Fin 480

Department of Finance, School of Business

Independent University Bangladesh

Report Submitted to: Ms. Zaima Ahmed

Department of Finance

Submitted by:

Ananna Islam ID: 1720112

Faiza Farhin Anika ID: 1720122
Wahiduz Zaman ID: 1530827
Shaker Umam ID: 1521884

Date of Submission: 28th November 2019

 LETTER OF TRANSMITTAL

28th November 2019

Ms. Zaima Ahmed

Department of Finance

Independent University Bangladesh

Dear Ma’am,

Here is the report that we assigned on the topic as per your concern. The report has been
completed by the knowledge that we have gathered from the course.

We are thankful to you for providing us the proper guidelines and valuable advices. We would
be happy if you read the report from your valuable time.

We have tried our best to complete this report meaningfully and correctly. We do believe that
our tiresome effort will help you to get ahead with this sort of venture. In this case it will be
meaningful to us. However, if you need any assistance in interpreting this report please let us
know.

Finally, we would love to express our gratitude for your support. Thank you.

Sincerely,

Ananna Islam

Faiza Farhin Anika

Wahiduz Zaman

Shaker Umam

2|Page
 ACKNOWLEDGMENT

The completion of this undertaking could not have been possible without the participation and
assistance of our classmates and seniors whose names may not all be enumerated. Their
contributions are sincerely appreciated and gratefully acknowledged. However, we would like to
express their deep appreciation and indebtedness particularly to the following:

Ms. Zaima Ahmed ma’am for her support and kind understanding spirit through the work. Above
all, we are grateful to the Great Almighty, the author of knowledge and wisdom, for his countless
love.

3|Page
 Table Of Content

Explanation Page

Executive Summary 05

Economic Overview 06

Exchange Rate 07

Exchange Rate Risk 08

Foreign Investment 09

FDI Regulations 09

Findings & Analysis 11

Conclusion & Recommendation 11

Reference 12

4|Page
 Executive Summary
Senegal is the 114th largest export economy in the world and the 79th most complex economy
according to the Economic Complexity Index (ECI). In 2017, Senegal exported $3.59B and
imported $7.89B, resulting in a negative trade balance of $4.3B. In 2017 the GDP of Senegal
was $21.1B and its GDP per capita was $3.45k.

The top exports of Senegal are Refined Petroleum ($472M), Phosphoric Acid ($368M), Gold
($365M), Non-fillet Frozen Fish ($290M) and Cement ($214M), using the 1992 revision of the
HS (Harmonized System) classification. Its top imports are Refined Petroleum ($888M), Crude
Petroleum ($475M), Rice ($442M), Packaged Medicaments ($205M) and Cars ($198M).

The top export destinations of Senegal are Mali ($780M), India ($414M), Switzerland ($295M),
China ($158M) and Spain ($154M). The top import origins are China ($974M), France ($961M),
India ($604M), Nigeria ($491M) and the Netherlands ($431M).

Senegal borders Guinea, the Gambia, Guinea-Bissau, Mali and Mauritania by land and Cape
Verde by sea.

Economic Overview
Senegal’s economy is driven by mining,
construction, tourism, fisheries and agriculture,
which are the primary sources of employment in
rural areas. The country's key export industries
include phosphate mining, fertilizer production,
agricultural products and commercial fishing and

5|Page
Senegal is also working on oil exploration projects. It relies heavily on donor assistance,
remittances and foreign direct investment.

Senegal receives technical support from the IMF under a Policy Support Instrument (PSI) to
assist with implementation of the ESP. The PSI implementation continues to be satisfactory as
concluded by the IMF’s fifth review in December 2017. Financial markets have signaled
confidence in Senegal through successful Eurobond issuances in 2014, 2017, and 2018.

