95632 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Ivorian Economic performance since the End of the Post-Election Crisis March 2015 cote d’Ivoire Economic Update - March 2015 -2- IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs table of contents 6 Foreword 7 Acknowledgements 8 Executive Summary 10 I. Recent Political-Economy Developments and Outlook 10 1. recent political developments 12 2. recent Economic developments 13 2.1 Economic Growth 16 2.2 fiscal developments 17 2.3 Balance of payments 18 2.4 Money and prices 20 3. structural reforms 20 3.1 Business environment 20 3.2 sectoral reform 21 3.3 financial Markets and public financial Management 22 4. Economic outlook 24 II. Explaining CIV’s Strong Economic Performance since 2012 24 5. factors underlying cIv’s robust economic recovery 25 5.1 Economic recovery in post-conflict environments 28 5.2 cIv sectors and policies that have made a difference in periods of recovery 31 5.3 Key elements underlying the current growth recovery: are they sustainable? 35 5.4 some conclusions and policy implications 37 III. Potential effects of changes in oil and non-oil commodity prices, and depreciation of the euro on the CIV economy 37 6. recent developments in commodity and currency markets: a moderate overall boost for cIv growth. 41 References -3- cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs tables 12 Table 1 : cote d'Ivoire: Economic Indicators, 2012-2015 14 Table 2 : cIv’s Main agricultural products first-half 2014 (in tonnes) 26 Table 3 : Impact of war on Gdr composition in cote d’Ivoire over the period 2000-13 27 Table 4 : decomposition of Gdp growth in côte d’Ivoire (contribution to annual growth rate, in percentage) 30 Table 5 : Growth of real value-added in cIv services sectors over 2000-13 39 Table 6 : Model simulation: 10% depreciation of euro vs dolla figures 13 Figure 1 : sectoral contributions to cIv Gdp Growth, 2010-13 15 Figure 2 : Growth by real expenditure categories, 2010-13 16 Figure 3 : Breakout of fiscal variables in percent of Gdp, 2011-13 17 Figure 4 : cIv’s Goods- and services/Income balances (%Gdp) and terms of trade (ch%) 18 Figure 5 : Geographical distribution of cIv's Goods Exports: 2013 18 Figure 6 : Geographical distribution of cIv's Goods Imports: 2013 19 Figure 7 : consumer price Index (ch% annual average; 2014: June y/y) 25 Figure 8 : Growth of real Gdp per-capita in cIv, 2000-2013 28 Figure 9 : sectoral contributions to cIv real Gdp growth over intervals, 2000-13 32 Figure 10 : Exports of goods and services: real values over intervals, 2008-2013 33 Figure 11 : volume of goods exports of cIv: different intervals, from 2008 to 2013. 34 Figure 12 : public infrastructure spending: real values over intervals, 2008-2013 35 Figure 13 : domestic private investment: real values over intervals, 2008-2013 38 Figure 14 : Us dollar per euro (left) and interest rate differential (right), 2011-2014 cote d’Ivoire Economic Update - March 2015 -4- IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs abbreviations and acronyms AFDCI Alliance des Forces Démocratiques de Cote d’Ivoire BOP Balance of Payments C2D Contrat de Désendettement et de Développement/ Debt for Development Swap (France) CFA Communauté Financière Africaine CIV Cote d’Ivoire DCPE Direction de la Conjoncture et de la Prévision Économique DGD Direction Générale des Douanes DGE Direction Générale de l’Économie DGI Direction Générale des Impôts ECB European Central Bank ECOWAS Economic Community of West African States EU European Union Euribor Euro- Interbank Offered (interest) Rate FPI Front Populaire Ivoirien GDP Gross Domestic Product IMF International Monetary Fund INS Institut National de Statistiques Libor U.S. dollar- London Interbank Offered (interest) Rate MTDS Medium Term Debt Strategy OPA Organisations Professionnelles Agricoles OPEC Organization of the Petroleum Exporting Countries PDCI Parti Démocratique de Cote d’Ivoire RDR Rassemblement des Républicains RHDP Rassemblement des Houphouëtistes pour la Démocratie et la Paix -5- cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs foreword F irst in a series, which aims to analyze the recent economic and financial situation in cote d’Ivoire, this report analyzes the main macroeconomic developments and structural policies of the country from 2013 until mid- 2014. It also reflects on the underlying factors of the strong economic recovery in côte d’Ivoire since the end of the post-election crisis, to assess the likelihood of sustained economic growth and significant poverty reduction in the country. finally, the report analyzes the effects of declining oil prices and the appreciation of the dollar against the euro and the cfa franc on the Ivorian economy. this edition does not examine the impact of strong economic growth on the Ivoirian population’s well-being indicators such as, poverty, employment and inequality. Within the scope of this report, the objective is to understand the factors contributing to the strong economic recovery in côte d’Ivoire. this Economic Update is targeted toward a larger audience, in order to stimulate constructive debate on public policy in the country and between the country and its development partners. cote d’Ivoire Economic Update - March 2015 -6- IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs acknowledgements T his report was prepared under the leadership of Mr. ousmane diagana (World Bank Group country director for Benin, Burkina faso, côte d'Ivoire, Guinea and togo). the authors of this report are abdoul Mijiyawa and Eliot Mick riordan. Important contributions have been made by Gerard Kambou, Yong- Il choi, Jean noel Gogoua and Joanna van asselt. the quality of the report was overseen by volker treichel. the team received valuable support from: taleb ould sid’ahmed, akoua Gertrude tah, Julie Kouame nyamien, Mariam Bamba, haoua diallo, Zainab Mambo-cisse, phanse Mariko, Marie chantal attobra, prosper Kouami armattoe, sie dah, Kouassi Kouakou, and filatie diarrassouba. the report was enriched by feedback from colleagues of the World Bank Group in abidjan, the Ministry of Economy and finance, and capEc (cellule d’analyse de politiques Économiques du cIrEs). the partnership with Ivorian institutions, particularly the Ministry of Economy and finance and the national Institute of statistics was important for writing the report. on february 16th, 2015, a workshop for the dissemination of the report was organized at hotel Ivoire in abidjan. Mr. ousmane diagana, Mrs niale Kaba, deputy Minister of Economy to the prime Minister, chiefs of staff, government officials, private sector representatives, political leaders, diplomats, the resident representative of the International Monetary fund, representatives of international, regional