This article is sponsored by the Ministry of the Economy, Planning and Co-operation of Senegal
The covid-19 pandemic has had a significant impact on the global economic landscape, which is why Senegal is committing CFAfr1 trillion ($1.8 billion; €1.5 billion) to infrastructure and energy services among a raft of financial commitments.
Among other things, the pandemic has led to the closure of borders, transport restrictions and lockdowns, which has resulted in a slowdown – or even a halt – to some activities in certain sectors. This situation has resulted in a decline in the global economy estimated at 3.5 percent, according to the IMF.
Senegal has not been immune to this crisis, which has hit the various sectors of the country’s economy hard, leading to a sharp slowdown in economic activity. Indeed, the economic growth rate, which averaged 6 percent over the 2014-19 period, is expected to have fallen to 1.9 percent in 2020, according to the National Agency for Statistics and Demography.
In order to deal with the emergencies caused by the covid-19 crisis, Senegal, under the leadership of the president, Macky Sall, has taken a series of actions included in the Economic and Social Resilience Programme. This programme has a budget of CFAfr1 trillion, representing just over 7 percent of GDP. It is the second-largest resilience programme in Africa and has been built around four pillars:
- Strengthening the health system to cover the health costs associated with the response to the covid-19 pandemic
- Strengthening the social resilience of the entire population
- Preserving macroeconomic and financial stability by supporting the private sector and maintaining jobs
- Securing the country’s regular supply of hydrocarbons, medical products, pharmaceuticals and essential foodstuffs
In addition to the measures already put in place, there is the introduction of the Accelerated and Adjusted Priority Action Plan (PAP 2A), which aims to achieve an average growth rate of 8.6 percent over the period 2021-23 at a total cost of CFAfr12 trillion, with an expected contribution of 39 percent from the private sector. This plan will focus on flagship reforms and large-scale projects with a particular emphasis on endogenous development underpinned by the quest for food, health and pharmaceutical sovereignty and supported by a strong national private sector.
Particular attention is also being given to the education and training sector, with CFAfr475.2 billion allocated, tourism (CFAfr353 billion), urban planning and housing (CFAfr935 billion), and, of course, infrastructure and energy services (CFAfr1 trillion), among others.
“A new law regarding partnership contracts was passed in February and came into force in March in order to secure investment and promote the rapid implementation of quality PPP projects that will create jobs”
Attracting private capital
In order to get more resources from the private sector, the government is banking on a few innovative instruments, notably PPPs, the Project Preparation and Seed Fund, the Venture Capital Fund (FCPR) and funding mechanisms for the formal and informal sectors.
With respect to PPPs, a new law regarding partnership contracts was passed in February and came into force in March in order to secure investment and promote the rapid implementation of quality PPP projects that will create jobs. This new law includes such major innovations as:
- The consolidation of the legal framework governing all PPP projects
- The streamlining of the bodies involved in the implementation of PPPs in order to simplify procedures and avoid incompatibilities
- The adoption of new instruments facilitating the rapid implementation of a substantial portfolio of PPP projects and enabling local authorities to pool their resources within the framework of PPP projects (eg, the PPP Support Fund, which is intended to support public authorities with regard to the preparation, award and execution of PPP contracts and programme agreements)
- A reinforced mechanism for the promotion of the national private sector, including the introduction of specific provisions regarding local content requirements and projects reserved for national and community-orientated companies
The Project Preparation and Seed Fund is estimated at CFAfr60 billion over 2021-23 and aims to initiate the development and implementation of strategic state projects. It will make PPP projects seem more attractive and help obtain private finance.
The CFAfr300 billion financing mechanism dedicated to the formal sector, meanwhile, consists of a partnership between the state and credit institutions. The state undertakes to provide CFAfr150 billion in the form of guarantees that will enable banks to come up with an additional CFAfr150 billion for stimulus investments in SMEs and large companies.
“The FCPR offers Senegalese citizens and institutions the opportunity to become involved in the financing of strategic projects in their country while expecting a small return”
The informal sector financing mechanism has a total of CFAfr100 billion (with a state contribution of CFAfr50 billion) in the form of subsidised loans through the Decentralised Financial Systems to support the informal sector. In addition to the financing component, this mechanism includes ‘technical assistance’ and ‘gradual formalisation’ components. It will thus enable the reinforcement of the informal sector’s technical capacity and will accompany the gradual formalisation of these participants.
There is also the FCPR (Risk Mutual Fund), which is designed to select mainly projects in the form of high-yield PPPs in key sectors such as renewable energy, urban mobility, construction of public facilities, and so on. Institutional investors and private individuals will be able, via the FCPR, to hold shares in the capital of companies involved in PPPs and profitable strategic companies that the state had planned to open up to the general public. The FCPR offers Senegalese citizens and institutions the opportunity to become involved in the financing of strategic projects in their country while expecting a small return.
Finally, structural reforms will be pursued and accelerated to improve the business environment. These reforms will include:
- The Business Environment Reform Programme (PREAC III) with its simplification of pricing systems, increased competition, renovation of the Investment Code and the Labour Code
- A reform of the administration, which will give a new impetus to the services provided to users by improving access and the quality of procedures
- The reforms made by Compact With Africa, relating to land tenure, administration and labour legislation, vocational and technical training as well as the financing and development of SMEs
- The adoption of the framework law regarding the development of the private sector and the implementation of preferential access to state public procurement
- The implementation of the national strategy for the African continental free trade zone, which aims to increase exports to the rest of Africa by at least 46 percent by 2024
To mitigate risks, the role of the government is to work to consolidate the viability of the macroeconomic framework and debt sustainability, but also to continuously improve the business environment and procedures through the various reforms that have been announced. It must also publicise the reforms and initiatives taken to reduce investors’ perception of risk.
The government plans to reduce the risks on strategic projects through better preparation. This is why it has been decided to set up a Project Preparation and Seed Fund.
Institutions should have a supporting role, in tandem with the state, in financing reforms through projects such as Compact With Africa and the Project Preparation and Seed Fund. They can provide technical assistance for reforms, establish adequate legal frameworks and draw up balanced contracts.
As for the private sector, it must become more involved in project preparation, so as to better assess project costs, improve financial transparency by producing regular certified and reliable financial statements, align with compliance norms and standards, and increase the efficiency of project implementation.