Country Overview 

Senegal is a Sahelian country located in the most western part of Africa with a national territory of 196,722 km² and is part of the West African Economic and Monetary Union (WAEMU). With a population estimated at about 13.7 million, its economy is dominated by a few strategic sectors, including groundnuts, fisheries and services. The role of the agricultural sector, and especially of groundnuts, has declined over time, as Senegal’s position bordering the Sahel has led to frequent droughts. High rural poverty and limited access to rural infrastructure and basic services have fuelled migration to urban areas, and the country’s informal sector accounts for about 60 percent of GDP. 

Economic Overview 

The country is emerging from a 5-year period marked by a succession of domestic and external shocks, many of which exogenous.  In the decade since 1995, Senegal had enjoyed robust per capita GDP growth, but, starting in 2006, Senegal’s largely open economy was buffeted by a series of domestic and external shocks. Unfavorable rains prompted a sharp decline in agriculture output during 2006-07. The international food and oil price shocks over 2007-08 slowed the economy down, boosted the price level, and resulted in a significant deterioration of Senegal’s external and fiscal positions. Weaknesses in fiscal policy and public financial management compounded the fiscal costs of highly ineffective and untargeted subsidies for electricity and food. The onset of the global financial crisis in 2008 and its deepening in 2009, together with new domestic shocks, including floods in Dakar region and continued electricity shortages, further contributed to the general slowdown of country’s economic activity. Real GDP growth averaged 2.7 percent in 2008 and 2009, implying zero growth in per capita income. Growth has remained concentrated in the modern, largely urban, construction and services sectors, fuelled by public works spending and remittances from Senegalese abroad. The capital city, Dakar, accounts for only 0.3 percent of the land area of Senegal, but for one-quarter of its population and over sixty percent of the country’s economic activity. Tackling the main structural feature of poverty in Senegal – the deepening of entrenched disparities between Dakar and the rest of the country – thus remains as relevant today as it has ever been.

Senegal’s economy has started to recover from the economic slowdown of the past few years, with real GDP growth estimated to have accelerated to 4.25 percent in 2010. All the main sectors contributed positively to the GDP growth. Good rains supported growth in the primary sector. A gradual recovery in the construction sector is emerging, fueled in part by the clean-up of arrears and the settlement of extra-budgetary spending. The momentum in the telecommunication and transport sector supported the growth in tertiary sectors. Growth was expected to further improve to 4.5 percent in 2011, but this may not be achieved due to the protracted crisis in the electricity sector – which declined by 5.2 percent in the first semester of 2011, and weak performance in the services sector.  Export volume declined somewhat in the first semester of 2011, but this was more than offset by higher world prices for the main exports. Remittances and tourism arrivals have grown in 2011, though with contradictory trends – remittances strengthened in the second quarter while tourism fell.  Inflation was low in 2010—at 1.2 percent—but increased to 4.0 percent in the first half of 2011 due to the rising price of imported fuel and food. Inflation is moderating, however, and is expected to fall to more normal levels (3.0 percent) by year end.

The 2010 fiscal stance broadly supported macroeconomic stability. The 2010 budget provided a modest fiscal stimulus, appropriately so given Senegal’s financing constraints. The overall fiscal deficit was estimated to have come out at 4.8 percent of GDP in 2010, broadly in line with budget targets. In 2011, the fiscal deficit is projected to widen to 7.0 percent due to an increase in public investment, notably in infrastructure (energy, autoroute, airport).  As of July 2011, revenue collection was behind schedule and consequently the authorities were cutting back on spending. They are also considering a controversial tax on incoming international telephone calls which has rarely been tried in other countries and could negatively affect the business climate.

Public Finance and Governance

Recent Assessments performed by or at the request of the authorities have identified a number of critical shortcomings in budget preparation and execution processes as well as internal and external controls. As an initial response to these challenges, the Government developed an action plan in 2003, which is regularly updated to include progress made in the PFM reforms as well as new challenges. As a result of government’s efforts to address the identified PFM issues, there has been significant progress in the Public Financial Managements reforms. Medium Term Expenditures Frameworks have been developed in key priority sectors, budget execution processes have significantly improved with the development of a budget management information system (SIGFIP) and an accounting information system (ASTER). West African Economic and Monetary Union (WAEMU) has adopted in 2009 six new PFM regulations (Directives) covering transparency in public finances in general, budget preparation and execution laws, government accounting, budget classifications, central government chart of accounts (CoA), and central government operations (tableau des operations financières de l’Etat- TOFE). These new regulations set ambitious objectives such as performance budgeting, significant changes of internal and external control methodologies, modernization of expenditures management, implementation of accrual accounting and new budget classification aligned with international standards.