and sub-regional organizations, representatives of civil society, representatives of universities and research centers, and the media, participated in the workshop. comments and suggestions received during the workshop have helped to improve the quality and coverage of the report. -7- cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Executive Summary Cote d’Ivoire’s (CIV) 8.7 percent growth for 2013 euro against the dollar carry implications for was robust and broad-based, continuing the trade, incomes and GDP growth in CIV, though strong tenor of recovery since the politico- these are currently assessed to be only military crisis of 2010-11. recent indicators moderate. the net impact of oil market suggest that Gdp maintained momentum near 8 developments on cIv is likely to be small. for a percent during the first half of 2014. on the supply country near balance historically in net oil exports, side, all major sectors contributed positively to the falloff in world prices will tend to ‘wash out’. Gdp gains, with services remaining the quickest potential gains in domestic demand tied to easing advancing-and the largest contributor overall. and inflation are a positive for growth, but may be there was an especially sharp increase in the partially offset by a tightening of the fiscal stance contribution of agriculture to economic activity. due to lower oil-related revenues. declines in from the demand perspective, a notable pickup in cIv’s export commodity prices since mid-2014 public investment associated with large have been much less severe than the 50 percent infrastructure rehabilitation programs was an falloff in oil, implying a terms of trade gain and important driving force for growth, complemented improvement in the current account position. and by a strong response of private sector capital Gdp dynamics in cIv could benefit moderately (1.1 outlays. percent stronger average Gdp growth over 2014- 16) upon a depreciation of the euro (to which the Domestic investment—including public cfa franc is tied) against the dollar. spending on reconstruction of infrastructure as competitiveness would improve, boosting exports well as private investment--have played critical and placing some downward pressure on imports, roles in supporting recovery from episodes of with notable positive spillover effects to domestic crisis. the dominance of domestic factors spending (see section III). underpinning the current post-conflict recovery in cIv contrasts with the experience of many Inflation in CIV dropped well below the WAEMU countries in similar circumstances, where a more average by mid-2014, supported by a decline in robust resumption of export growth and return of food prices, while credit growth picked up— foreign investment tended to serve as driving reflecting in part increased private sector forces for economic rebound. Underlying strength spending. fiscal developments remained in private sector capital spending in the current favorable, with the primary balance moving into cIv recovery is of particular note, underscoring the slight surplus in the first half of 2014. and importance of improvement in confidence of reflecting improvement in economic fundamentals domestic private investors following the as well as progress in reforms, cIv tapped the stabilization of the political situation, the spill-over international market for a debut Eurobond of $750 effects of public investment, and the importance million in July 2014, over-subscribed by some six of business-friendly changes in regulations and times, and at a low yield of 5.63 percent. this institutions in the country (see section II). watershed event may set the stage for continuing access to global capital markets, helping to The recent plummet in international oil prices- finance the country’s ambitious public investment and to a lesser degree in the prices for CIV’s key program. commodity exports--and the rapid slide of the cote d’Ivoire Economic Update - March 2015 -8- IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs On the political scene, popular attention is sectors. Under these circumstances, Gdp is shifting from the security front-to the 2015 anticipated to average gains of 8 percent through election cycle, with some tension emerging early 2015. in the process. Establishment of a new Independent Electoral commission had fueled Though risks are better balanced than in earlier dispute, with disagreement on the structure of the economic recoveries, a turn to the softer side in commission (distribution of positions between global economic conditions (especially in Europe) government and opposition). although parties and much weaker prices for cIv’s exports, reached initial agreement on admitting the fpI unfavorable weather and potential continued (main opposition party), following the re-election spread of Ebola are some important contingencies of the Electoral commission incumbent chairman for the economy. as head of the body in september 2014, the fpI and its allies withdrew from the commission. the A special section which aims to identify the Government has restructured the Electoral factors propelling the current strong economic commission to address opposition’s protests, recovery in the country—contrasted with others which has contributed to the return of the associated with episodes of politico-military opposition parties to the commission. this is a conflict since 2000—comes to several positive development, helping to set the stage for conclusions, important among which are: a hoped-for smooth election process. • “peace dividends”, or catch-up growth effects, are not automatic, but examining turnaround in Growth projections assume continued contributions to growth across many sectors normalization of the socio-political situation, as during 2012-13 suggests that such dividend has well as sustained progress in reforms to occurred for cIv; improve the business environment and • contrary to the experience of most post-conflict governance. a stable macroeconomic countries, cIv growth recovery has been driven environment is anticipated to underpin growth, more by domestic than by external factors—with with low inflation- averaging 2.5 percent for the investment leading the way; medium term- due to easing costs of food and • it is likely that (international- economic and petrol, offering support for strong trends in domestic political- conditions remaining consumer spending. Investment is viewed as the conducive) growth recovery in cIv will continue for key force for expansion, with gains in public several years, albeit at a more attenuated pace— investment (for new and ongoing projects), and a as war vulnerable sectors recapture pre-conflict strengthening of private investment to support levels of Gdp, and