline and developed fishing industry mean that the country is a large exporter of seafood to European markets. Senegal's natural resource exports are supplemented by sales of petroleum products and of ground nut oils .
The country also produces cement and fertiliser which is mostly sold in regional markets. This provides Senegal with export links to high-growth African markets, lessening its dependence on Western economies . Given the rapidly growing construction sectors in many West African countries, BMI expects cement demand to be robust over the coming years. We also stress that Senegal's production of value-added finished and semi-finished products is a positive sign that the country is moving up the value chain.
In recent years, firms such as Canada's Teranga Gold Corporation have invested heavily in developing Senegal's gold potential. Sales of the precious metal, which is mostly bound for industrial uses, made up 15% of exports in 2012, up from less than 1.0% in 2007. While rising gold exports have helped improve Senegal's terms of trade, we stress that the industry remains very small in absolute terms. Senegal exported only 5,600 tonnes of gold between January and November 2012, a figure which is comparable with that of Bulgaria and approximately a quarter of Burkina Faso's exports over the same period.
|Economic Imbalances Weigh On Trade Balance|
|Senegal - Exports & Imports By Sector, CFAbn|
These export industries, however, are not able to match Senegal's robust import demand. The chart to the right shows that the country runs a trade deficit in every product category, with the exception of gold.
Seafood and ground nut exports are more than offset by the import of staple foods such as rice and meat. Senegal's poor 2012 harvest caused food imports to rise by 15.9%, contributing to the deeper current account deficit in that year. Oil exports are easily exceeded by demand for refined fuels and lubricants.
The country's wide trade deficit, however, is largely the result of high import demand for finished and semi-finished products, especially those destined for sale as consumer goods. With a highly urbanised population and a consumption-driven economy, Senegalese consumers demand a wide array of consumer goods , and everything from automobile parts and mobile phones to packaged food and clothing is imported from Europe or China .
Help From Friends Abroad
Since, like most African countries, Senegal runs a service account deficit (due to net imports of banking, finance, and construction services) the only support for the country's current account deficit comes from current transfers, a figure largely made up of remittances from Senegalese citizens abroad.
BMI estimates that annual current transfers represented an average of 9.5% of GDP between 2000 and 2012. While transfers have proved remarkably resistant to a slowing economy in Europe (where many Senegalese émigrés live) we stress that Senegal's dependence on money sent from abroad leaves the country heavily exposed to employment conditions in ailing Western economies.
Given Senegal's rapidly expanding population and robust private consumption growth, BMI predicts that import demand will remain high. Unless export industries experience rapid expansion, which is unlikely given slow economic growth and a difficult business environment, we predict that Senegal will run a wide current account deficit over the medium term. The shortfall will be covered by foreign investment in the mining sector and portfolio inflows from the Senegal-based firms which dominate the regional bourse.