VZCZCXRO5146
RR RUEHMA RUEHPA
DE RUEHDK #0062/01 0261455
ZNR UUUUU ZZH
R 160803Z JAN 09 ZDS
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC 1713
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 000062 
 
C O R R E C T E D  C O P Y (CAPTION, TEXT PARA 11) 
 
SIPDIS 
 
DEPT FOR AF/W, AF/EPS, EEB/IFD/OMA AND EBB/EPPD 
TREASURY FOR OIASA/IDB:EBARBER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID SG
SUBJECT: IMPACT OF GLOBAL FINANCIAL CRISIS ON SENEGAL 
 
REF:  A) 08 STATE 134459, B) 08 Dakar 1432, 
C) 08 Dakar 1431, D) 08 Dakar 1318 
 
DAKAR 00000062  001.4 OF 002 
 
 
¶1.  Summary:  In response to REF A request, Post updates its 
reporting on the impact of the global financial crisis on Senegal 
(REF D).  Senegal's financial sector and businesses are facing a 
severe tightening of local credit -- the result of both the 
government's poor budget control and the global decrease in 
liquidity.  There are signs that the local population is losing 
confidence in Senegal's banking sector.  The global slowdown and 
increased levels of unemployment in the U.S. and Europe are already 
diminishing the amount of remittances being sent to families in 
Senegal, and poverty-related problems will increase as a result. 
The government needs to quickly impose budget discipline and avoid 
exacerbating the current commercial liquidity problem.  End 
summary. 
 
MACROECONOMIC INDICATORS DETERIORATING 
-------------------------------------- 
¶2.  Macroeconomic indicators show that the Senegalese economy slowed 
in 2008 with annual GDP growth estimated at 3.9 percent, compared to 
earlier projections of six percent.  2008 inflation is estimated at 
six percent compared to the government's target of three percent. 
Senegal's current account deficit reached 12.5 percent of GDP 
compared to 10.5 percent in 2007.  Key export sectors fishing, 
peanuts, cotton, and unprocessed phosphates have shown significant 
decreases in export value as a result of unfavorable world prices, 
market contraction, and weak demand from African countries.  On the 
import side, consumer, business, and the government's budget were 
hit hard by last summer's increase in world food and petroleum 
prices.  As expected, trade among the West African Economic Monetary 
Union (WAEMU) member states increased with the crisis.  Importers 
have found it cheaper to purchase goods (fruits, vegetables) from 
the CFA franc zone countries, especially Cote d'Ivoire, rather than 
from more distant countries. 
 
¶3.  The liquidity in local commercial banks is minimal, due in part 
to the global credit crunch and in part to the Government's internal 
debt which increased in 2008 because of USD 218 million in 
off-budget spending and outstanding unpaid bills of USD 335 million 
owed to the private sector.  There are reports that international 
banks and multinational corporations have pulled out much of their 
cash holdings from local affiliates.  For the past six months, it 
has been very difficult for either the government or private 
companies to expand or secure lines of credit from local banks. 
 
¶4.  In early 2009, the signs are not good that the government has a 
clear plan for dealing with a financial crisis whose biggest impact 
on the country may be yet to come.  President Wade is promising 
lower prices on many key consumer items and proposing major new 
public works projects.  However, the government does not have the 
budget, the donor support, or affordable credit to carry out these 
programs.  Nor is there any plan in place to prop up the local 
banking sector, despite the fear that property and other private 
assets, many tied to commercial loans, may drop in value the coming 
months. 
 
DOMESTIC INDUSTRY'S UNEVEN PERFORMANCE 
-------------------------------------- 
¶5.  The textile industry and the food processing industry are 
suffering from lower consumer demand.  The food industry association 
reported a sales decline of more than 22 percent in 2008. 
 
¶6.  Senegal's construction sector has had a difficult time 
weathering the duel storms of slowing demand due to global 
conditions and deteriorated cash and credit options due to the 
arrears owed to the sector by the government.  "The construction and 
public work sectors, once a driver of the Senegalese economy, are 
experiencing a complete meltdown fueled by domestic debt," said 
Abdou Mbaye, Chairman of the Senegalese Professional Association of 
Banks and Financial Institutions (APBEF). 
 