The World Bank is supporting the government to implement these reforms through a Public Financial Management Technical Assistance Project recently approved. The development objective of the project is to enhance the credibility, transparency, and accountability in the management and use of central government finances. The project aims to support the modernization of the Public Financial Management System in Senegal during the coming four years. It includes four components: (1) Strengthening Fiscal Policies and Planning; (2) Improving Budget Execution Processes; (3) Strengthening the capacity of external audit and legislative oversight; and (4) Project Management. Because it builds on the MDTF that had assisted the Government in reforming budgetary practices and the management of public finances, it would be able to further cater for the improvement of those areas that have outstanding issues to be resolved. This targeted approach is expected to leverage the positive impact of the project, if government commitment is sustained as expected. Since many of the activities to be implemented under the project would cut across several entities, the process of change management would be specifically supported under the project, particularly for the activities requiring strong buy-ins, e.g. assessment and selection process of large public investment projects, decentralization of commitment controls to line ministries, strengthening internal audit processes legislative oversight, etc.

In the area of public procurement, recent developments have raised the need for additional technical work to ensure the sustainability of reforms. The procurement reform in Senegal has led to strong institutions in procurement and a procurement code adopted in April 2007 (and aligned with the WAEMU Guidelines). However, the government has since challenged several provisions of the original texts, in particular with respect to operations that impinge on national security or that are of an urgent nature and for which standard review procedures are onerously lengthy and it has adopted new code. Discussions have been initiated to ensure that, while legitimate concerns for a balance between the goals of transparency and efficiency are addressed, the new provisions do not unduly broaden the scope for sole sourcing or significantly affect the transparency and accountability of the system.

Political Context 

Senegal’s broadly stable political climate has become more complex as the country moves towards the 2012 presidential elections. The political debate has swelled in recent months, and is now entirely focused on the upcoming presidential election. Elections are slated for February 2012, and President Wade has announced his intention to run for a third term in 2012, moving to consolidate the political base around his party, the Parti Démocratique Sénégalais (PDS). The opposition to his candidacy is mounting and generated violent demonstrations on 23rd and 27th June against President Wade's (abandoned) plans to amend the constitution to add a Vice President to the Presidential ticket and lower the threshold for a first-round victory from 50 percent to 25 percent. Peaceful opposing rallies were held on 23rd July. Youth movements coordinated a rally to press President Wade just outside the banned down-town area, voicing demands not to touch their constitution and for President Wade not to run again in next February, given the much questioned constitutionality of his candidacy. At the same time, the ruling SOPI coalition bussed in larger numbers of demonstrators to a pro-Wade rally at which the President announced his intention to press ahead with plans for a third term, based on his interpretation that the two-term  limit did not apply to him in light of a Constitutional amendment in 2007. The political situation is expected to remain tense with more demonstrations at least until the Constitutional Court rules on this issue.

Several Cabinet changes have taken place over the last year, though with little impact on the broad direction of economic policy so far. The very candidacy of President Wade has sharpened the political debate, including on the track record of his administration. Overall, the political economy of economic management and reforms is likely to continue to be challenging. The commitment to reforms on which a broad consensus has yet to be developed could be more difficult to advance. Moreover, pressures on the public finances are likely to build up. At the same time, the demand for results has also resulted in additional momentum in the implementation of the Government’s growth, human development, social protection, environmental and governance agendas.

Violence in Casamance remains sporadic but a number of soldiers have reportedly been killed by the MFDC rebels since December 2010. In August, President Wade met with the Gambian President to help to solve this low-level rebellion, after Nigerian authorities seized an Iranian arms shipment bound for The Gambia in January, possibly destined for Casamance rebels.

Development Challenges 

Energy Sector

Since 2006, the energy sector has been facing significant challenges such as an extreme dependence on imported oil products; a deterioration of SENELEC’s (electric company of Senegal) finances as a result of oil price increases; and delays in making investments and tariff adjustments. These issues have been exacerbated since 2008 and have precipitated a deep crisis in Senegal’s energy sector that impairs broader economic and social development due to significant load shedding.

In October 2010, a new Minister – Karim Wade, son of the President - was nominated for the energy sector, bringing a new impetus to energy sector recovery and reform.  With support from international and national firms coordinated by the McKinsey consulting firm and reporting to a multi-stakeholder committee, the new Minister mandated the preparation of a major restructuring and recovery plan for the whole energy sector, based on a 360 degree diagnostic and audit of the sector. To address the current crisis, the dual effect of the energy supply-demand imbalance and SENELEC’s financial difficulties which have resulted in major power cuts and load shedding, the Government’s most immediate effort has been to prepare a 2010-2014 electricity emergency plan aimed at (a) removing the electricity supply bottleneck by ensuring additional power capacity prior to the commissioning of the coal-fired power plant scheduled for 2015; and (b) lifting SENELEC’s cash-flow and financing constraints.