The government is focusing on 19 projects under the ESP to continue the government’s goal
under the ESP is structural transformation of the economy. Key projects include the Thiès-Touba
Highway, the new international airport opened in December 2017, and upgrades to energy
infrastructure. The cost of electricity is a chief constraint for Senegal’s development. Electricity
prices in Senegal are among the highest in the world. Power Africa, a US presidential initiative
led by USAID, supports Senegal’s plans to improve reliability and increase generating capacity.

Main Indicators 2016 2017 2018 (e) 2019 (e) 2020 (e)
GDP (billions 18.98 21.11e 24.24 26.00 28.68
USD)
GDP (Constant 6.2 7.2e 7.0 6.7 6.8
Prices, Annual
% Change)
GDP per 1,232e 1,331e 1,485 1,549 1,659
Capita (USD)
General 47.8 48.3 50.4 47.5 46.5
Government
Gross Debt (in
% of GDP)
Inflation 0.8 1.3 0.4 0.9 1.5
Rate (%)
Current -0.77 -1.55 -1.86 -1.85 -1.93
Account (billion
s USD)
Current -4.0 -7.3 -7.7 -7.1 -6.7
Account (in %
of GDP)

6|Page
Exchange rate

The exchange rate of Senegal’s CFA varies country to country. Top 10 exchange rate of CFA is
as follows –

FOREIGN CURRENCIES XOF EXCHANGE RATE

Australian Dollars AUD 403.4444
Pounds GBP 768.602
Canadian Dollars CAD 447.4105
Euros EUR 655.9549
Rupees INR 8.3092
New Zealand Dollars NZD 381.3456
South African Rands ZAR 40.3214
Swiss Francs CHF 597.5619
Lira TRY 103.7269
Dollars USD 595.7462

7|Page
Exchange rate risk

Exchange rate issues are often sensationalized, so a number of aspects such as trade
relationships, labor mobility and fiscal and debt convergence need to be examined. Nonetheless,
there are grounds for cautious optimism about the stability of the currency.

1) Labor Mobility Does Not Stay Within CFA Region

2) Shortages May Drive Too Much Money Printing

3) Low Trade Between CFA Franc Members

4) Excessive Debt and Fiscal Imbalances Pose a Risk

5) Parity Is an Issue in CEMAC, but Not in WAEMU

6) Dollar Shortages May Drive Too Much Money Printing

From 2009 to 2012, investment in the mining sector increased by 700 billion CFA francs, signed
a total of 75 mining contracts, involving gold, phosphate, uranium, attapulgite, zircon and so on.
Inland gas reserves of about 10 billion cubic meters, coastal oil reserves estimated at more than 1
billion barrels, has not yet achieved commercial development.

In the 19th century, France – like other European countries – acquired colonies in Africa that
then adopted its language, currency and many features of its culture. France retained its African
colonies well into the 20th century; not until the 1960s did they start to achieve independence. At
the time of World War II, therefore, France’s African colonies were using the French franc.

CEMAC and WAEMU each have their own version of the CFA franc, together with a central
bank to issue it. Currently, the two versions of the currency are not interchangeable, though the
two central banks say they are working toward complete integration of payments systems so that
the two versions of the CFA franc can circulate freely in all countries, effectively creating one
single currency.

Both versions of the CFA franc are hard-pegged to the euro. When the CFA franc was first
created, it was pegged to the French franc at 50 CFA francs to 1 French franc. It was devalued in
1994 and then remained at 100 to 1 until France adopted the euro in 1999.3 At that point, the
French franc was converted to the euro at 6.55957 to 1. The CFA franc’s currency exchange rate
thus became 655.957 to 1 euro, where it remains pegged to this day.

