WORLD BANK GROUP
AFRICA REGION, PRIVATE SECTOR UNIT
SEPTEMBER 2005
Summary of
Senegal Recent Developments in Infrastructure
This study provides background and specific infrastructure from the recession in 2002. Government capital invest-
sector analysis to identify possible solutions to existing in- ments have been falling for the past three years from 8
frastructure problems regarding institutional organization, percent of GDP in 1999 to 6 percent in 2002. Gross fixed
■
coverage, investment, pricing, and resolution of issues that capital investment has also fallen slightly since 1999 from
NOTE NUMBER 7
appear to be fundamental to infrastructure development 20 percent of GDP to 18 percent in 2002.
in Senegal. It makes a number of benchmark comparisons Nearly all of the country’s external debts are public.
between Senegal’s infrastructure and that of other Sub- As a result, external liquidity risks relate primarily to the
Saharan Africa countries, particularly South Africa. A country’s fiscal condition. Owing to its cautious macropol-
review of Senegal’s macroeconomic situation is included, icies, investors’ perceptions of Senegal as an investment
setting the stage for understanding how investment in in- target are relatively good, ranking it second only to South
frastructure might be increased. Africa among African economies. Senegal enjoys substan-
tial support from donors, both in the form of grants and
Macroeconomic Background concessionary debt. Although Senegal receives only limited
foreign direct investment (FDI), with FDI of 44 percent of
Overall, Senegal shows a favorable macroeconomic back- public development aid in 2000, Senegal ranks among the
ground, mainly due to the structural adjustment program highest FDI recipients in Sub-Saharan Africa.
the government has undertaken since 1994. Most of the One of the major constraints for development and
major goals set forward by this program were attained, in- attracting global investors in Senegal is widespread cor-
cluding: ruption. In addition, the country has deep-seated urban
problems, chronic unemployment, militant trade unions,
• Privatization efforts have resulted in two-thirds of the and drug addiction. Adult illiteracy remains above 60 per-
former state-owned enterprises being sold to private cent, and life expectancy is 50 years.
investors.
• Senegal’s current budget deficit, at just 4 percent of its Infrastructure: Principle Findings
gross domestic product (GDP), shows its commite-
ment to reducing its budget deficit. The principal findings concerning infrastructure are as fol-
• The country’s annual rate of inflation has been less than lows:
1 percent over the period between 1996 and 2001.
• Trade liberalization has increased trade (currently 70 • Over the past ten years, there has been underinvest-
percent of GDP). Exports have represented 30 per- ment in infrastructure in Senegal. The fixed asset
cent of GDP in recent years, although they are still base in the transport, electric power, and water sec-
heavily concentrated in a small number of industries: tors is depreciating faster than it is being repaired or
fish products (28 percent of total exports), phosphates replaced, and the average age of assets in these sectors
(22 percent), and groundnuts (10 percent). continues to increase. Only quite recently has the tele-
communications sector emerged as the exception, but
Growth, though steady with real growth in GDP av- there too underutilization and entry limits remain a
eraging 5 percent per year between 1995 and 2001, has constraint.
not been strong enough: In 2002, the country’s average • In recent years, infrastructure has not been a prior-
per capita income was US$467 (in 2000 dollars). In 2003, ity for the government, which has postponed these
growth accelerated to 6 percent as the economy recovered expenditures for more immediate political goals,
mainly because investments in assets generate benefit vate investment requires periodic ex post analysis and
streams that are widely disbursed and extended tem- subsequent adjustment to minimize distortions and en-
porally. This “on-again, off-again” funding of investment courage private investment. Periodic market soundings
in infrastructure not only reduces its cost effectiveness can provide useful information to attract private sector
(many infrastructure projects require long-term fund- investment just as much as some level of “fee for service”
ing before beneficial outcomes begin to flow) but also and price experimentation to measure users’ willingness
increases its risk. to pay and price elasticity.