The Bank will continue to support this key sector through the preparation of a new investment operation (US$80 million) expected to be delivered to the Board during FY12.  The project aims at reducing SENELEC’s technical and commercial losses by modernizing transmission and distribution grids and financing the installation of smart meters in selected zones. 

Safety nets

In the wake of the looming food price crisis, the absence of effective safety nets and of a targeting system the Government can use to channel resources to the most vulnerable is leading the Government to rely on untargeted and costly price subsidies.  The Bank is undertaking AAA work to develop a coherent targeting mechanism and to coordinate the plethora of donor-funded social protection programs.  A high level steering committee has been established to oversee the different studies and build a consensus on how to move forward.

 

World Bank Assistance/Engagement

As of August 31, 2011, the World Bank has approved 163 projects to Senegal amounting to around US$3.6 billion, of which US$2.9 billion has been disbursed. Of the 163 projects, 137 projects have now closed. The current portfolio comprises 26 active projects with total commitments of US$857 million. The largest share of the portfolio is in education (25 percent), followed by public administration and law (20 percent), and transport (16 percent). In addition, Trust Funded (TF) grants are currently complementing the IDA portfolio with an additional US$138million, especially for education and the environment.

In terms of Analytical and Advisory Activities (AAAs), a major review of public finances, including the education, health and road transport sectors, was delivered in late FY11. It will need validation and preparation of an action plan in FY12. The Bank also plans on preparing a series of policy notes on key issues. The Bank will work closely with the authorities on the analysis of the household survey currently under way, and will propose selected issues to be discussed including social safety nets. Work on an agricultural PER is well advanced, in collaboration with a local research center, and it will be finalized and validated in FY12.

A new Country Assistance Strategy (CAS) for the period of fiscal year 2012-15 is currently under preparation. The Bank’s guiding principle for the new CAS will be to engage selectively where there is potential for transformative change. Areas of support could include (i) leveraging agribusiness potential, (ii) consolidating reforms in energy, (iii) strengthening territorial management and spatial integration by promoting development along corridors, and peace and security in Casamance, and (iv) addressing vulnerabilities in health and nutrition. The household survey that is currently underway will provide important information for the new CAS.

International Finance Corporation (IFC)  

IFC has provided financing and advisory services in various sectors with a view to promoting growth. It has financed the Kounoune I and GTI energy projects and remains committed to the power sector. IFC can assist in the development of new projects with Infraventures as well as financing. IFC is also strengthening its financial market team in Dakar in order to implement its strategy on access to finance, both through its trade finance program and longer term financing and risk sharing products. These programs also include advisory services to enhance the ability of banks to deal with SMEs. Recent IFC investments in financial markets include the extension of a US$4 million trade line to Ecobank Senegal in August 2008 and a US$15 million investment in the US$l50 million Atlantic Coast Regional Fund which targets investments in high growth middle market companies in IDA countries of West and Central Africa. IFC also provided a 7 million Euro, 10-year loan to Radisson hotel chain. In tourism, Private Enterprise Partnership for Africa (PEP Africa) has supported the development of an accommodation e-marketplace program through its SMART program in partnership with the Tourism Association of Senegal. As of February 2011, IFC’s portfolio in Senegal amounted to US$81.8 million, of which Us$64million is outstanding.  

Multilateral Investment Guarantee Agency (MIGA)  

MIGA has supported both inward and outward FDI in favor of Senegal over the years. Given the ongoing global credit crisis, the availability of political risk insurance is critical to the ability of project sponsors to raise project financing for investments into emerging market countries such as Senegal. FDI includes the current Dubai Ports World investment in Dakar’s port and Cotecna investments into Senegal, as well as projected investments in the Dakar Port and Dakar Integrated Special Economic Zone (DISEZ) projects. MlGA has also supported past guarantees to support Sonatel investments outside of Senegal in support of three telecommunications projects (in Guinea, Guinea-Bissau and Mali) with a current gross exposure of $103.2 million.