8|Page
 Foreign Investments
Senegal is actively involved in several international investment-related organizations, and is a
member of the African Intellectual Property Organization (OAPI), the International Centre for
the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee
Agency (MIGA). In addition, Senegal created an investment arbitration center in 1998, which is
administered by the Dakar Chamber of Commerce. Senegal has bilateral investment treaties with
Australia, Denmark, Finland, France, Italy, Japan, Romania, South Korea, Spain, Switzerland,
the Netherlands and the US. Senegal has also concluded tax treaties with France, Mali and the
French-speaking African states of the “Organization Commune Africaine et Malgache” (Joint
Afro-Malagasy Organization). Senegal’s Investment Code includes guarantees for access to
foreign exchange and repatriation of capital and earnings, though transactions are subject to
procedural requirements of financial regulators. There are today no barriers to 100% ownership
of businesses by foreign investors except in sectors that government and state-owned enterprises
are active such as physical infrastructure including water, electricity distribution, and port
services.

According to the Word Bank, FDI inflows to Senegal more than doubled from US$168m in 2005
to US$345m in 2015. This is largely due to the country’s privatization programmed launched in
the 1990s.

Since 2014, FDI inflows have been linked to the Emerging Senegal Plan (ESP) for the
development of infrastructure, electricity, agriculture, drinking water and health. Senegal has a
stock of FDI estimated at US$2 426m in 2014, mainly of French origin (US$823m). Morocco
(US$95m), Indonesia (US$93m), and the US (US$66m) are also key investors in the country.

FDI Regulations
Senegal hosts a large stock of FDI compared to its region, mainly of French origin. The
government is leading an active policy to encourage FDI inflows. According to the UNCTAD,
FDI in Senegal rose from USD 587 million in 2017 to USD 629 million in 2018. The total stock
of FDI stood at USD 5.3 billion (22.1% of GDP) at the end of 2018, according to the UNCTAD
2019 World Investment Report. Overall, the share of imports from EU countries has been
declining, while those from Asian countries has been increasing. Furthermore, the Senegalese
economy remains highly dependent on European growth. Since 2014, FDI inflows have been
linked to the Emerging Senegal Plan for the development of infrastructure, electricity,
agriculture, drinking water and health. Some of the key investors in the country include France,
Morocco, Indonesia, and the United States.

What to consider if you invest in Senegal

Strong Points

9|Page
 The main assets of the country are:

 Strategic geographical location strengthened by good-quality international and regional

political relations, allowing privileged access to regional and international markets
 Membership in the West African Economic and Monetary Union (UEMOA) and the CFA
franc zone, guaranteeing monetary stability and access to capital with low interest rates
 Competitive production costs
 Low-cost and skilled workforce
 Significant offshore natural resources of oil and natural gas
 Relatively healthy and competitive economy
 Various pro-business reforms that have emerged in recent years such as the renovation of
the legal and fiscal framework
 Donor support under the Plan Senegal Emergent, easing the pressure of debt on the
economy and reassures the markets
Weak Points

The country has many obstacles to FDI. The main weaknesses of the country are:

 Vulnerability of the economy to climatic hazards and changes in the price of

commodities
 Low business productivity and low activity diversity
 Infrastructure is still largely underdeveloped, particularly in energy and transport.
 Slow and corrupt administration that does not establish quickly the structural reforms
expected by markets
 Despite some improvements, the business environment is still disrupted by a strong
government bias towards interventionism, partial and slow justice, and generally weak
regulations.
 Insecurity, especially on the border with Mali.
Senegal has highly positive net exports in the international trade of fish, inorganic chemicals and
gold. In turn, these cash flows indicate Senegal’s strong competitive advantages under the gems
and precious metals category.

Indirect investment in the inorganic chemical industry would prove to be a positive investment as
it is one of the top 10 exports of the country. The chemical sector is not a sector we are experts
on but that is Senegal’s advantage, which is why indirect investment in the chemical sector is
much more appropriate rather establishing a whole new subsidiary in this sector.

Findings & Analysis

10 | P a g e
From the overview of the country, exchange rate, risk and types of investment we can find all of
this, which is given below:

 Senegal is part of the West African Economic and Monetary Union (WAEMU) and
is therefore subject to existing supranational fiscal rules.