recent policy changes bear fruit production in the manufacturing and construction in stimulating private investment and exports. -9- cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs I. Recent Political-Economy Developments and Outlook 1. recent political developments Cote d’Ivoire’s (CIV) post-election security and arms and ammunition imports, allowing the political situations continue to improve following country to equip the police for improved security a resumption of dialogue with opposition forces purposes. and progress on national reconciliation. a framework for dialogue between Government and Popular attention is shifting from the security opposition forces has been established, and front-to the 2015 election cycle, with tensions successive meetings have led to the release of emerging early in the process.2 the transfer of prisoners from the post-election crisis and an charles Blé Goudé, a youth leader close to the ex- unfreezing of bank accounts of supporters of the president, to the International criminal court in former president. recognizing progress made in the hague in early 2014, fueled dissension implementing the Kimberley process certification between the Government and the fpI main scheme (Kpcs) and better governance of the opposition party. Establishment of a new sector1, the U.n. security council agreed to Independent Electoral commission also fueled terminate sanctions imposed in 2005 on diamond tensions, with mounting disagreements on the imports from cIv. and to support continuing structure of the commission (distribution of progress toward restoration of social cohesion, the positions between government and opposition), security council also lifted its embargo on small which the opposition considered a violation of the 1 the Kimberley process was initiated in 2000 as a means to discuss and implement methods for halting the trade in ‘conflict diamonds’. the certification scheme imposes requirements on Kimberley members to certify diamond shipments, and prevent conflict diamonds from entering into legitimate trade. 2 Individuals’ security conditions are still showing certain fragilities, as most recently evidenced by strikes among several professional organizations, and the kidnappings and murders of children. the Government has taken necessary actions and is working on improving the situation. cote d’Ivoire Economic Update - March 2015 - 10 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs principal of independence- while harming its including the fpI), to discuss the possibility of adf- credibility. although parties reached initial cI representatives rejoining the commission; agreement on admitting the fpI, following re- thereafter, the opposition agreed to a return, election of the Electoral commission incumbent helping to ease uncertainty from its earlier levels. chairman as head of the 17-member body in september, the fpI and its allies withdrew from Recently, former President Henri Konan Bedié the commission. called for support for the single candidacy of the head of state, alassane ouattara on behalf of the The Government proposed a restructuring of the rassemblement des houphouëtistes pour la Electoral Commission’s Central Office to address démocratie et la paix (rhdp) for the 2015 protests by several opposition parties. following presidential election.3 Bédié’s call in favor of the restructuring in october 2014, a position of fourth incumbent president could contribute to a vice president, and two deputy secretaries were smoother election process for 2015; though some created. the Government’s proposal was adopted pdcI leaders appear not fully prepared to adhere by the parliament, and Government anticipated to this call. Indeed, despite Bédié’s call, recently, that with the change, opposition representatives some pdcI leaders declared their intentions to would return to the Electoral commission, which run in the upcoming presidential election. overall, should contribute to less fractious elections in it appears that popular concern has shifted from 2015. Indeed, in mid-november, the Minister of a general sense of uncertainty toward the Interior and security received a delegation of the organization of smooth elections accepted by all afdcI (a coalition of twelve opposition parties, Ivorian political parties. 3 the rhdp is a coalition created in 2005, led by pdcI (parti démocratique de cote d’Ivoire) of henri Konan Bédié and rdr (rassemblement des républicains) of alassane ouattara. - 11 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs 2. recent Economic developments Economic recovery in CIV in the wake of the 2010 during the peak of conflict in 2011, a cease to post-electoral conflict has been robust. disruption of government functioning, coinciding following a falloff in real Gdp of some 4.4 percent with signs of economic recovery at the global level, underpinned a near Table 1 : Cote d'Ivoire: Economic Indicators, 2012-2015 Annual percent changes unless otherwise indicated 11 percentage-point surge in growth 2012 2013 2014-H1 /1 2015 Proj Real GDP during 2012. and GDP at constant prices 10.7 8.7 8.0 8.0 momentum has Total consumption 14.9 5.7 8.5 7.5 continued favorably Fiscal indicators (% of GDP) through mid-2014 Total revenue and grants 18.9 19.8 19.6 19.6 within a range of 8 Total expenditure 22.1 22.1 21.8 23.0 percent (latest Overall balance (incl grants) -3.1 -2.3 -2.3 -3.4 observations), Primary basic balance -1.2 -0.1 0.1 -0.2 grounded broadly in Money and Prices the firm tenor of Money & quasi-money (M2) 4.4 11.6 17.1 17.8 domestic demand- Consumer price index 1.3 2.6 0.2 2.6 both consumption, External accounts (% GDP) and particularly Current account (x offl trnsf) -1.8 -5.0 -5.0 -3.8 investment--with a Exports of goods 44.7 41.3 41.6 39.9 Imports of goods 33.4 34.0 31.6 29.0 strong response Terms of trade (%ch) -4.1 -2.7 6.4 7.8 from the private Public Debt (%GDP) sector (table 1) .4 Gross public debt 44.5 43.6 40.1 39.6 External public debt 27.8 25.8 26.8 27.8 External public debt (x C2D) 17.2 16.4 19.1 21.8 Sources: Ivoirian authorities, IMF and World Bank staff estimates. (December 2014) Note /1: Percentage change (or level) at annual rate from first-half 2013 (or estimate) 4 domestic private investment has more-than doubled in the current recovery contrasted with the period of previous peace, supported by public investment spillovers, as well as by reductions in the cost of doing business in cIv largely occasioned by policy reforms. cote d’Ivoire Economic Update - March 2015 - 12 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Supported by a decline in food prices, inflation fundamentals, as well as progress in reforms, cIv in CIV had dropped well below the WAEMU garnered positive assessments from main