Senegal: On track for world-beating growth in 2023

The World Bank predicts that Senegal will grow by 8% in 2023, the most out of any sub-Saharan African country.

The growth is largely attributed to huge oil and gas finds  in the Atlantic Ocean, with one of the projects due to come online later this year, according to Aissatou Sophie Gladima, minister of petroleum and energies of Senegal. The eventual production of oil and gas – after its discovery in 2014 – will turbocharge Senegal’s economy for the next few years.

“After slowing to 4.8% in 2022, growth in Senegal is projected to jump to 8.0% in 2023 and then to 10.5% in 2024,” the World Bank states.

This puts Senegal at the top of sub-Saharan African growth rates for the next two years, as the region is predicted to grow by an average of 3.6% in 2023 and 3.9% in 2024. Other strong performers this year are Benin (6.2%), Republic of Congo (6.4%), Côte d’Ivoire (6.8%) and Niger (7.1%).

Senegal comes online

“We will start in 2023 with gas production,” said Gladima, while delivering the keynote address at the African Energy Week 2022 in Cape Town.

“There will also be exportation – some of it will be used for agriculture, pharmaceutical products, fertiliser and so on. This is part of the Emerging Senegal Plan. Apart from these gas and oil projects, we have quality energy, and stable energy at a reasonable price. That will allow us to create many industries and jobs so we can employ our youth.”

In 2014, more than 1bn barrels of oil and 120trn cubic feet of natural gas were discovered in the Atlantic Ocean.

The huge hydrocarbon finds led to a flurry of investment by oil and gas companies including British oil major BP and US operator Kosmos Energy, which pumped $4.8bn into the development of the Greater Tortue Ahmeyim (GTA) LNG project – boasting 15trn cubic feet of recoverable gas reserves – set to come online in 2024. 

Australian petroleum company Woodside Energy is also developing the Sangomar Field, 100km south of the capital city of Dakar, which has the capacity to produce 100,000 barrels of oil a day and is set to come online later this year.

“What is really boosting the economy to nearly double-digit rates is the development of the two oil and gas projects,” says Mark Bohlund, senior credit analyst at Redd Intelligence.

“There will be big growth in 2023 and 2024 and then it should drop off to around 5%. Before Covid-19, Senegal was one of the strongest growing economies in sub-Saharan Africa, at around 6% between 2014 and 2019.

A thriving banking sector

Alongside oil and gas, Senegal’s dynamic banking sector has long been an important driver of growth. Senegal has the second-largest banking sector in the West African Economic and Monetary Union (WAEMU) after Côte d’Ivoire. Telecommunications and financial services accounted for 70% of the growth between 2000 and 2016, in which time Senegal managed to double its GDP in real terms.

In 2021, the services sector – which includes financial services, government services, real estate, telecommunications – contributed 49.6% to GDP compared to industry (24.67%) and agriculture (15.32%). 

The banking sector dominates the Senegalese financial system, with 28 banks and financial institutions and a total of 1.6m bank accounts. The banks have a mix of French, Moroccan and African ownership, with a combined estimated annual turnover of more than €4bn.

Although the banking sector is becoming increasingly diverse, two-thirds of assets and almost 80% of deposits go through the largest banks in the country: Paris-based Société Générale, Attijariwafa, Ecobank and Oragroup.

Orabank was named as Senegal’s Bank of the Year in 2022, in recognition of its strong finances and innovative deposit collection and cash management solutions. Its success is an example of the thriving nature of Senegal’s banking industry.

The bank collected $23.6m-worth of cash in the 18 months to June 2022 via its WeCollect service, which enables corporate customers to collect receipts via direct payments from customers from the counters of other Orabank subsidiaries across the WAEMU region. 

In 2021, the bank also entered a partnership with Orange Finances Mobiles Senegal and payment firms Thunes and Taptap Send to enable international money transfers to Orange mobile wallets. 

Orabank recorded strong growth during 2021, with assets growing by 33.8%. Tier 1 capital and net profits more than doubled, with return on equity increasing from 25.9% to 30.5%. The cost-to-income ratio improved from 51.8% to 48.6%, while non-performing loans improved from 3.6% to 3.2%. 

Macroeconomic headwinds

Away from the banking sector, Senegal faces a series of macroeconomic headwinds which could throw its projected economic growth off course. Bohlund says that a widening fiscal deficit and increasing debt are two major concerns. 

“In the latest International Monetary Fund (IMF) announcement, they were quite outspoken about the need to rein in the fiscal deficit from 6.2% but I think it is actually more like 6.5% or 7%,” he says.

“The IMF is putting pressure on them to go back to 5%. The government is counting on first oil revenue to help reduce the fiscal deficit to 3% by 2025, which is the upper limit for countries in the WAEMU. Senegal is the country that looks the most fiscally challenged in the medium term.”

The World Bank recommends that Senegal should “raise more fiscal revenues building on the strong revenue performance in 2022 and limiting the use of the budgetary reserve envelope, which would allow authorities to contain the fiscal deficit at around 5% of GDP”. 

It also recommends reining in “regressive energy subsidies” which are expected to reach 4% of GDP in the absence of any policy measures.

Another concern is public debt, which was expected to reach 75% of GDP in 2022. President Macky Sall has more than doubled government debt, rolling out large infrastructure projects since he assumed office in 2012.

“Senegal is relatively stable, peaceful and open to global markets, which compares favourably to neighbours rocked by military coups, rising insecurity and economic crisis,” says Mucahid Durmaz, Senior Analyst with a focus on West Africa at Verisk Maplecroft.