• Much of the infrastructure sector reform completed to
date has generated only marginal change. It has not Infrastructure Capacity
shifted capital investment risk from the public to the
private sector nor has it created strong incentives for Comparisons of coverage and affordability underscore that
expanding coverage, investing in long-term affordabil- Senegal’s infrastructure base compares unfavorably with
ity, integrating networks, or increasing capacity. Private those of other Sub-Saharan Africa countries, particularly
sector engagement in this sector needs to be expanded South Africa. Limited infrastructure capacity has two
dramatically. primary effects on Senegal’s macroeconomy: It constrains
• The government should explore other forms of risk growth and diminishes the welfare of the nation’s poor.
sharing with the private sector, mainly public–private On the one hand, the transport, water, and power sec-
partnerships (PPPs), and not only limit itself to the tors all affect the living conditions of the poor both directly
more extreme cases like privatization or management and indirectly as shown by research undertaken for the Pov-
contracts. Moreover, the synergies of joint public–pri- erty Reduction Strategy Paper (PRSP) and similar poverty
vate infrastructure and real sector development are for assessments. Taking this into account, the need for infra-
the most part being missed altogether. The government structure investment is most urgent in rural areas, where
should create incentives for businesses to move where fully 55 percent of the population still resides, where 80
real service costs are low and where the self-provision percent of the poor can be found, and where services are
of local infrastructure services is possible and economi- either missing or extremely costly.
cally feasible. On the other hand, private sector productivity in Sen-
• In each sector, there are suboptimal institutional egal and the government’s efforts to attract FDI are con-
arrangements: With the exception of the telecoms, strained by the infrastructure supply shortfall that allows
separate and distinct institutional frameworks exist for only unreliable services to be supplied. This is evidenced in
rural and urban market coverage. The recently launched recent surveys of Senegal’s business climate. Some of the
real time economic experiments for evaluating the ef- more significant limitations are:
fects of this divide need to be closely monitored and
pragmatic adjustments made as weaknesses and faults • Expensive and unreliable transport. Road transpor-
are discovered. tation in Senegal, which represents the main lines of
• An integral approach to investment in infrastructure communication within the country, is characterized by
is needed to effectively accelerate real sector growth. In isolation of important parts of the national economy
Senegal, linkages between the needs and requirements (especially rural communities), high costs, and unreli-
of growth sectors are not currently taken into account, able transit times. Dakar is Senegal’s most congested
and externalities are ignored in most cases. Getting and highest operating cost hub and has only one ap-
these trade-offs right is critical to future growth. proach route, but it also has the nation’s primary in-
• The integration of services should be facilitated ternational gateways (for example, seaport, airport).
through the demonstration that new business concepts Equally important is that Senegal’s limited transport
are viable and through a supportive regulatory environ- infrastructure has isolated it from neighboring coun-
ment. Innovative services should be developed such as tries.
multicarrier coordinated bus services and linkages be- • Expensive and unreliable power. Power generation de-
tween small-scale providers of urban water services and pends primarily on thermal generation from inefficient
SONES (the national water company). and antiquated facilities. Supply cannot meet the grow-
• Balancing public subsidies that target specific market ing demand, which has led to rationing in urban areas
segments and at the same time create incentives for pri- and underservice in rural areas. Moreover, the price of
electric power per kilowatt per hour (US$0.07/kWh) der way, available budget resources and budget headroom
is the highest in the region. are compared, and both are measured against the levels of
• Expensive water resources with limited coverage. investment required to close the demand–supply gap. The
Service coverage for potable water is limited to 57 urban results show that the level of current investment from all
centers, and within these only 80 percent of the popu- sources represents only a small portion (16 percent) of fu-
lation is served. Piped, networked sewage services are ture investment requirements (see Table 1).
limited, and rural water services and irrigation service To begin to close the gap between demand and supply
provision are poorly organized. There is an urban and over the next five years, FCFA 2,232 billion (US$4.46 bil-
rural service provider division, which adds uncertainty lion) will be needed in additional capital investment. Of this
to the system. total, FCFA 426 billion (US$0.85 billion) will be required
• Lack of inter-network connectivity and open entry to to replace, repair, or upgrade existing infrastructure, FCFA
new competitors and technology limit telecommu- 217 billion (US$0.43 billion) will be required to meet the
nications development. Telecommunications services anticipated increased demand associated with Senegal’s
are beginning to expand, principally through mobile population growth, and an additional FCFA 1,789 billion
telephony, and now account for 4 percent of GDP. The (US$3.58 billion) will be required to upgrade the level of
sector has been modernized, the quality of service im- services to South African levels.