credit average by mid-2014, while money and credit rating agencies, and in July 2014 tapped the growth picked up—reflecting in part increased international market for a debut Eurobond of $750 private investment spending. fiscal developments, million, over-subscribed some six times, and under the IMf’s Extended credit facility (Ecf), finishing at a low yield of 5.625 percent. additional have remained favorable, with variability on the bond issuance in 2015, as well as an undertaking revenue side offset through corrections in of non-concessional loans, is viewed as a means spending, and with the primary balance moving to finance the government’s ambitious public into a slight surplus during the first half of 2014. investment agenda going forward. On the external front, terms of trade have been 2.1 Economic Growth moving in favor of CIV during 2014. In the earlier part of the year, prices for key export commodities CIV’s 8.7 percent GDP growth rate in 2013 was firmed (notably cocoa), while crude oil prices quite robust and broad-based, though below the maintained a fairly steady profile, helping to boost 10.7 percent surge registered in 2012. Both cIv’s surplus in goods trade moderately. But an supply and demand factors played a role in abrupt change occurred during the second half of sustaining momentum into 2013; while recent the year (and into early 2015), reflecting a mix of indicators suggest that Gdp has maintained steep decline in world crude oil prices (some 50% growth near 8 percent during the first half of 2014. since June 2014) with more moderate falloff for on the supply side, all main economic sectors cIv’s major commodity export prices (10% for contributed positively to Gdp growth, with services cocoa and 5% for coffee (robusta)). these commodity market developments Figure 1 : Sectoral contributions to CIV GDP Growth, 2010-13 together with the 14.0 more-than 10 12.0 10.7 percent fall of the 10.0 8.7 8.0 euro (to which the 6.0 cfaf is tied) against 4.0 2.0 the dollar, have 2.0 likely served to 0.0 2011 -2.0 2010 2012 2013 provide a boost for -4.0 -4.4 growth in the -6.0 country—albeit -8.0 moderate overall— Agriculture Industry Services Real GDP and to complement Source: Ministry of Finance and staff calculations. the strong momentum underlying domestic demand (see section III). remaining the fastest growing sector and the largest contributor to overall output gains. during Financing of the current account deficit has been the year, there was an especially sharp increase supported by strong FDI inflows and project in the contribution of agriculture to economic loans. and in a major financial development, growth (figure 1). reflecting improvements in economic - 13 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Agriculture advanced by 6.9 percent in 2013 The industrial sector registered strong 8.8 following a 2.7 percent contraction in 2012, percent growth in 2013, following a 1.4 percent supported by a good harvest and aided by new contraction in the year preceding. Industrial incentives. Recent crop information highlights production increased by a more moderate 4.7 continuing gains into 2014--with production of percent over the year through mid-2014. Growth main products well exceeding expectations. the in 2013 was supported by strong advances in rebound in agriculture during 2013 was driven by chemical products, footwear and textile strong increases in food-crop production(rice, manufacturing, and basic metals. the plantain, cassava and corn) and better-than- construction and public works sub-sectors value expected output of export crops (cocoa, cashew added surged by 27.9 percent driven by ongoing and rubber). a sharp rebound in cocoa (11.5 major public infrastructure development and percent output gain), rubber (13.9 percent) and rehabilitation projects. and with new investment cashew (8.4 percent) underpinned an upturn in in the extension of mining fields, value added in commodities value added. cocoa production mining advanced by 6.9 percent. Growth to mid- benefited from the introduction of a new variety, 2014 continued to be driven by construction and “Mercedes”, with higher yields, as well as a 9 public works (16.6 percent), as well as percent increase in price from cfa672 per manufacturing (9.6 percent) and electricity and kilogram in 2012 to cfa733 in 2013. several gas (5.2 percent)5. In contrast,output in the agricultural products established double-digit extractive industries declined in a substantial output gains during the first half of 2014, fashion (27.4 percent) tied to depletion of oil importantly including cashew and cotton (table 2). deposits and refinery maintenance. Table 2 : CIV’s Main Agricultural Products first-half 2014 (in tonnes) Change Annual 6 months 2013 6 months 2014 (%) forecasts Cocoa 597,802 630,370 5.4 -9.4 Coffee 101,807 103,698 1.9 39.8 Cashew 345,441.1 442,804.9 28.2 4.6 Pineapple 38,763.9 46,566.2 20.1 5.0 Banana 192,022.1 226,772.9 18.1 3.0 Rubber 139,418.1 147,950.1 6.1 5.0 Sugar 124,781.3 133,110.6 6.7 0.5 Palm oil* 107,756.7 114,373.1 6.1 5.0 Cotton 268,055.2 315,460.9 17.7 11.8 Source: DGE, OPA, Ministry of Agriculture; *Q1 data. 5 direction de la conjuncture et de la prévision Economique (2014) « note de conjuncture Juin 2014 ». cote d’Ivoire Economic Update - March 2015 - 14 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs The services sector represents the largest of Gdp in 2013, up from 12.1 percent in 2012, segment of the economy, and provided the driven by gains in public investment for biggest contribution to overall growth in 2013; infrastructure rehabilitation, and a rise in private sectoral data show continued momentum during investment for expansion of capacity in the mining 2014. value added slowed to 10.1 percent gains in and oil sectors. Indeed, the vibrant tone of public 2013 from a vibrant 20.1 percent during 2012, due capital spending is unique to this episode of to a falloff in public administration-related recovery from conflict in cote d’Ivoire. total services. transport and communications activities consumption increased by 5.7 percent in real were on the rise at 6.9 and 7.8 percent, terms during 2013, compared to a 14.9 percent respectively in 2013 as these sectors benefited surge in 2012, with the easing pace of from the rebound in agriculture. at the same time, consumption growth in 2013 tied to declines in increased household incomes supported higher public current consumption outlays (2.1 percent); growth in wholesale and retail trade, which peaked in contrast, household consumption increased 7.4 at a 9.7 percent pace in the year. during 2014, air percent in 2013, contributing strongly to overall transport has burgeoned, illustrated by a 27 growth. and nominal retail sales advanced at a