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Financing Development of West Africa

By Aly Diouf; Head of Tourism and ICT Departement of SOLEIL BUSINESS Magazine,  Senegalese Press and Publication Society SSPP LE SOLEIL

Financing needs estimated at EUR 1 089billion per year

There is a need in Africa for realfinancing of the economy. At the level of the West African Economic andMonetary Union (UEMOA) in general and Senegal in particular, banks are wellinvolved. The problem is that, as in any financial activity, they must surroundthemselves with the maximum guarantee. A practice that do sometimes impactstheir mission.

In 2016, the then President of the NewPartnership for Africa's Development (Nepad), Senegalese President Macky Sall,made a plea for the financing of the African economy, equity and anti- Taxevasion at the G20 summit held on 4 and 5 September in Hangzhou, China."In the name of Africa, I have for three years already pleaded for agrowing interest in Africa. An interest especially in the provision offinancial resources … Africa needs investments and partnerships, "heemphasized at the summit, which focused on" Building an innovative,reinvigorated global economy, Interconnected and inclusive ". According tohim, "Everyone wins, because Chinese companies will be able to work, aswell as international companies. Africa will develop and participate in itsinvestment. Funding will enable our economies to catch up effectively with thebacklog that has been observed in the area of infrastructure and also energyand all sectors that are now a priority in Africa ". According to the 2016report of the United Nations Conference on Trade and Development (UNCTAD), inorder to achieve the objectives of Sustainable Development Goals (SDG) and thefight against poverty that it has set itself, Africa needs an annual funding ofˇ 1,089 billion, of which at least ˇ 93 billion forinfrastructures.

For its part, Senegal has set up in 2014,an Emerging Senegal Plan (PSE). It aims to make Senegal, an emerging economy by2035. It is based on three pillars or strategic axes that are the structuraltransformation of the bases of the economy, the promotion of human capital andgood governance and the rule of law. In the first phase (2014-2018), there arepriority actions consisting of 27 flagship projects and 17 reforms. PSE fundingis estimated at CFA F 9,685.7 billion, or ˇ 147.66 billion. Itsfinancing is acquired for CFA F 5 737.6 billion (87.47 billion Euros), or 59.2%while the financing gap to be sought is CFA F 2 964 billion (45.2 billionEuros), or 30.6%, and that to be covered by additional revenue and savings onexpenditure is CFA F 984 billion (1.50 billion Euros), corresponding to 10.2%.This policy was fruitful; its growth rate has steadily increased since then,from 6.5% in 2015 to 6.6% in 2016 and 6.8% in 2017. China has contributed tothe PSE for an amount of CFA F 830 billion, or 1.27 billion Euros. Beijing isalready providing financial support for major infrastructure projects such asthe Thiès-Touba (Ila Touba), AIBD-Mbour-Thiès expressway projects, therehabilitation of the Dakar-Kidira rail corridor, etc.

 

China, second supplier to Senegal

Senegal has the fourth largest economy inthe West African sub region after Nigeria, Côte d'Ivoire and Ghana. It is thesecond largest economy in Francophone West Africa behind Côte d'Ivoire. Itsmain economic partners are France, India, China, Italy, the United ArabEmirates and the United States. According to the Senegalese Ministry of Trade,"the volume of trade is estimated at CFA F 380 billion in 2015 (58 millionEuros), China is the fifth destination of Senegalese exports is the secondsupplier of Senegal behind France”. For four years now, Senegal has beenexporting more to China than to France, mainly because of Beijing's involvementin the marketing of groundnuts.

The volume of Senegalese exports to Chinahas grown exponentially. It rose from CFA F 18.763 billion (28,605 millionEuros) in 2014 to CFA F 70.042 billion (106.78 million Euros) in 2015, anincrease of 273.28% in relative value. Beijing will thus move from 24th placein 2013 to 5th in 2015. Exports of fishery products, agricultural products,foodstuffs and minerals were the main drivers of this growth. "Senegal hasdoubled the value of its exports of fishery products and crude groundnut oil,five times that of sesame, quadrupled that of exports of minerals, andmultiplied by thirty the expeditions of groundnut seeds, which rose from CFA F1.177 billion (1.79 million Euros) to CFA F 31.155 billion (47.50 millionEuros), "informs the Ministry of Trade.

So far, the China Exim Bank is theoverwhelming majority of Chinese investment in Senegal. In this panorama, wherethere is a real need for financing the Senegalese economy and China'sincreasingly important role in the global economy, there is of course a placefor Chinese banks in Senegal.