 

Long Term Water Sector Project

When implementation of the Bank supported Long Term Water Sector Project began in 2001, Senegal’s water and sanitation sector was facing multiple challenges. The metropolitan area of Dakar, the capital city (with a population of more than 2.2 million) was experiencing recurrent and seasonal water shortages that required large investments in water production and transmission capacity. At the same time, water access rates, albeit high by regional standards, required substantial increases to meet population growth and to improve connection rates that ensured better quality and quantity of safe water in Dakar and other urban centers. Access to improved sanitation services was lagging behind water, which had led to the disposal of wastewater in open spaces or sensitive maritime environments. Sixty four (64) percent of the Dakar’s households were not satisfied with their sanitation facilities, and conventional sewerage (to which 31 percent of them were connected) was not technically or economically feasible in the major part of the city, calling for the development of adequate on-site solutions. Water resources tapped for supplying water to Dakar were either nearby aquifers that were exploited beyond their sustainable yields or remote surface water (Guiers Lake) that had to be managed carefully, with substantial social, health and environmental implications.

The objective of the Bank supported project were to assist the Government of Senegal in achieving sustainable improvements in the delivery of urban water and sanitation services in unserved and low income areas of Dakar and secondary cities by: (a) supporting further institutional and regulatory reforms and policy enhancements, thus consolidating and building on achievements of the ongoing Water Sector Project; (b) removing major water production and distribution capacity constraints with the help of private sector financing; (c) supporting rehabilitation of sewerage networks and increasing waste water treatment capacity; (d) implementing a community-based program for developing on-site and semi-collective sanitation services; and (e) supporting capacity development of sector agencies, communities and households.

There were seven development objectives/components to the project. The first was to improve the reliability, quality, quantity, and coverage of water supply services by increasing production capacity to meet demand, increasing the number of connections, restructuring and balancing water distribution, and increasing storage capacity. The second was to expand and reinforce drinking water networks. The third component was to increase the number of households connected to sewer networks, improve demand management and reduce wastewater and septic pollution, and limit severity and duration of flooding. The fourth component was to target peri-urban and low-income settlements so as to improve sanitary conditions of households. This component included an investment program and a capacity building and demand generation program. The fifth component was to improve the role of the executing agency in regulating water resources and develop an action plan for integrated management. The sixth component was to incorporate environmental concerns in the project to increase quality and to follow safeguard policies and national regulations. The seventh component was to increase the efficiency of public entities involved in the water and sewerage sector by strengthening their capacity and the capacity of small private and community enterprises.

The project closed in June 2009 with highly satisfactory outcomes. As a result of the project:

• Number of additional people having access to water supply in the project areas (Dakar and other urban centers) increased by 1,415,000 (against a target of 1,000,000, an achievement of 141%);
• Number of additional people having a sewerage connection (Dakar and other urban centers) increased by 144,000 (against a target of 140,000, an achievement of 103%);
• Number of additional people benefiting from on-site or semi-collective systems in peri-urban areas of Dakar increased by 583,000 (against a target of 400,000, an achievement of 146%);
• Additional volume of sewage collected & treated in project areas increased by 11,745 m³/day (against a target of 10,000 m³/day, an achievement of 117%)
• Financial equilibrium in the urban water supply sub-sector was reached at the end of 2003 and maintained afterwards;
• The target of having the cash operating expenditures and equipment replacement costs of ONAS (Sewerage services only) covered by operating revenues was achieved as expected by 2003 and;
• Establishment of a Management body for Guiers Lake and implementation of the Guiers Lake Management Plan was achieved by 2006.

The Bank is continuing its involvement in second generation reforms to the sector, via  the ongoing Water and Sanitation Millennium Project. 

Education Sector Projects 

The World Bank is a traditional supporter of the Senegalese education system. Since 2000, with technical support from the World Bank, the Government of Senegal has prepared a ten-year development program, the PDEF (Programme Décennal de l’Éducation et de la Formation). All donors supporting the education sector are aligned to support that program using various disbursement modalities by harmonizing their interventions for complementarities. Joint annual reviews are organized with the Government and the same instruments are used to monitor and assess the progress in the implementation of the program.

The current World Bank support to the sector consists of the following credits and grants:

• An IDA financed project of 30 million dollars that support the improvement of quality of education at all levels and expansion of access to middle schools.
• A PHRD grant of 5 million dollar to support the capacity building of education institutions.
• An FTI Catalytic Fund Grant of 81 million dollars for school construction in rural areas.
• Several Trust funds for analyses and technical assistance; and
• A Tertiary education project of 101 million dollars that aims at improving the Governance and the financing of the higher education sector (this project is not yet effective).