 Senegal’s fiscal policy should be anchored to a fiscal framework that will take into
account the new resource wealth. The new framework should allow for Senegal’s
development needs, as well as upfront savings for stabilization purposes. Given the
relatively limited level of oil and gas reserves and the relatively short reserve horizon,
Senegal should gauge well the trade-offs between current consumption and investment
against future considerations, accounting for the existing supranational fiscal framework.

 Good management of the resource wealth will be critical to achieve Senegal’s

development objectives, as oil and gas resources typically exacerbate governance
issues. It is critical that all flow of funds related to oil and gas wealth transit through the
budget. The budget modalities governing the management of the oil and gas revenues
should be the existing ones, in order to ensure coherence and transparency. Concerning
the management of resources by sovereign wealth funds, it will be important that these
funds are created and managed in accordance with best international practices, and it is
recommended to limit the numbers of funds and objectives to limit governance issues.
Conclusion & Recommendation
The natural resource landscape in Senegal has changed substantially following significant oil and
gas discoveries between 2014 and 2018. Before these discoveries, the natural resource sector was
dominated by gold and phosphates. The new oil and gas reserves worth about 1 billion barrels of
oil and 40 Trillion cubic feet of gas (most of it shared with Mauritania) will profoundly change
the natural resource sector. Two projects, SNE (mainly oil) and GTA (gas) are expected to start
hydrocarbon production in 2022.

While acknowledging the large uncertainties surrounding timing and levels of production from
the combined production of SNE and GTA, with the following key results: pre-production
investment will increase growth at the margin due to the large investment needs, some of which
will filter through to the Senegalese economy despite the large import content. Hydrocarbon
production will have a level effect on GDP as production comes online but will not lead to a total
overhaul of the economy, with hydrocarbons representing about 5 percent of GDP between 2024
and 2040.Pre-production investment will lead to an increase in the current account deficit
through the large investment-related import increase. This will be followed however by a
reduction in the current account deficit as exports are boosted once hydrocarbon production
comes online in 2022.Oil and gas-related revenues will reach around 3 percent of GDP at peak
production in 2030 and would average about 1.5 percent of GDP per year over a 25-year period.

11 | P a g e
To avoid the resource curse, Senegal needs to carefully develop fiscal institutions further and
choose an appropriate fiscal framework. It should consider factors such as the duration of the
production period and the level of capital in the economy. In the case of Senegal, staff
recommends a fiscal framework which allows for an initial drawdown of government resources
to finance large up-front investment needs, followed by an appropriate target level of the NRPB
which serves as a medium-term fiscal anchor, as well as upfront savings for stabilization
purposes.

Reference
[ CITATION htt \l 1033 ]

https://www2.deloitte.com/content/dam/Deloitte/za/Documents/africa/za_ASG_Country
%20Reports_Senegal_Repro.pdf

[ CITATION Pub \l 1033 ]

https://unctad.org/en/PublicationsLibrary/wir2019_overview_en.pdf

[ CITATION Mar1 \l 1033 ]

https://www.lloydsbanktrade.com/en/market-potential/senegal/investment

[ CITATION Wor \l 1033 ]

http://www.worldstopexports.com/senegals-top-10-exports/

[ CITATION Sen \l 1033 ]

https://www.globalsecurity.org/military/world/africa/sn-economy.htm

[ CITATION Afr \l 1033 ]

https://www.brinknews.com/is-francophone-africas-currency-system-under-threat/

[ CITATION Exc \l 1033 ]

https://www.exchangerates.org.uk/countries/205/money-transfer-to-senegal.html

[ CITATION Wik5 \l 1033 ]

https://en.wikipedia.org/wiki/Senegal

[ CITATION Wor1 \l 1033 ]

https://www.worldbank.org/en/country/senegal/overview

[ CITATION Mar2 \l 1033 ]

12 | P a g e
https://www.lloydsbanktrade.com/en/market-potential/senegal/economical-context

13 | P a g e