For the second time this year, the government put an end to an army mutiny, which again gave in to soldiers’ outstanding bonus payment demands. The government has accumulated salary and bonus arrears to soldiers and civil servants as the country’s key cocoa sector – the first source of fiscal revenue – is faced with low prices. The industry is globally oversupplied, in particular, after good harvests in the world’s biggest producer, Côte d’Ivoire, and has to cope with slower demand growth from the middle classes in emerging markets. As a result, President Ouattara’s government announced cutting the budget by 9% in every ministry and to scale down investments in infrastructure. 

Impact on country risk

Public finances are increasingly under strain. The latest bonus payment to the army mutineers sends a signal of weakness in a difficult economic climate. Not only does it highlight the power of the army, but it will also foster similar demands and strikes from a large civil service and cocoa farmers, who are suffering, and frequently protest about wage arrears and poverty. It could result in rising social instability and lead to a deeper budget deficit. All in all, lower cocoa prices – with cocoa accounting for more than 45% of total exports – will somewhat affect the country’s strong growth outlook and could lead to extra defaults among local cocoa exporters. The risk of further social unrest could hit the business environment and investor attractiveness after the economic boom years since the end of the war in 2011. As for the mutinies, they again highlight the old unresolved conflict between army factions and increase political tensions concerning Mr Outtara’s succession by 2020. Given the deterioration of political risk over the past months, Credendo is not expected to consider an upgrade of Côte d’Ivoire’s medium- to long-term rating (at 5/7) this year.

Analyst: Raphaël Cecchi, r.cecchi@credendo.com