percent jump in the number of business travelers strong 10.9 percent pace during the first half of to cIv (to 554,832 passengers). land transport 2014. also advanced, evidenced by increases in gasoil consumption (3.9 percent). The increase in private consumption was Figure 2 : Growth by real expenditure categories, 2010-13 17.0 in percent 12.0 10.7 7.0 8.7 2.0 2.0 2010 2011 2012 2013 -3.0 -4.4 -8.0 -13.0 Gross capital formation House holds consumption Public consumption Net XGS GDP Growth Source: Ministry of Finance and staff calculations. Overall growth from a demand perspective was supported by job creation in both the formal driven by strong momentum in domestic private and the public sectors; and a 17.4 absorption, powered by a notable pickup in percent increase in real cocoa-coffee farmers’ public investment associated with large incomes also abetted household demand. With infrastructure rehabilitation programs. at the the normalization of the political situation and an same time, the drag on growth from net exports economic rebound taking shape over the last two moderated in the year (figure 2). recent indicators years, new hiring has resumed in both the private point to continued strong gains in retail spending (4.8 percent employment gain) and public sector in 2014. Gross investment peaked at 14.6 percent (4.5 percent), resulting in an overall increase of formal employment by 5 percent in 2013. - 15 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs 2.2 Fiscal Developments Total expenditure remained unchanged at 22.1 percent of GDP in 2013, though the composition of spending shifted, with a strong increase in CIV’s fiscal situation improved further during capital expenditure and decline in current 2013 on a pickup in revenues. And the overall spending. capital spending increased to 6.1 deficit is anticipated to remain broadly percent of Gdp over 2013 (up from 4.5 percent in unchanged in 2014, though a modest revenue 2012), driven by public works and other shortfall from plan is expected to be offset by infrastructure rehabilitation. however capital like reductions in expenditure. the fiscal deficit expenditure remains below planned levels (7.2 (including grants) narrowed to 2.3 percent of Gdp percent of Gdp), highlighting evidence of lags and in 2013 from 3.1 percent in 2012, on the back of a some weakness in the implementation of the fairly small increase in revenues with constant public investment program. spending also eased expenditure. the deficit was financed through to 21.8 percent of Gdp in the first half of 2014. issuance of treasury bonds on the WaEMU regional markets (about 73 percent of deficit CIV’s public debt position continued to improve financing), with budget support constituting the in 2013, while the country’s risk of debt distress remainder. Figure 3 : Breakout of Fiscal Variables in percent of GDP, 2011-13 25 percent 20 15 10 Capital expenditure 5 Current expenditure 0 2011 2012 2013 Grants -5 -10 Total revenue -15 Fiscal balance (incl. grants) --20 -15 Source: IMF data. Total revenues increased by a marginal 0.1 point remained moderate. External public debt of GDP in 2013 (18.5 percent of GDP), compared decreased to 25.8 percent of Gdp at end-2013 to 2012 on improved tax- and non-tax revenue from 27.8 percent in 2012, with continued regular returns. Better collection results for income and debt service payments. and excluding official wage taxes, import and export taxes and corporate french claims under the c2d debt-for- taxes, combined with a reduction-in and a tighter development swaps, cIv’s external public debt monitoring- of vat exemptions, supported a represented 16.4 percent of Gdp in 2013 against marginal increase in tax revenues. and better- 17.2 percent in 2012. on the domestic side, the than-expected social security taxes on wages also authorities launched the clearance of domestic resulted in a small increase in nontax revenues. arrears, after two audits of arrears stocks for the Grants were larger than expected at 1.3 percent of period 2000-2010. as a result, gross domestic debt Gdp, with higher project finance grants and fell to 13.6 percent of Gdp in 2013 from 16.9 budget support (figure 3). revenues eased percent in 2012. the debut Eurobond issuance of downward modestly during the first half of 2014. $750 million is a watershed event for the country’s cote d’Ivoire Economic Update - March 2015 - 16 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs external finance, with plans for further tapping of in cIv’s surplus was due to both volume and price the bond market being balanced against the effects. a fall in export prices (4.8 percent) was longer-term sustainability of cIv’s overall public steeper than that for import prices (2.1 percent), debt. such that cIv’s terms of trade deteriorated by 2.7 percent.6 In similar fashion-- though the volume 2.3 Balance of payments of both exports and imports increased, the rise in export volume was less dynamic (6.7 percent) than that of imports (13.2 percent) in 2013. the surplus CIV’s current account was in deficit for both 2012 on trade is anticipated to improve to some 10 and 2013, deteriorating to 5 percent of GDP percent of Gdp in 2014, driven by strong gains in (excluding grants) in the latter year from 1.8 agricultural shipments as well as a falloff in percent in 2012. the large increase in the deficit import demand from the lofty pace of the previous during 2013 appears to be a temporary year. phenomenon, however, as it was driven in the main by a surge in imports of capital and CIV continues to attract Foreign Direct intermediate goods stemming from the jump in Investment (FDI), which helped to finance the public infrastructure investment. the deficit is current account deficit in 2013. While in 2012 fdI estimated to have remained unchanged in terms inflows represented just 1.1 percent of Gdp, by of Gdp share during 2014 with improvement in the 2013 fdI flows received by cIv represented the trade balance (and gains in terms of trade) equivalent of 2.6 percent. the increase in fdI outweighed by net outflows on services and inflows is driven by new investment in mining and income (figure 4). oil activities, as well as increases in domestic Figure 4 :CIV’s Goods- and Services/Income balances (%GDP) and terms of trade (ch%) 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 2012 2013 2014 Goods trade Services and Net Income Current account Terms Trade ch% Source: Ivoirian authorities and IMF staff estimates CIV’s trade balance maintained substantial demand tied to strong growth experienced over surplus over 2012-13, but eased as a share of the last two years. cIv’s overall balance of GDP into the latter year. The trade position is payments was in surplus of 0.4 percent of Gdp improving over the course of 2014. In 2012 the during 2013, in the wake of a 2.6 percent deficit in trade surplus amounted to 11.3 percent of Gdp, 2012. the surplus on Bop was generated in the diminishing to 7.3 percent in 2013. the reduction financial account, which showed surplus of 5.2 percent of Gdp in 2013. 