Since 2000, the education sector has made significant progress in Senegal in terms of access. The Growth Enrollment Rate (GER) at the primary level, which was 81 percent in 2005, has increased to 94 percent in 2010. The dynamics of access at the early grades remain strong:  the intake rate to grade 1 which was at 96 percent in 2005 has reached 123 percent in 2010. The secondary level is expanding as well, reflecting the growth in the size of incoming cohorts. At the lower secondary level, the GER stood at 45 percent in 2010, a one third increase from 29 percent in 2005. For the high secondary level, the GER remains low, having progressed from 12 percent in 2005 to only 19 percent in 2010. Meanwhile, the supply of tertiary education has diversified with an expanding private sector and the creation of the public Regional University Centers in three provincial cities (Thies, Bambey, and Ziguinchor) in addition to the Universities of Dakar and Saint Louis which already existed. The total number of university students has increased from 59,400 in 2005 to 90,500 in 2009—a 52 percent increase in just 4 years—, of which 23 percent are in the private university sector.

Inequity in school enrollment has also been reduced at the primary level. With a forceful policy and expenditure drive over the past few years, the GER for girls now exceeds that of boys. Although wealthier households continue to capture more education resources than the poor, children from poor households are enrolling in larger numbers. Analyses of primary enrolment by income quintile show that the GER of children in the poorest income quintile increased from 52.3 percent in 2001 to 67 percent in 2005 (the last year in which a household survey provided data) while that of children in the wealthiest income quintile increased from 93.6 percent to 108 percent, a trend itself accompanied by increasing enrolment of 6 year olds in the wealthiest households.

Important progress in reducing the gender disparities as outline by the improvement in the parity index below:

• Primary education: 1.09 in 2010 against  0.97 in 2005 and  0.87 in 2000
• Middle schools: 0.91 in 2010 against 0.78 in 2005.
• At secondary levels: 0.74 in 2010 against 0.64 en 2005
• Primary completion rate is higher for girls than for boys.

In terms of resource allocations, Senegal has historically demonstrated strong commitment to education, including primary education. Currently, the authorities allocate about 32 percent of the recurrent budget and 26 percent of total domestic resources to education, the equivalent of about 5.4 percent of GDP.  Senegal is among the countries that allocate the most important share of the budget to education. An estimated 48 percent of the recurrent budget contribution to education is allocated to primary education, nearly reaching the recommended Education for All–Fast Track Initiative (EFA-FTI) benchmark of 50 percent. However, there are significant inefficiencies in resource management in the sector that imply that results are not commensurate to the level of investment. The main challenges that need to be tackled in this regard are the management of teachers, which impacts 80 percent of education expenditure, and of instructional materials. 

Despite significant progress in access and equity, dropout rates remain high. Despite an intake rate of 123 percent and a GER of 94 percent, the primary completion rate only reached 59 percent in 2010.  An analysis of the profile of retention shows that a child entering first grade has only a 62 percent chance of reaching grade 6. At the primary level, the causes of low completion are related to factors on both the supply and demand side. On the supply side, the main factor preventing children from progressing through completion is the failure to offer a complete cycle of education in many areas. Regional differences are again significant: in urban areas, only 16 percent of schools do not offer a complete cycle, while in rural areas, 69 percent of schools offer an incomplete cycle, forcing students to either drop out or to travel long distances to schools in nearby towns. The other main causes of drop-out include family decisions to withdraw their children from school due to poor performance (26 percent of dropouts), the need for children to assist parents with work (15 percent) and an inability to pay the costs of schooling (9 percent).

Quality remains a major concern. Student learning outcomes in reading and mathematics were among the lowest relative to francophone countries as demonstrated by the continuously poor performance in the PASEC assessment. A national assessment in 2002 (SNERS) showed similar results: in French, the desired mastery level (75/100) was reached by only 11 percent of fourth graders; in mathematics, only 12 percent reached mastery level. The minimum acceptable level (50/100) was reached by 52 and 56 percent of fourth graders in French and Mathematics, respectively. A recent Early Grade Reading Assessment shows that this situation has not improved. However, no national assessment has been carried out since 2002 to inform policy options and decisions.

Other Development Partners

Most bilateral and multilateral development agencies have an active presence in Senegal. Considerable progress has been made in recent years in harmonizing development assistance in Senegal, consistent with the principles articulated in the Paris Declaration and Accra Agenda. Early in 2008, donors adopted a Memorandum of Understanding - the Framework Agreement on Budget Support (Accord Cadre pour les Appuis Budgktaires-ACAB), which includes the European Union, France, the Netherlands, Canada, Germany, the African Development Bank and the World Bank. Substantial progress has been made with the adoption of joint monitoring indicators. The Prime Minister convenes the donor community on a quarterly basis to assess progress on the achievement of PRSP objectives. Issues remain and are being discussed through the PFM donor group.