In line with Côte d’Ivoire’s strong economic performance, acceptable financial indicators and encouraging policy tendency, the medium- to long-term political risk classification was upgraded to category 5/7.

Côte d’Ivoire’s thriving economy collapsed during the decade-long civil war. Ever since the return to political stability in 2012, the country reached an impressive average economic growth of 9%, turning it into one of Africa’s fastest-growing economies. In 2017 and early 2018, Côte d’Ivoire was shaken by a series of army mutinies and a spate of protests and strikes. At the same time international cocoa prices sharply dropped, affecting the country’s main export crop. Despite these important setbacks, the country has shown noteworthy resilience and solid growth performance. Over the coming five years, economic growth is projected around 7%, driven by the revival of household consumption, improving agricultural production and large public investments. The West African country is a leading member of the WAEMU (West African Economic and Monetary Union) part of the CFA-franc monetary union with a currency pegged to the euro, pooled foreign exchange reserves and guaranteed convertibility by the French treasury.

Cocoa continues to be its foremost crop and export product (45% of total export revenues), supplemented by hydrocarbons (14% of total exports), rice, cotton, coffee and palm oil. Extreme weather conditions and volatile international price movements pose important risks to the cocoa output. To enhance the sector’s resilience against shocks as witnessed in 2016/17, it needs more upgrades in regulation, management and technical investments. The current account deficit is likely to remain limited around 3% and 4% of GDP over the coming years while it should attract sufficient funds to finance deficits and rebuild foreign exchange buffers at the regional central bank (BCEAO). The fiscal deficit is expected to come down in 2018 and reach the WAEMU limit of 3% of GDP again as of 2019. However, public revenue collection has been stagnating over the past decade around a limited 18-19% of GDP and is projected to stay low. In order to accommodate higher spending needs, the government should address its limited revenue mobilisation capacity through reforming tax policies, revenue administration and expenditure prioritisation. Prospects for fiscal alignment and structural reforms are generally positive in line with the satisfactory implementation of its 2016-2019 supportive IMF programme.

Côte d’Ivoire’s financial sources have become more diverse but also more costly, including foreign direct investments (nominally tripled since 2012), (official) project loans and rapidly growing portfolio investment inflows. Indeed, Côte d’Ivoire issued four Eurobonds over the past five years in an environment of revamped investor confidence and favourable international capital-market conditions. The proportion of commercial debt-creating flows has therefore increased rapidly, amplifying the external debt servicing burden. The public debt stock ratio is expected to reach a maintainable 48.7% of GDP in 2018 and would even moderate to 47% by 2020. Be that as it may, the build-up of less concessional external government borrowing should be combined with effective public debt management to keep rollover risks in check and maintain a sustainable debt position. Especially since the stronger US dollar and shifting investors’ appetite could quickly depress Côte d’Ivoire’s future financing options and conditions.

Other risks to Côte d’Ivoire’s outlook relate to political stability and security issues. Firstly, Islamist terrorist attacks became a more important security threat since the March 2016 shootings at Grand Bassam beach resort. Secondly, Côte d’Ivoire’s historical divisions based on ethnicity, land and religion have not sufficiently healed and the slow generation of inclusive economic development could spark renewed social unrest. Furthermore, political tensions are likely to increase ahead of the 2020 presidential elections, although full-scale destabilisation is not deemed very likely.

Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com