KMPG Ivory Coast 2013Q1

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KMPG Ivory Coast 2013Q1

KMPG Ivory Coast 2013Q1

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  • 1. 2013 Quarter 1 Inflation - After accelerating in 2011, consumer price inflation returned to a more familiar low level in 2012. Inflation is expected to remain low and stable over the medium-term. Apart from its membership in the West African Economic and Monetary Union (WAEMU), this will be underpinned by government policies to support agricultural production, as well as efforts to repair roads servicing agricultural regions in order to ensure a more stable supply of food. Growth - Following more than a decade of economic stagnation, Ivory Coast recorded real GDP growth of approximately 9.8% in 2012, significantly faster than expected. A robust recovery in public and private investment was the main reason for the strong growth figure last year. In fact, the International Monetary Fund (IMF) estimates that real investment increased by 63.2% in 2012. National development plan - The National Development Plan (2012-15) aims to reduce poverty significantly and to transform Ivory Coast into an emerging economy by 2020. Through this plan, the government is targeting growth of 9%, 10% and 10.1% in 2013-15, respectively, with the help of both private and public investments. The government plans to increase public investment from 3% of GDP in recent years to 9.7% of GDP by 2015. OPPORTUNITIES STRENGTHS Agricultural sector has significant growth prospects, particularly the cocoa & palm oil industries. Membership in WAEMU protects the country from certain external shocks and provides monetary stability; the CFA franc is fully convertible with the euro. Rubber production is showing strong growth. Relatively low and stable consumer price inflation. The government is trying to attract oil companies to invest in upstream Ivory Coast’s port infrastructure is amongst the best in Africa, making it activities by improving the business environment and transparency. a leader in the West African region. The government, with the help of multilateral organisations, will support the electricity sector by increasing thermal and hydroelectric production Relatively high stock of foreign exchange reserves. capacity. VULNERABILITIES WHAT IS BEING DONE? Public enterprises are inefficient. Out of 185 countries globally, Ivory Coast has the ninth most challenging business environment, according to the World Bank's Doing Business in 2013 index. Electricity prices are much too low relative to the cost of generating it, which weighs on the fiscal budget. Access to financing: the cost of financial services is high and the availability of financial intermediation is lacking. The government aims to restructure public enterprises, thereby reducing the government's portfolio by 25% via privatisations, mergers, and/or the transfer of responsibilities. There have been various reforms over the past few years, particularly with regard to starting a business and paying taxes. A new investment code has been adopted and there is a one-stop shop for investment. Working with the IMF and World Bank, the government aims to address the pricing structure, and to implement technical and institutional reforms to reduce the electricity sector's burden on the budget. The government aims to restructure inefficient public banks (via mergers, liquidation, or privatisation) to minimise its role in the sector. This should improve efficiency in the medium- to long-term. MEGA TRENDS Population 22,400,835 (July 2013 est.); Age 15-64: 57.9% Population growth rate (%) 2.044% (2012 est.) Life expectancy at birth Total population: 57.25 years; male: 56.21 years; female: 58.33 years (2012 est.) HIV/AIDS Adult prevalence rate: 3.0%; People living with HIV/AIDS: 360,000 (2011 est.) Adult literacy rate (age 15 and over can 56.2% (2010 est.) read and write) Urbanisation Urban population: 51% of total population (2010); rate of urbanisation: 3.7% (2010-15 est.) Population below poverty line 42% (2006 est.) Unemployment rate 15.7% (2008 est.) Employment (% of total) N/a Labour participation rate (% of total population ages 15+) 67.5% (2010) Business languages French, 60 Native Dialects of which Dioula is the most widely spoken 1
