VZCZCXRO5219
PP RUEHPA
DE RUEHDK #3185/01 3571506
ZNR UUUUU ZZH
P 231506Z DEC 05
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 3740
INFO RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 003185 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/EPS, AF/W, EB/IFD/ODF AND INR/AA 
USDOC FOR 4510/OA/PMICHELINI/AROBINSON-MORGAN/KBOYD 
USDOC FOR 3131/CS/ANESA/OIO/GLITMAN/MSTAUNTON 
 
E.O. 12958: N/A 
TAGS: ECON EAGR ETRD EFIN EINV SG
SUBJECT: SENEGAL ECONOMIC SNAPSHOT: GREAT HARVEST DOES NOT 
TRANSLATE INTO HIGHER GROWTH 
 
REF: DAKAR 3098 
 
¶1.  SUMMARY: Quarterly Ministry of Finance statistics for the 
last trimester confirm that the strongest contributors to 
economic growth continue to be government capital investments 
and remittance-fueled consumer spending.  The banking 
sector,s contribution to facilitating formal sector capital 
investment is muted.  While a hike in energy prices was an 
external economic shock, the impact in lowered growth and 
higher inflation was less than might be expected, in part 
because the Government has been slow to pass through fuel 
price increases.  Senegalese fish, phosphoric acid, and 
peanut exports all face difficulties.  END SUMMARY. 
 
¶2.  Since Senegal,s economic statistics are robust by 
regional standards, the Ministry of Finance,s quarterly 
update usefully and somewhat reliably profiles business and 
economic trends.  With this in mind, we offer an annotated 
summary of the most recent edition as a thumbnail sketch of 
economic trends and business developments. 
 
¶3.  The report begins with the news of most interest to 
Senegal,s business community -- the state of the harvest. 
The report predicts an increase over last year of 36 percent 
for the peanut harvest, 17 percent for cotton, and a 1.5 
million ton grain harvest, 40 percent above last year,s.  A 
full page is devoted to pluviometric data, noting that 
rainfall in Dakar was up 311 percent compared to 2004. 
 
¶4.  At first glance, statistics suggest a linkage between 
favorable rainfall and a 40 percent increase in volume 
commodity exports over the first nine months of 2004. 
However, the increase is largely an artifact of the launch of 
mandatory online customs form filing for imports and exports. 
 Senegal,s principal exports are fish, phosphoric acid, and 
peanut oil, and the second trimester statistics for all three 
suggest trouble ahead. 
 
¶5.  The artisanal fish catch fell from 97,044 to 90,302 tons, 
further confirmation of long-term decline in a sector 
employing over one million people.  However, the introduction 
of licensing and somewhat stricter enforcement of fishing 
limits may have had an impact on tonnage, a fact possibly 
explaining why the catch actually climbed in the outlying 
cities of St. Louis and Kaolack.  Some pirogues may have 
shifted operations away from the Thies region, the center of 
Senegal,s fish industry and a focus for enforcement. 
Industrial fishing, about a fifth of artisanal activity, fell 
ten percent over the same period in 2004. 
 
¶6.  The troubles of Industrie Chimique du Senegal (ICS) 
(septel), the phosphorous mining SOE, are evident in a 38 
percent fall in activity at ICS,s two mines.  ICS is 
currently the subject of down-to-the-wire discussions between 
an Indian syndicate and the Senegalese government on an 
Indian takeover before ICS is forced to foreclosure on up to 
180 million USD in debt. 
 
¶7.  The statistics suggest that things are no better at 
Sonacos, a recently privatized peanut and vegetable oil 
processor.  During the second trimester, reports of both a 
bumper crop and suggestions that Sonacos would be unable to 
buy more than a fraction of the crop pushed prices down 83 
percent, compared to the same period in 2004.  Despite a 76 
percent increase in processing volume, export value fell 21 
percent.  Globally, the report notes that peanut oil sells 
for eight percent less in August 2005 than in August 2004. 
 
¶8.  Although the 39.6 percent boost in exports is a mirage 
created by better customs policing, the positive impact on 
government finances is undeniable.  Direct and indirect tax 
revenue climbed 22.1 percent and 13.6 percent, respectively, 
over the same period a year ago.  The state took in 664.4 
billion CFA francs (CFAF) against 581.6 billion CFAF. 
Customs duty revenue jumped from 114.3 billion to 133.3 
billion CFAF.  With this in mind, we note that Senegal 
recently sold its customs software package to Kenya, an 
interesting example of intra-African high tech trade. 
 