¶7.  According to Omar Diop, General Secretary of Senegal's Banking 
Association, the global financial and credit crisis has also 
considerably increased capital flight and lowered the reserve 
position of the country's major commercial banks.  Diop noted that 
many customers have now withdrawn their deposits in the banks in 
fear of possible collapse of the country's banking system following 
reports of bank failures in the West.  This fear was exacerbated by 
the news out of France in January 2008 about large losses at Societe 
Generale, whose Dakar affiliate is one of Senegal's largest banks. 
A salesman specializing in commercial and personal safes stated, 
"the current situation is very unusual; we sold out our entire stock 
of safes between October and November." 
 
¶8.  Some domestic industries have maintained fairly steady 
production levels and are coping well with the crisis.  After a long 
struggle to secure new financing finally succeeded in June 2008, the 
ICS phosphates company's production of fertilizer increased 102 
percent.  Though the market for unprocessed phosphates remains 
 
DAKAR 00000062  002.4 OF 002 
 
 
depressed, total export values grew thanks to a long-term contract 
with India, market expansion to Iran, Nigeria, Turkey, and strong 
demand from Mali, Benin, and Burkina.  Senegalese cement producer 
Sococim has seen a drop in local demand, but has still increased 
production 12 percent in 2008 by expanding exports to neighboring 
countries. 
 
FEAR OVER A DROP IN REMITTANCES 
------------------------------- 
 
¶9.  Karim Diop, the Director of SAGEF, a real estate company 
specialized in low-income housing, stated that the construction of 
family housing will take a dive as the financial crisis affects 
Senegalese expatriates, given that the flow of transfers will 
decline sharply.   According to the Banking Association's Diop, 
remittances from overseas Senegalese have dropped 20 percent from 
October to December 2008.  A prolonged drop in these funds, which 
are a major source of foreign currency for the Treasury and income 
for the country's poorer population, will lead to not only a 
reduction in investment, but also a rapid deterioration in social 
indicators, including an increase in poverty, malnutrition, and 
illness, and a decrease in school attendance.  "Our households adapt 
to the rhythm of the western economies.  Our three sons who live in 
Italy used to send USD 800 each month, but recently they have only 
been able to send USD 200 for their wives.  Now we have to cut down 
on expenses.  We are trying to keep an eye on the electricity we use 
and the water we drink," stated Oulimata Niang, mother of the 
emigrants. 
 
DONORS BRING NEW FUNDS TO THE GOVERNMENT 
---------------------------------------- 
 
¶10.  For the GOS, getting out of its current budget deficit has 
proved considerably more difficult than digging the hole, as 
reported in REFs C and D.  The government's poor fiscal management 
has been exacerbated by the global credit crunch.  It has been very 
difficult for the government to raise funds over the past six months 
because of the lack of liquidity in local banks, and a depressed 
regional market for treasury bonds. 
 
¶11.  On December 19 Senegal's second review under its IMF Policy 
Support Instrument (PSI) was approved (not without difficulty), 
opening the door to new donor assistance.  To help the GOS close its 
internal debt by paying its private sector arrears, the IMF board 
approved USD 75.6 million under the Exogenous Shock Facility and the 
French Development Agency provided a non-concessional loan of 
approximately USD 182 million.  (Both of these measures will be 
disbursed in two tranches, with a successful 3rd PSI review a 
requirement for the second payment.)  The African Development Bank 
(AfDB) and the Netherlands agreed to disburse USD 23 million and USD 
14.5 million respectively in direct budget support. 
 
COMMENT:  WHAT'S NEXT 
--------------------- 
 
¶12.  Senegal has not yet been hit hard by the toxic assets dynamic 
of the financial crisis, but various repercussions are impacting the 
country's financial sector, its businesses, the government's budget, 
and anti-poverty efforts.  In 2009, Senegal has the potential for 
good agriculture receipts and will benefit from some new foreign 
investments, which could help the country's economic growth reach 
closer to five than two percent.  However, the government's goal, 
supported by many donors, of sustained growth of seven percent or 
higher, is not on the horizon. 
 
BERNICAT