  • 2. Telephone & Internet users Main lines in use: 268,200; Mobile cellular: 17.344 million; Internet users: 967,300 (2010) Sources: CIA World Factbook, World Bank Total Ivory Coast 176 130 Corruption Perception Index 2012 (1 least, 176 most corrupt) 144 131 World Competitiveness 2012-13 (1 most, 144 least competitive) 177 126 Economic Freedom 2013 (1 most, 177 least free) 187 168 HDI Ranking 2012 (1 most, 187 least developed) 0 Source: NKC Research 185 177 Doing Business 2013 (1 best, 185 worst) 20 40 60 80 100 120 140 160 180 200 Risk environment / Risk outlook Sovereign Risk Ratings S&P Fitch Moody’s N/R N/R N/R Ivory Coast is not currently rated by any of the three major rating agencies. Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk B BB B B CC B Key Balances Foreign Investment Socioeconomic Development Forex Reserves Twin deficits Rebounding since 2012 Low Fairly high August 2012 (AAA= least risky, D= most risky) Infrastructure Diversity of the Economy Banking Sector Fairly poor Agriculture is dominant Stable Continuity of Economic GDP Growth Policy New beginnings Historically poor, but prospects are good Stock Market Listed Companies Liquidity Market Cap Dominant Sector Daily Trading Volume Regional Stock Exchange - BRVM 37, of which 31 are Ivorian Limited $9.2bn Communications: Sonatel accounts for 37% of total market capitalisation. $1.6m Capital Market Development Liquidity Maturity Range Municipal Bonds Corporate Bonds Yes Underdeveloped Relatively limited 7 days to 10 years No Limited Macro-economic overview At the start of the previous decade, Ivory Coast was among the richest and most developed economies in Africa. However, political turmoil hampered economic development throughout the 2000s and in particular in 2011, when the economy contracted by 4.7%. Apart from slow economic growth, the country's external debt also rose to unsustainable levels. In 2011, external debt was equivalent to 73.5% of GDP, of which the equivalent of 2.3% of GDP was in arrears. In June 2012, the IMF and World Bank approved $3.1bn worth of debt relief for the Ivory Coast under the Heavily Indebted Poor Countries Initiative (HIPC) as well as a further $1.3bn of debt relief under the Multilateral Debt Relief Initiative (MDRI). The Paris Club group of bilateral creditors approved a further $3.3bn worth of debt relief. As a result, debt servicing costs will put significantly less strain on Ivory Coast's public finances over the next few years. The IMF was pleased with budget execution in 2012. Ivory Coast achieved the full regularisation of its external debt for the first time in around 30 years, following the attainment of the HIPC Initiative Completion Point and agreements with its commercial creditors. All of the performance criteria, and four out of five indicative targets, for endDecember 2012 under the Extended Credit Facility (ECF) arrangement were met by the West African sovereign. 2
  • 3. Economic Structure as % of GDP 2012 Estimate Source: NKC Research Agriculture/ GDP 28.8% Service/GDP 49.4% Industry/GDP 21.8% Ivory Coast has an agricultural-based economy, with roughly two-thirds of the population dependent on this sector for employment. According to the Global Information and Early Warning System on Food and Agriculture, civil unrest in recent years resulted in a shortage of labour due to population displacements, a lack of agricultural support services in certain parts of the country, and the fragmentation of markets. Agriculture accounts for about 29% of GDP in the West African country. Ivory Coast is the world's top cocoa producer and is also Africa's leading grower of natural rubber. In addition to agriculture, the Ivory Coast government is planning significant expansion in the energy and mining sectors. Australia's Perseus Mining expects to start building the $160m Sissingue gold mine in Ivory Coast in the middle of this year despite the recent slide in gold prices to a two-year low. Real GDP Growth & Net FDI/GDP 10.0 3.5 Source: NKC Research 7.5 3.0 5.0 2.5 2.5 2.0 0.0 1.5 -2.5 1.0 -5.0 0.5 2007 2008 2009 2010 2011 2012E 2013F 2014F GDP Growth (y-o-y, %) (lhs) Net FDI/GDP (rhs) Foreign interest in Ivory Coast has recovered since the stabilisation of the political environment, albeit that political risk remains relatively high. An improvement in economic policy and in the political environment, greater macroeconomic stability, and an increase in public investments (especially those aimed at improving infrastructure) will encourage private sector investment over the medium-term. The outlook for economic growth is favourable, led in particular by a sharp increase in investment in the economy. In 2012 the economy expanded faster than expected with GDP growth coming in at 9.8%. This year we expect the economy to grow at a slightly lower rate of 8%. There were concerns that Ivorian cocoa production in the 2012/13 season, which stretches from October to September, would fall sharply due to dry weather conditions early in the season. The decline in output has so far not materialised. In fact, early indications are that the 2012/13 season may be a bumper harvest. The median forecast for the West African cocoa producer's April-September 2013 mid-crop is 400,000 tonnes, above the average production over the past five years, but below 2010/11's record output of 472,000 tonnes. However, the 2010/11 record came amidst civil unrest which disrupted the cocoa industry and stalled exports, making comparison difficult. According to local traders, the quality of cocoa beans has improved