 

Dakar, an attractive financial center

By the end of 2016, there were 22 banks inSenegal. They come from France (Société Générale, Bnp Paribas, Crédit Lyonais),the United States (City Bank), Morocco (Attijariwafa and Bmce), Nigeria (Uba,Diamond bank and Orabank). There are also pan-African banks such as Ecobank,Bank of Africa, Banque Atlantique, Sahelo-Saharan Bank for Investment and Trade(Bsic). There are also investment banks such as the Banque de Dakar anddevelopment banks such as the National Bank for Economic Development (Bnde).Except for the latter, which is really young, the Banque de l'Habitat duSenegal (Bhs) and the Islamic Bank of Senegal (Bis) are the Senegalese banks.The latest arrival in Senegal's banking sector is the Gabonese Investment andTrade Bank (BGFI). This means that the Senegalese banking sector in particularand that of the West African Economic and Monetary Union (UEMOA) in general isvery attractive. This attractiveness is due in part to the fact that the lawprotects banks; It also requires that any payment greater than or equal to CFAF 100,000 (153 Euros), including salaries, must be made by bank.

However, according to IMF report 16/96 ofMarch 2016, a persistent liquidity surplus in the banking sector continues tohamper the smooth conduct of UEMOA's monetary policy with "veryliquid" banks, but reluctant to lend. This is why SMEs are facing enormousdifficulties in accessing credit. Indeed, according to the latest report of theCentral Bank of the States of West Africa (Bceao) on "the conditions ofbanking in Uemoa", the volume of credit allocated by the banking systemCFA F 12 376.8 billion (EUR 188.68 million), compared to CFA F 11 976.4 billion(EUR 182.58 million) in 2015. This reports that the gross debt-to-GDP ratio forSenegalese banks remains relatively high, at 19% (8.8% for the net rate). Inabsolute terms, this figure is more than CFA F 500 billion (760 million Euros).

Meanwhile, deposits grew by 9.6%, reachingCFA F 8,058.8 billion (122.86 million Euros) throughout the Union in 2016. InSenegal, They reached CFA F 1,757.3 billion (26.79 million euros) in 2016, up25%, mainly due to the financial clientele of banks, but also to individuals.At the end of March 2017, credit institutions operating in Senegal had abalance sheet total of CFA F 5 942.1 billion (90.59 million Euros), up 11.3%year-on-year. The same trend for deposits of CFA F 4 873 billion (7.43 billionEuros), thus registering a jump of 8.7% and net equity of CFA F 22 billion (31million Euros) Raises the minimum social capital of banks to CFA F 10 billion(19 million Euros).

The rate of financing of the economy is 25%in Senegal

According to the Bceao, the rate offinancing of the economy by the banks turns around 22% in the Uemoa. This rateis 25% in Senegal. La Bceao hopes that the operationalization of the financingmechanism for SMEs, as well as the expected impact of the project to promote CreditInformation Bureau (BIC), will ultimately contribute to the " Theimprovement of bank conditions and the increase in the number of beneficiariesof bank loans in the Union. Moreover, the stock market could have been analternative, but stock market financing is still shy, turning around 12% inUemoa. According to the IMF, sub-Saharan Africa had the highest private-to-GDPratio among emerging and developing countries in the 1990s, but it declinedover the next two decades. While in Asia this ratio has increased from 17% ofGDP in the 1990s to 24% in the period 2011-2016, and has increased slightly inother regions, sub-Saharan Africa has fallen from 20% to 17%, in a context ofincreased public sector investment to address infrastructure deficits. This suggeststhat there is a crowding-out effect of private investment through publicinvestment.

Since the banking crisis of the early 1980sand the end of the 1990s that led to the bankruptcy of 29 banks in Uemoa,informs Khadim Bamba Diagne, scientific director of the Laboratory of Economicand Monetary Research (Larem) Cheikh Anta Diop University of Dakar, the Bceaohas set up a prudential system. Thus, in 1991, the prime interest rate wasremoved to apply a single key rate, that of the central bank. A prudentialdevice considered "too restrictive" to favor the development ofcredit. The difficulties related to access to credit are also explained by thefact that banks do not have the information necessary to assess the solvency ofpotential customers. "You cannot blame a bank for checking thecreditworthiness of a customer before lending it money. And in the absence ofsuch a guarantee, it should not take any risk, "said Alioune Camara,outgoing president of the Association of banking professionals and financialinstitutions (Apbef) referring to this reluctance of banks. According to theInternational Finance Corporation (IFC), the inability of the lender toaccurately assess the borrower's creditworthiness contributes to higher defaultrates and reduced lending portfolios that affect the financial institution'sprofitability. Apart from Apbef, there is in Senegal an Observatory for thequality of financial services (Oqsf) which also mediates. At the Communitylevel, there is the Bic and the Banking Commission, which now ensurescompliance with the system defined by the Central Bank.

According to the scientific director of theLarem, Khadim Bamba Diagne, to solve the equation of financing of the economy,it is first necessary to lighten the prudential system, then to increase thelevel of banking, and then to set up guarantee funds To enable SMEs to accessfinancing, and finally to encourage the creation of private national banks toaccompany Senegalese companies.