Senegal’s new government mulls change in economic direction after Faye victory

Anti-establishment candidate Bassirou Diomaye Faye of the PASTEF party is set to become the president of Senegal following a turbulent election period. Faye’s clear victory, having secured an estimated 57% of the votes in the first round of voting, could send the West African country in a new economic direction

The election, which was initially postponed and involved the detention of opposition figures including Faye, caused concerns in some quarters and volatility on Senegal’s Eurobond markets. The country has traditionally been seen as a beacon of political stability within a region characterised by military coups. Outgoing President Macky Sall, who has served since 2012, was, at least until the recent electoral instability, mostly seen as a business-friendly president, leading to strong levels of foreign investment into Senegal.

In a lively election campaign, Faye offered a different economic vision. He has pledged to renegotiate Senegal’s oil and gas contracts with international firms and promote national companies to give the country greater control of its natural resources and avoid what his campaign has called “economic enslavement”.

Global credit ratings agency S&P Global says that “policy shifts are to be expected.”

“We believe the incoming government will revisit the Plan Sénégal Emergent (PSE), the outgoing administration’s development plan; parts of the PSE could be modified or cancelled. The new administration’s relations with the multinationals could prove challenging, given Mr. Faye’s campaign promises – including a complete renegotiation of hydrocarbon contracts,” the firm said.  

Faye initially promised to introduce a new currency for Senegal, which currently uses the CFA franc, although he has now clarified he will merely seek “reform” within the Ecowas bloc. Critics have long seen the CFA franc as a lingering tool of French economic control, given that the currency is fixed to the euro and is backed by the French Treasury. However, investors largely welcome the CFA franc as it has helped to maintain foreign exchange stability and keep interest rates relatively low.

Alex Vines, director of the Africa Programme at the Chatham House think-tank in London, says that “Faye is a lot more pragmatic in private and knows that he needs to improve the economy and attract further investment.”

“He is committed to currency reform but will not make hasty decisions. In September 2023, Ecowas reiterated its commitment to launch the common Eco currency by 2027. He is likely to fall behind an Ecowas timetable.”

S&P has similarly said that “major changes in the currency system and the monetary union, which we view as a source of economic and financial stability for its members, are unlikely at this stage given the level of institutional integration with West African Economic and Monetary Union (WAEMU) institutions, benefits from memberships, and potential consequences given Senegal’s relatively high commercial foreign currency debt.”

However, they have expressed concerns that “the new government has yet to communicate many of its key fiscal and economic policy proposals, which could affect Senegal’s creditworthiness.”

S&P has also suggested that Senegal could be in store for political volatility given that Faye put anti-corruption at the heart of his campaign. They have said that “political tension could persist if the incoming government launches targeted anti-corruption investigations. Sustained political tension could lower or delay international investment and weigh on Senegal’s growth.”

But Makhtar Gueye, an investment professional in Dakar, says the initial market reaction to his victory has been positive.

“I believe this was a huge stress test for Senegal, but the institutions have stayed strong, and that is the most important thing for investors to see. Faye offers positive change and will stop the misappropriation of government funds, for example. The economic future is bright.”

Vines notes that “Faye’s victory and the role of the Senegalese Constitutional Court to rule that elections needed to be held by April are an important endorsement of the independence of the country’s institutions and the vibrancy of its civil society. Under Faye, democratic space is expected to broaden again – unlike the last years under Macky Sall.”