in Ivory Coast in recent years, which has supported export prices. Main Imports: % share of total Imports ($ bn) Exports ($ bn) Oil 27.64 26.38 23.84 25.20 25.66 22.75 7.95 7.53 6.72 Seafood 2014F 2014F Machinery 2013F 2012E 2013F Cereals 2012E 2.67 2.26 2.02 Oil Cereals Machinery Seafood Main Exports: % share of total 2012E 2013F 2014F Cocoa 39.18 37.78 36.28 Oil 8.54 8.17 8.50 Rubber Cocoa 6.95 7.08 7.30 Cashew nuts 4.06 4.15 4.30 Oil Rubber Cashew nuts 0.0 1.0 2.0 3.0 4.0 Ivory Coast’s exports consist primarily of agricultural products and petroleum. Earnings from the country's two main exports – cocoa and oil – decreased significantly in 2012. Cocoa export earnings mainly declined because of a drop in international prices, while oil exports declined due to a fall in domestic output levels. There was a substantial increase in the volume (and value) of imports in 2012 as economic activity and domestic demand recovered after the political turmoil of the previous year. Investment-related imports also increased notably in 2012. These developments led to the current account balance reverting from a surplus to a deficit in 2012. The current account deficit is set to widen slightly 3
  • 4. further in 2013 despite an increase in cocoa and oil export earnings. This in turn is due to an increase in both goods and services imports as domestic demand continues to rise. Current Account & Budget Balance (% of GDP) 15.0 0.0 10.0 -2.0 5.0 -4.0 0.0 -6.0 Source: NKC Research -5.0 -8.0 2007 2008 2009 2010 2011 2012E 2013F 2014F Current Account/GDP (lhs) Budget Balance/GDP (rhs) From a budget deficit of nearly 5.7% of GDP in 2011, the deficit narrowed to 3.4% of GDP last year due to a solid recovery in tax and customs revenues. Revitalised economic growth and close cooperation with the IMF should see the budget deficit narrow to around 2.8% of GDP over the next two years. As for the current account, civil unrest in 2011 caused imports to decline by more than 20% in 2011, resulting in a current account surplus of nearly 13% of GDP. The surge in imports as the economy rebounds is expected to cause a current account deficit of 2.7% of GDP this year, up from 1.8% of GDP last year. Average CPI (% change, y-o-y) 7.0 Source: NKC Research 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2007 2008 2009 2010 2011 2012E 2013F 2014F Ivory Coast's membership in the franc zone monetary union ensures that inflation is usually low and stable. Monetary policy decisions are made by the regional central bank, the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO). At its latest monetary policy meeting, the BCEAO cut the key interest rate by 25 bps to 2.75%. This was the first rate change since June last year when the regional bank reduced the rate by the same margin. Inflation in the union has been moderate of late and the bank decided to take advantage of this, using the interest rate cut to try to stimulate growth in the eight-nation bloc. The bank also cut the marginal lending rate from 4% to 3.75%. Inflation in the WAEMU averaged 2.4% in 2012 and the bank expects the rate to average 2.5% this year. Moderate inflation has afforded the regional central bank the opportunity to take this more accommodative stance and try to stimulate much needed economic growth in the region. However, the factors that inhibit growth in the region are structural in nature, and cannot be solved by monetary policy. In March y-o-y consumer price inflation in Ivory Coast remained unchanged at 3.6% versus the previous month. We expect CPI inflation to average 3.1% this year before decelerating to 2.5% in 2014. CONTACT DETAILS KPMG NKC NKC Independent Economists CC Auditeurs Associés en Afrique – KPMG CI Immeuble Woodin Center Plateau, Avenue Noguès 01 BP 3172 Abidjan 01 Téléphone : Fax : Email : (225) 20 22 57 53 (225) 20 21 42 97 contact@kpmg.ci 12 Cecilia Street Paarl, 7646, South Africa P O Box 3020, Paarl, 7620 Tel: +27(0)21 863-6200 Fax: +27(0)21 863-2728 Email: research@nkc.co.za GPS coordinates S33°45.379' E018°58.015' The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions. © 2013 Auditeurs Associés en Afrique – KPMG CI, an Ivorian limited liability entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Confidential The information contained herein [or insert the name of the publication, newsletter, or other mailing] is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Auditeurs Associés en Afrique – KPMG CI is an Ivorian limited liability entity that provides audit and accounting services. Share capital: 350,000,000 CFA francs. Registered CI-ABJ-05-R-3968. Head office: Immeuble Woodin Center, avenue Noguès, 01 BP 3172 Abidjan 01. Auditeurs Associés en Afrique – KPMG CI is a member firm of KPMG International Cooperative (KPMG International”), a Swiss entity that serves as a coordinating entity for a network of independent member firms. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. 4