CREATING MARKETS SENEGAL IN CREATING A COUNTRY PRIVATE SECTOR DIAGNOSTIC SECTOR PRIVATE COUNTRY A A COUNTRY PRIVATE SECTOR DIAGNOSTIC CREATING MARKETS IN SENEGAL Sustaining growth in an uncertain environment APRIL 2020 About IFC IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work with more than 2,000 businesses worldwide, using our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In fiscal year 2018, we delivered more than $23 billion in long-term financing for developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org © International Finance Corporation 2020. All rights reserved. 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 www.ifc.org The material in this report was prepared in consultation with government officials and the private sector in Senegal and is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the International Bank for Reconstruction and Development (the World Bank) or the governments they represent. This publication uses U.S. spelling. All mentions of dollars refer to U.S. dollars, unless otherwise indicated. All data are current as of February 2020 Cover Photos: Dereje, INSTA GRAPHISTE, Anze Furlan, Salvador Aznar, Agarianna76, ambient_pix, Senegal / Shutterstock.com SENEGAL A COUNTRY PRIVATE SECTOR DIAGNOSTIC CONTENTS ABBREVIATIONS AND ACRONYMS V ACKNOWLEDGMENTS VII EXECUTIVE SUMMARY VIII INTRODUCTION 1 1. COUNTRY CONTEXT 4 1.1 Growth Spurt Between 2014 and 2019 4 1.2 Recent Growth Is Largely Driven by Exports, Agriculture and Services 7 1.3 A Changing Economic Environment 12 2. OBSTACLES TO PRIVATE SECTOR GROWTH 17 2.1 Uneven Playing Field 18 2.2 Limited Access To Finance 26 2.3 Energy 32 2.4 Connectivity 36 3. UNLOCKING EMERGING SENEGAL IN KEY SECTORS 47 3.1 Agriculture And Agri-Business Sector 48 3.2 Services Sector 52 APPENDIXES 63 A. Additional Data 63 B. Economic Fitness Product Level Analysis 67 REFERENCES 72 NOTES 77 ii FIGURES Figure 1.1 Real GDP growth, 1990-2018 5 Figure 1.2 Contribution to GDP growth 5 Figure 1.3 Growth of exports in Senegal 8 Figure 1.4 Sector growth rates, 2014-2017 9 Figure 1.5 Sources of capital investment 10 Figure 1.6 Capital investment in Senegal, 2014-2018 11 Figure 2.1 State enterprises and per capita GDP 18 Figure 2.2 Distance to frontier, 2020 18 Figure 2.3 Components of product market regulation in Senegal 20 Figure 2.4 Land categories in Senegal 24 Figure 2.5 Property registration 25 Figure 2.6 Property registration regulations 25 Figure 2.7 Access to finance 33 Figure 2.8 Access to electricity comparisons, 2017 33 Figure 2.9 Comparing electricity costs 33 Figure 2.10 Doing business: cost of border compliance in 2020 (US$) 37 Figure 2.11 Fuel levy raised by African road funds 39 Figure 2.12 West and central Africa port throughput, 2016 41 Figure 2.13 Unique mobile internet users, 2018 (percentage of population) 44 Figure 2.14 Mobile network performance index, 2018 (score 0-100) 44 Figure 3.1 Diversification of exports 49 Figure 3.2 Key education indicators, 2017 53 Figure 3.3 Private enrollment 54 Figure 3.4 International tourism: arrivals 58 Figure A.1 Gross fixed capital formation 63 Figure A.2 The employment cascade: a very limited share of the active population 63 is in formal private employment (2015) Figure A.3 Contribution to GDP—demand side 64 Figure A.4 Contribution to GDP—supply side 64 Figure A.5 Net foreign direct investment inflows 64 Figure A.6 Key issues for the private sector 66 Figure A.7 Corruption 67 Figure A.8 Web technology use by the private sector in Senegal, 2014–2015 67 Figure B.1 Senegal and comparators: evolution of fitness, 2007–2016 69 Figure B.2 Evolution of Senegal sector fitness, 2007–2016 70 iii SÉNÉGAL DIAGNOSTIC DU SECTEUR PRIVÉ TABLES Table ES.1 Policy reform proposals xiv Table 2.1 Key constraints for the private sector in Senegal 17 Table 2.2 Taxation of formal firms in Senegal 22 Table 2.3 Airport passenger traffic 38 Table 2.4 Total airport charges for a Boeing 737 in 2017 38 Table 2.5 Container terminal annual capacity in West Africa 41 Table A.1 New digital technologies are shaping global value chains 65 Table B.1 Country fitness rank 68 Table B.2 Opportunities overview 71 iv ABBREVIATIONS AND ACRONYMS ADIE State Informatics Agency (Agence de l’Informatique de l’État) AGEROUTE Road Management Agency (Agence des Travaux