The political-military crisis that followed presidential elections in November 2011 was the low point in a decade of ethnic strife pitting North against South, which included a civil war between 2002 and 2003.
Growth, and by extension, economic and social development in Cote d'Ivoire slowed considerably. Real GDP all but stagnated during the 2000s while real production per capita hardly increased, feeding growing poverty. These domestic problems weakened Côte d'Ivoire's role as a regional leader and slowed regional integration.
In April 2011, when Alassane Ouattara took control of the country it represented a chance for national reconciliation and growth. However, the peace process is mined with risks related to the economic, political and social situation at the regional, national and international level. Security will remain partially dependent on demobilising some 11,000 fighters that are part of militias. In addition, the political climate in West Africa is growing tenser while at the same time the Sahel is drying up. Lastly, uncertainty in Europe, Côte d'Ivoire's number one trade partner (40% of exports in 2011) and home to the currency to which the XOF is pegged, could weigh on the country's export growth.
Initial steps towards national reconciliation and financial normalisation began one year ago.
Trade sanctions were lifted in April 2011, which aided a recovery in international trade and eased domestic supply tensions.
The creation of the Truth, Reconciliation and Dialogue Commission in September 2011 was a milestone in the country's path to national reconciliation. The commission, however, has been criticized for targeting supporters of former president Laurent Gbagbo who was extradited to the International Criminal Court in The Hague in late 2011.
The first legislative elections in more than a decade were held in December 2011 and were peaceful. Their legitimacy was questioned, however, as the opposition boycotted the vote and turnout was particularly low (around 30%).
Gradual financial normalisation began in mid-2011. Concessional financing has returned and traditional investments, which has led to:
- a regional bond being issued in August 2011 for XOF 100bn (eq. EUR 152m) earmarked for the country’s reconstruction;
- USD 1.9bn in debt has been postponed and USD 400m was written-off altogether by the Paris Club in November 2011 (out of a total of USD 7.2bn) meaning the country's debt burden will be reduced by 78% over the next three years;
- The IMF's 3-year Extended Credit Facility from November 2011 (USD 614m) aims to encourage public investment, the private sector and hiring in addition to reducing poverty;
- A Chinese loan granted in February 2012 (EUR 1.5bn).
The next steps, expected in the second half of 2012, will be to renegotiate the defaulted Eurobond maturing in 2032 (USD 2.3bn) and to reach the completion point for the HIPC (Heavily Indebted Poor countries) program, and the debt cancellation that goes along with that. Debt cancellation would provide the country with fiscal breathing room given its high public debt/GDP ratio of 66% (2010), which was double the average in Sub-Saharan Africa.
Lastly, the government has demonstrated a commitment to reforms that aim to 1) consolidate the economic recovery via investment, 2) strengthen public finances and 3) improve the business climate by working with the private sector. In the short term, priority has been given to implementing reforms in the coffee and cocoa industries (pre-requisite for the HIPC initiative) and in the electricity sector. After a decade of low investment levels, the public investment rate is poised to double to 6% of GDP in the next few years.
A regional engine for the future?
Even with a population of 23 million in 2011 (2.8% of the population in Sub-Saharan Africa), its economic weight does not measure up (only 2.3% of regional GDP). Growth prospects will depend on political developments and maintaining related international aid as well as foreign direct investment, which has driven vital sectors of the economy (cocoa/coffee, palm oil, metals and hydrocarbons).
After a severe recession in 2011 (-5.8% according to the IMF) against a backdrop of trade sanctions, bank closings and stronger inflation (food shortage), GDP is set to make up for lost ground in 2012 (+8%) before growth tempers to around 6%. As such, growth is expected to exceed that of the region in 2012 for the first time in a decade as confidence is restored.
The main contributor to growth will be investments, particularly public investment. Investment is expected to fuel medium-term growth through major infrastructure projects (3rd bridge in Abidjan, highway to the north), tripling of gold production within three years, enhancing iron ore and nickel mines and increasing electricity and oil production. Côte d'Ivoire is the global leader in cocoa (30% of the world's production; 2011 harvest up 25%, i.e. 1.45m tons despite a civil war) and the coffee/cocoa industry will benefit from current reforms and the commitment to upgrading the industry as the country seeks to export processed products with greater added value. Imports tied to these investments will increase the current account deficit in the short term (around 5% of GDP), which will be financed by multilateral lending, the return of foreign direct investment and debt issuance.
To support growth in the longer run, Côte d'Ivoire must invest massively in order to improve the governance and the quality of its business climate. Its indicators deteriorated in the 2000s and remain markedly lower than its fastest-growing neighbours. For instance, Côte d'Ivoire stood at no. 167 out of the 183 countries in the World Bank's Doing Business survey and its governance indicators are also, on the whole, very low. Among other areas, investment in education will spur the country's growth potential. The enrolment rate in primary school did not improve appreciably in the past decade (79% in 2010) whereas elsewhere in Sub-Saharan Africa the rate is nearly 100%.