proved, and telecoms services remain within the reach The largest investment increases will be needed in
of most of the population. Prices for telecommunica- the electricity sector mainly in the form of a major expan-
tion services are low by regional standards. Much of the sion in power generating capacity as determined in a study
country is wired for broadband Internet services. The funded by the International Finance Corporation (IFC).
connectivity between and among networks is good and The next largest investment will be needed in the telecoms
improving. According to the International Telecommu- sector, followed by the water sector, which would require
nications Union (ITU), Senegal has one of the most future investments for repairs and maintenance of existing
efficient telecommunications networks in West Africa, infrastructure, service extension into underserved areas, and
and even minor urban centers are dotted with “call cen- expansion of irrigation. Finally, investment in the transport
ters.” However, the original former state-owned service sector will be needed to rehabilitate the entire road network
provider, SONATEL, continues to dominate the fixed- and to improve its status from “poor” to “fair.”
line industry. There is also a marked difference between .
rural and urban areas in service coverage. There is po- Closing the Existing Funding Gap
tential for expansion as Senegal’s urban population
continues to increase. The funding gap needs to be filled from a number of dif-
ferent sources. Regarding budgetary resources, the Public
Capital Requirements within Specific Expenditure Review argues that Senegal has an historical
Infrastructure Sector opportunity to increase public investment on the basis of its
healthy and balanced management of its fiscal affairs.1 The
Based largely on the public expenditure review currently un- public deficit is only 0.6 percent of GDP, compared with 2.8
Table 1. Estimates of Investment Requirements by Sector
Cumulative Capital Resource Shortfall Cumulative Capital
Shortfall by 2010 for 2010 Shortfall by 2015
Sector (FCFA billion) (percent) (FCFA billion)
Potable water and irrigation 313 74 percent 615
Electricity 999 89 percent 1,998
Telecoms 633 72 percent 1,264
Transport 287 N/A N/A
Total (FCFA billion) 2,232 84 percent 3,877
Total (US$ billion) 4.46 84 percent 7.75
percent for the rest of Sub-Saharan Africa. External debt times to process. All this helps explain why the share of
and internal debt are relatively low, at 28 percent and 7 per- bank lending to transport and communications com-
cent of GDP, respectively. Because Senegal is a member of panies was 5.4 percent in 2003 down from 6.4 percent
the West African Economic and Monetary Union (WAE- in 2002 and below the percent of the GDP for which
MU), monetary policy is carried out by an independent transport and communications companies account (7.1
regional central bank, the Central Bank of West African percent).
States (BCEAO), public deficits cannot be monetarily fi- • Insurance Sector. A regional code, Conférence Interaf-
nanced, which minimizes inflationary pressures. Moreover, ricaine des Marchés d’Assurances (CIMA), lays out the
from 2000 to 2005, the consolidated infrastructure invest- parameters for insurance industry regulation and is en-
ment budget, mainly on transport infrastructure, rose by 61 forced through a regional commission. The insurance
percent without any adverse macro effects. sector in Senegal is one-tenth the size of its commer-
Nevertheless, this additional headroom for increased cial banking sector, but it represents the best developed
expenditures in infrastructure will not be sufficient to com- potential source of long-term financing. On average, it
pensate for the existing supply–demand gap. Alternative is extremely liquid and is the most important capital
funding sources or funding strategies for developing these source of the emerging regional bond and market real
new funding sources include: estate investment capital. Moreover, insurance compa-
nies have pioneered investing in infrastructure in Sen-
• Opportunities for Private Sector Investment. In egal, even when the long-term viability of this investing
2000, the government created the National Agency for is so uncertain.
