SENEGAL
Rank: 86 Regional Rank: 9 of 40
enegal’s economy is 58.8 percent free, according to our 2007 assessment, which makes it the world’s 86th freest economy. Its overall score is 1.4 percentage points higher than last year, partially reflecting new methodological detail. Senegal is ranked 9th out of 40 countries in the sub-Saharan Africa region, and its overall score is slightly higher than the regional average.
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The economy is 58.8% free
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Sub-Saharan Africa Average = 54.7 World Average = 60.6
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Senegal enjoys high levels of freedom from government and monetary freedom. Total government expenditures in Senegal equal slightly more than 20 percent of GDP, and state-owned businesses constitute a negligible source of revenue. Inflation is very low, and the market sets virtually all prices for consumer goods. As a developing African nation, Senegal faces many challenges. Business freedom, fiscal freedom, labor freedom, property rights, and freedom from corruption are all weak. Starting a business takes more time than the international average, and commercial operations overall are made more difficult by the national regulatory environment. Tax rates are high, particularly the top income tax rate. The labor market is highly inelastic and one of the 20 least free in the world. The judicial system does not have enough qualified magistrates or freedom from the executive branch and is subject to corruption, as is much of the rest of Senegal’s bureaucracy. BACKGROUND: Senegal is one of the few African countries with a long-standing democratic tradition. In March 2000, President Abdoulaye Wade was elected to a seven-year term. The peace process with a rebel group in the southern Casamance region is progressing fitfully. Infrastructure is fairly good by African standards, and Senegal serves as a regional gateway and business center. Senegal has limited natural resources and is predominantly rural, with agriculture and fishing occupying at least 60 percent of the population. Economic reforms aimed at liberalizing the economy are progressing slowly, and business is hindered by inconsistent or opaque regulation and corruption. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
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40
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1995
2007
QUICK FACTS
Population: 11.4 million GDP (PPP): $19.5 billion 6.2% growth in 2004 4.3% 5-yr. comp. ann. growth $1,713 per capita Unemployment: 48% (2001 estimate) Inflation (CPI): 0.5% FDI (net inflow): $66 million Official Development Assistance: Multilateral: $392 million Bilateral: $880 million (6% from the U.S.) External Debt: $3.9 billion Exports: $1.8 billion Primarily fish, groundnuts, petroleum products, phosphates, cotton Imports: $2.7 billion Primarily food and beverages, capital goods, fuels
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SENEGAL’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 56.4 61.6 73.9 85.9 82.9 50 50 50 32 45.2
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INVESTMENT FREEDOM — 50%
There is no legal discrimination against foreign investors, and 100 percent foreign ownership of businesses is permitted in most sectors except for electricity, telecommunications, mining, and water. The unofficial barriers to investment, such as corruption and judicial weakness, are substantial. The government must approve capital transfers to most countries. Other transfers are subject to numerous requirements, controls, and authorization, depending on the transaction. Residents and non-residents must receive official approval to hold foreign exchange accounts.
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100
100 = most free,
= world average
FINANCIAL FREEDOM — 50% BUSINESS FREEDOM — 56.4%
Starting a business takes an average of 58 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Although obtaining a business license and closing a business can be relatively easy, the regulatory environment still lacks consistency and transparency. The overall freedom to start, operate, and close a business is restricted by the national regulatory environment. Senegal’s financial system is underdeveloped. The Central Bank of West African States (BCEAO), a central bank common to eight countries, governs Senegal’s financial institutions. The eight BCEAO member countries use the CFA franc, pegged to the euro. There were 10 commercial banks at the end of 2005. There were also two specialized banks providing credit for housing and agriculture. The largest banks are predominantly French-owned. The banking sector is highly concentrated, with three banks holding twothirds of deposits. The government owns over 25 percent of the shares in seven banks, including a majority share in the agricultural bank. Banks are heavily exposed to a small number of borrowers, according to the International Monetary Fund. There also are several microfinance institutions. Senegal participates in a small regional stock market that is based in the Ivory Coast.
TRADE FREEDOM — 61.6%
Senegal’s weighted average tariff rate was 9.2 percent in 2004. Significant import taxes and fees, as well as inconsistent customs implementation and corruption, add to the cost of trade. Consequently, an additional 20 percent is deducted from Senegal’s trade freedom score to account for these non-tariff barriers.
PROPERTY RIGHTS — 50% FISCAL FREEDOM — 73.9%
Senegal has high tax rates. The top income tax rate is 50 percent, and the top corporate tax rate is 33 percent. Other taxes include a value-added tax (VAT) and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 18.1 percent. Senegal lacks commercial courts staffed with trained judges, so court decisions can be arbitrary and inconsistent. An arbitration center administered by the Dakar Chamber of Commerce was established in 1998. Corruption is present in dispute settlement cases.
FREEDOM FROM CORRUPTION — 32% FREEDOM FROM GOVERNMENT — 85.9%
Total government expenditures in Senegal, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 23.2 percent of GDP, and the government received 4.6 percent of its revenues from state-owned enterprises and government ownership of property. The pace of privatization has been slow. Corruption is perceived as significant. Senegal ranks 78th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
LABOR FREEDOM — 45.2%
The labor market operates under highly restrictive employment regulations that hinder overall productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee can be costly. Regulations related to increasing or contracting the number of work hours are rigid. Senegal’s labor freedom is one of the 20 lowest in the world.
MONETARY FREEDOM — 82.9%
Inflation in Senegal is low, averaging 1.3 percent between 2003 and 2005. Relatively stable prices explain most of the monetary freedom score. Although many prices are freely determined, the government influences prices across the economy through state-owned enterprises and utilities, and the prices of pharmaceuticals and medical services are controlled. Consequently, an additional 10 percent is deducted from Senegal’s monetary freedom score to account for these policies.
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2007 Index of Economic Freedom