¶9.  The report shies clear of the politically sensitive 
connection between the rise in oil prices and GOS fiscal good 
times.  During the four months covered by the report, the 
value of petroleum imports jumped 48.7 percent over the 
previous trimester.  Although oil imports fell 18 percent 
from year to year, the 145 billion CFAF in oil imports and 72 
billion CFAF in gas imports during the first nine months of 
2005 were close to 20 percent of Senegal,s total imports. 
 
 
DAKAR 00003185  002 OF 002 
 
 
¶10.  While windfall oil import tax revenue is reflected in 
government income, parallel damage to government accounts 
lags behind and does not appear in this report.  Last month, 
the Government announced it would provide 18 billion CFAF in 
direct fuel purchase subsidies to Senelec, Senegal,s power 
parastatal.  SAR, Senegal,s parastatal oil refinery, has 
also been operating at a loss and will require an injection 
of capital.  The report is relatively sanguine, reflecting 
the views of the Statistics Bureau Director, on the potential 
inflationary impact of energy price hikes, noting only that 
transport costs were up 4.3 percent over the previous 
trimester and up 2.7 percent for the year. 
 
¶11.  Unfortunately, the statistics do not tell the whole 
story of energy price impact.  While the overall rise in 
price at the gas pump was muted (due to SAR absorbing part of 
the cost), private transit operators (minibuses) used the 
hike in price to justify overhauling their pricing structure. 
 Whereas in the past, Dakar,s urban poor could ride into 
downtown for one fare (100 CFA), currently they pay a 
separate fare for each leg of the trip.  Transport costs have 
doubled or tripled for many workday riders. 
 
¶12.  Returning to the larger picture, the report illustrates 
how post-HIPC Senegal is transitioning from a national budget 
heavily dependent on donor funds to three-legged financing -- 
tax revenue, principally import/export tariffs and the TVA; 
HIPC debt relief service payments; and increased government 
borrowing.  This diversification will pick up steam in 2006 
as the Wade administration moves aggressively to put the 
shovel in the ground on its &Grand Travaux8 major 
infrastructure projects.  According to the report, 
governmental borrowing for the first nine months of 2005 
stood at 95.8 billion CFAF against 74.6 for the same period 
in 2004.  However, most borrowing appeared to be at &soft8 
concessionary terms, principally loans from the African 
Development Bank, Islamic Development Bank and other donors. 
On average, government borrowing terms were an interest rate 
of 1.96 percent, with a grace period of 5.6 years, and a 
30-year term for repayment. 
 
¶13.  Elsewhere, the report confirms Senegal,s relatively 
solid macroeconomic health.  Debt service is manageable at 
28.7 billion CFAF (of which 15.4 billion CFA is in interest 
payments) for the trimester.  For the first nine months of 
the year, debt repayment has declined 5.7 percent from the 
same period in 2004 and represents 11.1 percent of receipts. 
The report does not take into account debt cancellation 
according to G-8 Multilateral Debt Relief Initiative terms. 
 
¶14.  The report,s analysis of the banking sector is less 
encouraging.  As mute evidence of the shrunken role the 
formal sector plays in Senegal,s economy, total lending 
rests at just 1,000 billion CFAF for the trimester, up 73 
billion CFAF as credit unions push out financing for the 
harvest.  A full 76 percent of lending is short-term, 
illustrating the difficulty many businesses have in borrowing 
to grow their business.  This ratio is trending higher 
(compare, for example, to 61 percent in 1997) even as the 
number of banks and variety of financial services here grow. 
Possible explanations include strong growth in consumer 
borrowing and/or a continued structural deficit in the 
intangible support (accountants, legal assistance, land 
titles, etc.) needed to facilitate business expansion. 
 
¶15.  Telecommunications and construction are the two 
industrial activities that ensured solid continued economic 
growth of around five percent despite an external energy 
shock.  Notwithstanding fears of a real estate bubble, 
construction starts seemed limited only by cement production 
constraints.  Building was up 8.4 percent for the year and 
14.7 percent for the same period.  The category &Transport 
and Communications8 grew 25.5 percent over the same period 
in 2004.  Elsewhere, however, overall industrial production 
was down one percent for the year. 
 
¶16.  COMMENT: This quick statistical walk around the block 
confirms the truism here that remittances are the hidden 
motor to Senegal,s economy.  In this snap shot, exports were 
not a key factor in economic health.  Although manufacturing 
and service activity was largely flat, two important sectors 
hugely dependent on overseas spending -- housing and phone 
calls -- did very well.  The other large contributor to 
overall economic activity, government spending, seems to be 
increasingly buoyed by the tax revenues spun off by consumer 
goods imports.  END COMMENT. 
JACKSON