the Promotion of Investment and Large Infrastructure • Regional Bond Market. A regional bond market has
Works (APIX), an agency within government that pos- operated since 1998, when a regional securities regu-
sesses both competencies and authorization to prepare lator was appointed and a regional exchange (Bourse
transactions for private sector investment. Because the Régionale des Valeurs Mobilières, or BRVM) opened in
number of diverse initiatives, programs, and corre- Abidjan. The regional market for debt securities has
sponding implementation agencies has multiplied, the increased significantly over the past four years, main-
government needs to clarify and refocus efforts in the ly since the adoption in December 2002 of a plan by
area of private infrastructure investment. The govern- the WAEMU Council of Ministers to deepen and
ment should also test public private–partnerships that strengthen the regional securities market. There are
would typically require the private party to deliver a still major shortcomings in this market, but the gov-
specific service and to assume the risk associated with ernment’s increased participation should help alleviate
providing these services. The government’s role would some of these shortcomings by developing a reference
be circumscribed to controlling quality, indicating po- yield curve, establishing a baseline set of parameters for
tential returns, and providing assurances that this re- risk assessments, and deepening the bond market by
turn can be realized (in the form of a regulatory review). taking the lead in issuing debt instruments of variable
APIX would serve to centralize these functions within term.
a single agency of government.
• Banking Sector. Senegal’s banking sector is the cor- Conclusion: The Way Forward
nerstone of Senegal’s financial sector. It includes twelve
commercial banks and two financial institutions Infrastructure rehabilitation plans should rely heavily on
(établissements financiers) and is generally well regu- PPPs that offer important advantages. The World Bank
lated through BCEAO. However, the banking sector could materially assist in the initial launch of several PPPs
in Senegal suffers from a chronic surplus of liquidity. to demonstrate to private investors their feasibility and prof-
Absorbing it will mobilize long-term credits required to itability in Senegal. However, the ultimate decision concern-
finance infrastructure projects. Moreover, most of the ing the setting of priorities and the choosing of financing
assets that commercial banks create are short term with
maturities of two years or less, mainly because the le-
gal framework in Senegal favors borrowers over lenders 1
J. Morisset et al., “Improving the Efficiency of Public Investment:
and because the guarantee options currently available Review of Public Expenditure in Senegal,” PREM 4, Africa Re-
to commercial banks are complex and require long lead gion (Washington, DC: April 7, 2005).
mechanisms must be left to stakeholders in Senegal. In this In this context, labor unions and farmers groups should
respect, if the recommendations presented in this study are be paid special attention. The process must include a
to be activated, a number of steps need to be undertaken: presentation to donors of a comprehensive infrastruc-
ture development plan as part of the PRSP review and
• Step One: Organize a leadership group, with less than six as one of the pillars in the Poverty Reduction Support
members, involving key opinion leaders from the private Credit (PRSC) process.
and public sectors who are concerned with infrastructure • Step Three: Request donor support for the engagement of
development. The group’s task would be to develop five or six highly trained professionals who would work un-
priorities for infrastructure rehabilitation and invest- der the direction of the APIX management team to oversee
ment and recommend funding sources. These decisions the implementation of the priority set of infrastructure in-
should be guided by analytic work and the participation vestments. This core group would be supplemented by
of other individuals and government agencies. Growth specific transaction preparation or project justification
linkages, linkages between specific infrastructure and teams on a case-by-case basis as required. The timeta-
real sectors, should be a primary focus of the delibera- ble for carrying out the entire program would be keyed
tions conducted by the task force. to PRSC commitments.
• Step Two: Test tentative conclusions concerning infrastruc-
ture with stakeholders in an effort to evoke public support.
This note is part of a series of summaries of analytical work of the
Africa Private Sector Unit. This note is authored by Jessica Boc-
cardo based on a report entitled Senegal Recent Developments in
Infrastructure ( June 2005). The report was written by a team led
by Ronald Kopicki. For more information, contact Ronald Kop-
icki via email at rkopicki@worldbank.org or via telephone on 202
473 6139. A copy of the report is also available from www.world-
bank.org/afr/aftps