et de Gestion des Routes) ANSD National Agency of Statistics and Demography of Senegal (Agence Nationale de Statistique et de la Démographie) ATM Automated teller machine Bac Baccalaureate BCEAO Central Bank of West African States (Banque Centrale des États de l'Afrique de l'Ouest) BNDE National Bank for Economic Development (Banque Nationale de Développement Economique) BRVM regional stock exchange for all Member States in the West African Economic and Monetary Union (Bourse Régionale des Valeurs Mobilières) CNCAS National Fund for Agricultural Credit (CNCAS) (Caisse Nationale de Crédit Agricole du Sénégal) DGID General Directorate of Taxes and Domains (Direction Générale des Impôts et des Domaines) DPV Directorate of Plant Protection (Direction de la Protection des Végétaux) EU European Union FERA Autonomous Road Maintenance Fund (Fonds d’Entretien Routier Autonome) FONGIP Priority Investment Guarantee Fund (Fonds de Garantie des Investissement Prioritaires) GDP Gross Domestic Product GER Gross enrollment ratio IFC International Finance Corporation IMF International Monetary Fund kbps Kilobits per second kW/h Kilowatt-hour MICE Meetings, incentives, conferencing, and exhibitions MSME Micro, small, and medium-sized enterprises OECD Organization for Economic Co-operation and Development OHADA Organisation for the Harmonisation of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) v SENEGAL A COUNTRY PRIVATE SECTOR DIAGNOSTIC OPS private trader organizations (organismes privés stockeurs) OQSF Observatory on Financial Services Quality (OQSF) (Observatoire de la Qualité des Services Financiers) PPP Public-private partnership SENELEC National Power Utility Company (Société nationale d’électricité du Sénégal) SME Small- and medium-sized enterprise SSA Sub-Saharan Africa STEM Science, technology, engineering, and mathematics VAT Value added tax WAEMU West African Economic and Monetary Union All amounts are U.S. dollars unless otherwise indicated. vi ACKNOWLEDGMENTS The Senegal Country Private Sector Diagnostics was prepared by a team that included Amadou Ba (Consultant, IFC), Sriram Balasubramanian (Consultant, CCECE, IFC), Masud Z. Cader (Senior Portfolio Officer, CCECE, IFC), Francois Caulier (Consultant, World Bank), Pierre Chapusette (Consultant, IFC), Ernesto Lopez Cordova (Adviser, World Bank), Santiago Descarrega (Consultant, World Bank), Farah Dib (Private Sector Specialist, EA2F1, World Bank), Pierre A. Pozzo di Borgo (Chief Industry Specialist, CN3S6, SFI), Clement Gevaudan (Consultant, World Bank), Laurent Gonnet (Lead Financial Sector Specialist, EA2F1, World Bank), David Ivanovic (Senior Private Sector Specialist, EA2F1, IFC), Georges Vivien Houngbonon (Economist, CSETT, SFI), Shamin Kazemi (Consultant, EA2F1, World Bank), Aleksandra Liaplina (Consultant, EA2F1, IFC), Ahmath Bamba Mbacke (Consultant, World Bank), Jean- Michel Marchat (Lead Economist, co-TTL, EA2F1, World Bank), Gautam Vishram Mehta (Consultant, CCECE, IFC), Zineb Benkirane (Senior Economist, CCECE, IFC), Kirstin I. Roster (Consultant, CCECE, IFC), Volker Treichel (Principal Country Economist, TTL, CCECE, IFC). The team acknowledges the guidance of Mona Haddad, Sebastian Molineus, Louise Cord, Faheen Allibhoy, Sebastien Dessus, Alejandro A. de la Campa, Consolate Rusagara, Karamba Badio, and Paolo Zacchia in preparing this report. vii SENEGAL A COUNTRY PRIVATE SECTOR DIAGNOSTIC EXECUTIVE SUMMARY Senegal’s strong economic growth since 2014 represents a positive departure from weaker past growth performance since independence. Just this past year, in 2019, Senegal crossed the threshold to become a lower-middle-income country. The country remains challenged, however, in addressing poverty reduction and unemployment. An additional challenge has been created by the novel coronavirus (COVID-19) pandemic that reached Senegal in early March 2020. In response to the outbreak, the Government of Senegal has taken strong measures to contain the spread of the virus. In early March 2020, it declared a state of emergency, suspended international air travel and shut borders. To ensure social distancing, the government closed entertainment, religious and education venues, cancelled events, prohibited public gatherings, and imposed a nighttime curfew. Further, the government is implementing