6 direction de la conjoncture et de la prévision Économique, « note de conjoncture de décembre 2013 ». - 17 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs CIV exports primary products, mainly, cocoa, countries, including 22.7 percent from nigeria. cIv cashews, crude oil and gold. The country also also imported 22.9 percent of its total imports exports manufactured products, mainly refined from the EU, including 10.8 percent from france. oil products and products derived from first While cIv exports only 8.1 percent of its goods to stages of cocoa processing. In 2013, cocoa, and asia, it imports 23.3 percent of goods from asia, crude oil and refined oil products, represented of which china accounts of 11.3 percent. 30.1 and 29.3 of cIv’s total exports of goods. cIv’s imports comprise primary and intermediate 2.4 Money and Prices goods, including crude oil and equipment--mainly machinery and transportation equipment. In 2013, Broad money increased by 11.6 percent during crude oil represented 27.5 percent of cIv’s total 2013, with a slight rise in net foreign assets (0.17 imports of goods. percent), an increase of net credit to the government (15.1 percent) and a continuing CIV’s exports are mainly destined for the increase in credit to the economy (22.6 percent). European Union (EU) and ECOWAS markets, the increase in domestic credit to the economy while its imports mainly originate in the former was driven by short term credits to households two markets and Asia (figures 5 and 6). In 2013, and businesses (22.9 percent), as well as medium cIv’s exports to the EU and EcoWas represented and long term credits to businesses (+27.2 32.5 percent and 30.5 percent of the country’s total percent). these developments appear to be signs export of goods, respectively. of interest, and of improved conditions in the private sector, with Figure 5 : Geographical Distribution of CIV's Figure 6 : Geographical Distribution Goods Exports: 2013 of CIV's Goods Imports: 2013 America America Asia Asia 1% 1% 11% 17% Other African Other African 23% 8% countries 33% countries ECOWAS ECOWAS 2% 14% 23% 25% Other Europe Other Europe 3% 9% EU EU 30% Other Other countries countries Source: Calculations based on data from Direction générale de l’économie and Direction générale des douanes. contrary to some african countries at the moment, positive spillovers into 2014 performance, as M2 cIv’s exports to china are very low (1.1 percent of advanced some 17 percent during the first half of total exports). In 2013, cIv sourced some 25 the year. percent of its good imports from the EcoWas cote d’Ivoire Economic Update - March 2015 - 18 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Headline inflation diminished to well below the inflation (4.3 percent), with the latter tied to food 3 percent WAEMU target. Annual inflation prices increase (fruits and vegetables, dairy). declined from 4.9 percent in 2011 to 2.6 percent While domestic price pressures were driven by during 2013 and to a modest 0.2 percent by mid- increased costs of education, particularly by one- 2014 (y/y) (figure 7). the moderate upturn in off higher education fees (83 percent rise). In inflation during 2013 was due to acceleration in contrast, consumer prices for health and both domestic- (2.3 percent) and imported communications declined by 1.7 percent and 0.5 percent, respectively in 2013. Figure 7 : Consumer Price Index (ch% annual average; 2014: June y/y) 7 6.3 6 5 4.9 4 3 2.6 2 1.8 1.3 1 1 0 0.2 2008 2009 2010 2011 2012 2013 Juin - 14 Source: Ministry of finance and staff calculations. - 19 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs 3. structural reforms In recent years the government has adopted a management of commercial acts and procedures. number of structural reforms to help improve • CIV recently approved new investment- and the macroeconomic environment and set the mining codes, both are business-oriented and stage for growth. these include broader reforms grant important incentives to private investors. In that aim to improve the business environment; similar fashion, the country has adopted an sectoral reforms, and programs to improve public electricity code, incorporating an appropriate governance. framework for the management of physical and financial flows of the electricity sector. 3.1 Business environment 3.2 Sectoral reforms • Improving the business climate is an important focus of the government’s agenda--a committee • In agriculture, efficiency is being pursued led by the Prime Minister was formed to improve under the National Agricultural Investment CIV’s “Doing Business” scores. for a second Program. the plan aims to allow the country to consecutive year, cIv was ranked among the top achieve food security and develop value chains in 10 reforming countries in the world according to agriculture through increasing private sector the 2015 “doing Business report” of the World participation and setting-up effective professional Bank. In the report, cIv was ranked 147th on agricultural organizations. overall ease of doing business, while it ranked • Several measures were approved to promote 158h out of 189 countries in the 2014 edition. cashew processing in the context of the World • The Government executed a decree to create Bank’s recent Second Poverty Reduction Support the Abidjan Commercial Court in July 2012 in Credit: (i) a fund to support technical assistance order to improve efficiencies for the CIV was established; (ii) a tender to recruit service business community. the performance of the providers for technical assistance was launched, court will improve thanks to a recent World Bank and (iii) a cashew nut processor association was donation of software which will enable electronic inaugurated. cote d’Ivoire Economic Update - March 2015 - 20 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs • In cotton, farmers are benefiting from a new nationale des caisses d’Épargne, and Banque de management system based on objectives, l’habitat de cote d’Ivoire will remain public implementation of improved agricultural entities-and will be merged. the minority techniques, provision of agricultural inputs and government shares in société Ivoirienne de materials, and services extension. In the banana Banque and in the BIao will be sold on the sub-sector, with the support of the European market. and Banque pour le financement de Union, the Government has implemented the l’agriculture and versus Bank