Economic boom amidst liquidity challenges

Despite political instability due to the Presidential elections that took place in March 2024, Senegal’s GDP continued to rally at an estimated +5.7% in 2024 and growth is projected at +8% in 2025 due to the coming online of LNG production plant and the increase of oil output via a new deep-water field that will produce up to 100,000 oil barrels a day. The presidential election was the political cornerstone of the year, taking place after a controversial month-long delay, and resulted in the election of the not very well-known opposition leader Bassirou Doimaye Faye, a left-leaning politician who ran in place of the disqualified Ousmane Sonko. In November 2024, snap legislative elections took place, providing the President’s party PASTEF with a Parliamentary majority. Amid the constitutional crisis, the fact that Senegal continued to grow at an impressive rate shows the momentum of the economy. However, many challenges remain, notably short-term liquidity, fiscal imbalances, as well as security and possible ramifications for the regional institutions from the military-led governments in much of the Sahel region.

Economic growth has been mainly driven by hydrocarbon additions to the economy. In Q3 2024, quarterly growth reached +8.9% as Senegal began exporting oil. Yet, the agriculture sector employs 75% of Senegal’s workforce, mainly dedicated to self-subsistence, as well as to the export of fish and groundnuts. Fishing together with phosphates and mining were the main inflow of FX to the country before hydrocarbons began being exported. Processed food is still a relatively small part of the economy, even if it has been growing over the last decade. The still agriculture-based society and the new hydrocarbon activities could clash as the exploitation of oil and gas alters the ecosystem and the economy, and reduces the number of available jobs.

Year-on-year inflation is set to increase to 2% y/y in 2025, from 1% in 2024, given the increase of revenues and most likely government spending caused by the new government priorities. The CFA franc, shared in the West African Economic and Monetary Union (WAEMU) region, is pegged to the euro at 655.96 units per EUR1 and hence moves in tandem with EUR-USD swings. Risks to the stability of the CFA franc come from Senegal’s Sahel neighbors under military-rule such as Mali or Burkina Faso, which have put the currency into question due to its colonial ties. A break with the CFA franc without a studied plan would bring instability, putting the central bank and convertibility into question, as well as leading to greater inflation. International reserves have remained stable at around the equivalent of USD3bn, but the hard currency pool between WAEMU members partly mitigates liquidity risks.

Senegal remains in the low human development category of the HDI composite, given its low literacy rate (just above 40%), relatively low life expectancy (68) – though this is higher than the rest of the Sahel – and low GDP per capita. In the early days of the Faye administration, economic policy has turned around two pillars: sovereignty and growth. Motivated by strong colonial hardships, Senegal’s new leadership aims to reduce dependence on foreign aid and creditors. In addition, the administration wants to gain independence on food and energy imports while boosting growth. In an ambitious 25-year economic and social development plan, Dakar’s new government aims to finance investment via hydrocarbon revenues, while promising fiscal discipline. The plans include increasing agriculture and fertilizer production, as well as boosting manufacturing by processing the country’s raw materials in-house.

For foreign companies, contract risks in the hydrocarbons sector have decreased as the government has pushed out many smaller operators to make room for firms with better resources. Others who fail to reach an agreed-upon work schedule risk losing their concessions if they lack beneficial political ties and, more recently, discussions between a big operator and the government failed, resulting in the restart of an international arbitration process. The chances of expropriation are typically modest. Commercial dispute resolution is improving because of the introduction of a commercial court, but the judiciary remains understaffed and susceptible to political pressure, making contract enforcement more difficult.