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COTE D’IVOIRE: Power to the people

By John James
24 May 2010

A political stand-off in the Ivory Coast remains a major drag on one of West Africa’s most promising economies

Ivorians are nostalgic for happier times. And many in this once war-ravaged West African nation hope they might one day return, the other side of mirage-like elections – still on the horizon five years after they were first due, and yet not quite in touching distance.

“This crisis has lasted long enough,” says Jean-Louis Billon, head of the Ivorian Chamber of Commerce and Industry and director-general of agro-industry firm SIFCA, Ivory Coast’s largest private company.

“If we don’t escape soon, the economy will grind to a halt,” he recently told an angry meeting of business leaders in the commercial capital Abidjan.

Two months of organized blackouts after a turbine broke down at the Azito power plant – which supplies over a third of the country’s electricity – have made for an inauspicious start to 2010.

The power cuts and the delays in elections led to the IMF downgrading its growth predictions for this year. “Our estimates for 2010 are for economic growth to retreat slightly to 3%. We had estimated 4% because we’d thought elections would have taken place at the end of 2009, which would have improved the situation, particularly for investors,” says Philippe Egoume, the IMF’s country representative.

NEED FOR ELECTIONS

The link between elections and the country’s economic growth might not be immediately obvious. Recent power cuts aside, electricity and water supplies are still reliable enough that very few businesses have generators, and better than in most of sub-Saharan Africa, with or without elections.

Abidjan is still one of the region’s most habitable cities and today bears few signs of conflict, which in any case was largely limited to the military coups in the days following the attempted coup in September 2002. But the problem is that the country’s politicians are left locked into an election battle with little time for the economic and social needs of the country. A country can only enjoy the fruits of previous growth and construction for so long.

The slow pace of change annoys business leaders, who see commercial prospects but need political progress before the country’s economic potential can be realized. “There are a lot more countries than we imagine that have rebellions and crises and things don’t stop for too long! Whereas here, things have been frozen for a long time,” says Billon.

According to Rinaldo Depagne, a senior West Africa analyst with the International Crisis Group (ICG), a think tank, the political stand-off leaves the Ivorian economy with three major challenges to resolve: the lack of reunification, investment risks and governance problems.

The ex-rebels continue to control around 60% of the national territory (the northern half), and while integration has started and most government services have returned to the north, it still remains an informal economy. Mamadou Koulibaly, an economist and head of the National Assembly, estimates the state is losing CFA4 billion every month from lost customs and taxes. While most resources are in the south, the northern Sahel region is an important area for cotton and cashew nut production, and some 10% of cocoa production is in the ex-rebel zone, smuggled out of the country without tax to Burkina Faso and then Togo.

Most analysts and business leaders spoken to by Emerging Markets consider the post-election dividend could be significant, providing the poll is peaceful.

“Foreign investors want to come here and bring large amounts of foreign direct investment because the country is a platform for the region. All are waiting for a clearer, more stable political situation,” says Angora Tano, president of the Union of Large Industrial Companies in Ivory Coast (UGECI).

Until elections are held, profits from the growing economy will be kept overseas awaiting a more secure investment climate. Annual foreign direct investment is only 2% of GDP, according to the IMF.

The transitional government remains focused on the election; ministries, distributed between the political parties, seem to serve more as a means of raising money for the ever-so-close election campaign than delivering government services. The government knew of the problems at the Azito plant for months, but competing ministries controlled by different parties tried to pass on the blame and score political points.

Nothing was done. Businesses, donors and development partners struggle to work on long-term plans with civil servants expecting things to change immediately after the elections.

The limbo state has also encouraged corruption. “Corruption is a pernicious phenomenon that’s installed itself – we hope temporarily – in a deep way in our society. It’s very negative,” says Tano.

ECONOMIC SITUATION

The crisis has taken its toll across the economy. Between 2002 and 2008, poverty levels rose from 38% to 49%, according to the IMF. At the Grand-Hotel in Plateau, Abidjan former monthly sales of CFA50 million to CFA90 million have fallen to under CFA20 million. “We hope the elections will come quickly and that things will evolve positively,” says Malan Aicha, the manager.

Despite these problems, the economy has been growing. Last year there was the first rise in economic growth per capita since 1998, with overall GDP up to 3.8% from 2.3% in 2008.

The agricultural sector in particular grew by an estimated 12%, thanks to good rains. Cocoa prices have touched the highest levels in 30 years – a huge benefit to a country that supplies around 40% of the world’s cocoa and supports around 700,000 farming households. Other commodity prices rose as well, and there are ambitious plans for boosting agricultural production, especially in the areas of rubber, palm oil and cotton.

Progress has also been made in gaining large-scale debt relief. Relations with the international financial institutions have been restored in the last two years with the payment of debt arrears. In March last year the country gained access to the Heavily Indebted Poor Countries (HIPC) initiative, which will eventually help relieve the current unsustainable debt levels, estimated at $13.3 billion at the end of 2008.

In May 2009 a rescheduling agreement was signed with the Paris Club of debtors, and negotiations with the London Club are well advanced.

Despite the political crisis, the country still has a good hand of economic assets; strong human resources, a good road infrastructure and the busiest port in sub-Saharan Africa outside Durban. It is still the largest economy in the region, accounting for 40% of the activity of the West Africa Economic and Monetary Union.

“When you look around Abidjan, you can see that the economy is still turning,” says Depagne from the ICG. “Ivory Coast was never a military, diplomatic or intellectual power – its greatness was all built on economic strength.”

NO SILVER BULLET

Nevertheless, although elections are desperately needed for the country to move forward, they won’t immediately end the country’s problems. “That’d be a naive assumption because the elections aren’t a magic wand. We need to build a real economic project; elections first, then structural reform and then a strategic vision that needs everyone motivated behind it,” says Tano.

In the World Bank’s Doing Business 2010, Ivory Coast had dropped five places to 26th from bottom with “no reforms recorded”. The cocoa sector is an important case: the arrest of almost all the former heads of the cocoa sector on corruption charges in 2008 has yet to be followed up with either a trial or sector reforms.

Farmers remain hopelessly under-supported, and a massive effort will be needed to turn around declining production caused by ageing cocoa forests, which receive very little investment.

But economist Martin Eriksson, who keeps a close eye on the Ivorian economy, says the country can benefit from the wider continental growth. “Ivory Coast just needs to catch up with the trend, if politics stop sabotaging economic development.”

By John James
24 May 2010