will be fully “banane dessert” project, with the objective of privatized. revitalizing banana output in cIv. this project also • The Government envisages a broad reform of aims to support smallholders, allowing them to Public Financial Management (PFM). decrees for perform alongside big firms in a win-win the inclusion of WaEMU pfM directives in the partnership. In similar fashion, pineapple national pfM legal framework have been production has benefitted from government approved. and following this step, specific support through the implementation of pilot measures are underway to ensure their projects. translation into pfM daily operations. a new pfM reform strategy which covers the components of 3.3 Financial Markets and the budget cycle has been adopted; while Public Financial Management government also intends to address weaknesses apparent in public procurement. • Debt management is attracting additional • A financial sector development strategy was attention within Government. a new medium approved in April 2014. the strategy is grounded term debt strategy (Mtds) for 2015 -2019 is on two pillars: the stability of the financial sector, planned. the country expects to borrow more, and the expansion of the sector.7 It aims to ensure both on concessional and non-concessional terms an improved response to the economy’s financing to satisfy its large investment needs. needs, especially for housing, sMEs/sMIs and • The High Authority for good governance has agriculture. been established after some delay. the high • A resolution related to restructuring of seven authority has the potential to be instrumental in Ivoirian public banks was adopted in May 2014.8 addressing governance issues that face the Banque nationale d’Investissement, caisse country. 7 http://www.presidence.ci/presentation-detail/412/communique-du-conseil-des-ministres-du-mercredi-16-04-2014 8 http://economie.jeuneafrique.com/regions/afrique-subsaharienne/21996-le-gouvernement-ivoirien-adopte-le-plan-de- restructuration-du-secteur-bancaire-public.html - 21 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs 4. Economic outlook and strengthening of production in the manufacturing and construction sectors. for public capital spending, several large-scale investment projects are anticipated to be launched over the medium term: strengthening capacity of thermal power plants (ciprel Iv, azito, abatta); construction of a hydropower dam in soubré (expected in 2017); upgrading ports and airport terminals (cargo of the felix houphouet On balance, actual economic outturns for the Boigny airport); rehabilitation of airports in the first half of 2014 are broadly in-line with earlier interior of the country (Yamoussokro, san-pedro, projections. And revised forecasts continue to Bouaké, Korhogo); continued mining exploration show favorable economic trends into the (oil, gold, iron and manganese); development of medium term. the IMf forecasts Gdp growth of petroleum and gas fields (Gazelle, Espoir) as well 8 percent for 2014 and 2015, and 7–8 percent for as gold extraction (in the departments of hiré and the medium term, driven by continued strong Bouaflé). domestic demand in cIv, and to a lesser extent improved export performance (table 1, earlier). In Fiscal deficits are anticipated to widen contrast, the Ivoirian authorities are more moderately over 2015-2016 on the strength of optimistic, expecting growth to be 9 percent in increased public sector outlays, while the 2014, and to register slightly more-than 10 percent external balance ranges into deficit of 4-5 per annum over the medium term--in large percent of GDP, financed by FDI and further on- measure powered by public capital spending and take of non-concessional external funds. the increasingly by private investment outlays. draft 2015 budget on the spending side includes a rise in the wage bill, further increases in public Growth projections are grounded in assumptions investment in infrastructure, and a modest of sustained momentum in structural reforms to subsidy to the health Insurance system which will improve the business environment and start operations from January 2015--contributing governance—and hence support private to an overall deficit of 3.4-3.5 percent of Gdp. investment; and continued normalization of the socio-political situation. a stable macroeconomic The return of the African Development Bank to environment is anticipated to support growth, Abidjan, which is expected to be complete and featuring low inflation, projected at 0.6 percent for effective by January 2015, will also support 2014 and averaging 2.5 percent for the medium economic growth in CIV, directly through term. Investment is viewed as the driving force for increased consumption, and indirectly by expansion, featuring both continued gains in potentially shoring up private sector confidence in public investment (for new and ongoing projects), the country. and private capital outlays supporting a renewal cote d’Ivoire Economic Update - March 2015 - 22 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Overall, growth prospects for the short- and (cfaf), tied to the euro, declined in step with the medium terms are favorable, and risks to European unit against the dollar into early 2015 growth appear to be more balanced. But (almost a 15 percent drop since recent peaks in domestic political tensions related to the March 2014). as competitiveness of cIv exports October 2015 Presidential election remain of improves, Gdp receives an initial boost, which some concern. despite Bédié’s call for support for carries positive spillovers for consumer outlays the single candidacy of president ouattara on and investment--a net benefit for growth behalf of the rhdp, recently, some pdcI leaders dynamics. declared their intentions to also run in the upcoming presidential election. But the return of A turn to the weaker side in global economic the opposition to the Electoral commission has conditions, and unfavorable weather-a potential tended to reduce the overall level of uncertainty. continued spread of Ebola-as well as deterioration of the political situation in West The recent dramatic decline in world oil price- Africa are some important external risks for the and less severe fall in the country’s key economy. a much sharper decline in the price of commodity export prices, together with the cIv’s main exports, and deterioration of the weakening of the euro against the dollar is—on economic situation in Europe would negatively balance--expected to provide a moderate degree impact Ivoirian exporters. cIv has been spared the of support for CIV’s GDP in the near term. net Ebola outbreak thus far, and the Government has effects of the recent halving of oil prices on the cIv taken measures to limit contagion risks from economy are likely to be small, largely because neighboring countries, but further efforts may be the country remains near balance as a net called for. Moreover, as in cote d’Ivoire, 2015 will exporter/importer of oil. the “income effect” (or be an election year in many Western african change in current account balance) is not large, countries (Benin, Guinea, togo and Burkina faso), offering only a modest boost to domestic demand. and political tensions could rise. In addition, the In contrast, cIv’s terms of trade will be supported security and economic development of West as the decline in prices for cocoa (10 percent since african countries could be threatened by the august 2014) and for coffee (5 percent since april) development of terrorist acts in the sub-region. It are much more restrained than for oil prices. this is important that cIv, the EcoWas countries and leads to positive income effects, stimulating the international community coordinate their stronger domestic spending. finally, the cfa franc efforts to avert that possibility. - 23 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs II. Explaining CIV’s Strong Economic Performance since 20129 5. factors underlying cIv’s robust economic recovery In contrast with many post-conflict economies, of 2.4 percent for EcoWas in aggregate and 2.3 the recent recovery in CIV has been led by percent for sub-saharan africa (excluding south domestic demand-rather than by exports and africa). an economy that once had been the renewed inflows of FDI. the robust advance in powerhouse for growth in West africa during the investment has been the most important factor 1970s and 1980s, grounded in the strength of driving the recovery—importantly, private agriculture and exports, lost substantial ground to investment has more-than doubled contrasted neighboring countries and to the broader region with the period of previous peace, supported by over the 2000s. improved confidence of domestic private investors following the stabilization of the socio-political For CIV the 2000s were distinguished by two situation, spillovers from public investment, as major episodes of disruption to peace. In the well as an improved business environment wake of coups d’etat in 1999, the 2002 civil conflict occasioned by policy reforms in cIv. Infrastructure resulted in a country divided in two, with the north spending by the Government grounded in support controlled by rebels and the south by the for energy (electricity) and transport services has Government. though resolved in 2007, with the enjoyed a substantial rise from the previous period signing of the “accords de ouagadougou” between of relative stability in 2008-09. and such former president laurent Gbagbo and Guillaume investment is viewed to carry strong positive soro, the former rebellion leader, this conflict effects for overall growth: such benefits are yielded a long period of decline or stagnation in undoubtedly accruing in the case of cIv. output over 2002-2007 as well as a suspension of the country’s relations with the international Similar to the experience of many conflict- community. the second period of political affected countries, CIV’s economic output has instability followed upon the elections of 2010, with been punctuated by periods of decline and the announcement that alassane ouattara was stagnation during intervals of politico-military the victor in the second round of presidential strife—or indeed civil war—in this case over the elections, unseating the incumbent laurent last twelve years. these episodes had generally Gbagbo. the crisis came to an end in spring 2011 been followed by periods of economic recovery, with the arrest of M. Gbagbo, and installation of M. though mainly of brief duration, as tensions ouattara as president of the country. the 2010-11 underlying civil strife eased for a time and allowed post-electoral episode took a sharper immediate government and the private sector a respite, toll on economic activity in cIv than did the conflict enabling modest Gdp gains. But given the of 2002-07, but clear signs of a rebound in Gdp significant volatility of growth, real Gdp per capita growth became apparent in short order. recent in cIv over 2000-2013 declined by an average 0.4 economic developments through 2014 suggest percent per year (figure 8), contrasted with gains that the momentum of growth continues to be vibrant. 9 this section provides a summary of a (2014, draft) World Bank publication: “source of Economic Growth in cote d’Ivoire: a diagnostic of Growth opportunities and challenges “. cote d’Ivoire Economic Update - March 2015 - 24 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Figure 8 : Growth of real GDP per-capita in CIV, 2000-2013 8 6 4 2010 post-electoral conflict 2 0 20 20 20 20 20 20 20 20 20 20 20 20 20 20 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -2 -4 2002 civil conflict -6 -8 Source: World Bank, World Development Indicators. This section of the Economic Update sets out to environment. the potential linkage of the strong identify what have been the key drivers of conditions characterizing the current rebound to economic recovery in CIV after several years of recently enacted policies—and the mechanisms instability, -and against this background to through which these effects may be occurring-- assess the likelihood of more sustained growth are also highlighted. and poverty reduction for the coming years.10 Given the fluid nature of political and military 5.1 Economic recovery in tensions in cIv over the 2000s, the sole episode of earlier economic recovery for the country post-conflict environments identified is that which occurred over 2008-09, in Evidence suggests that a “peace dividend”—or the wake of continuing instability during the first the emergence of catch-up growth effects--often half of the decade (figure 8). analysis of the factors accompanies the cessation of political or military for recovery include identification and differentiation--through the economic literature strife for a developing country; but such boost to on post-conflict economies--of ‘war-vulnerable’ activity is not automatic, with the extent of loss from ‘war-invulnerable’ sectors and their roles in in human capital and of non-renewable shaping economic activity during and after resources representing a constraint. studies of conflict; a breakout of contributions to overall economic developments in post-conflict countries growth at the sectoral level (e.g. agriculture, have identified a number of factors which may lead industry and services), and examination of to growth recovery, as economic opportunities selected demand elements (e.g. exports and increase with the cessation of hostilities. higher investment) in supporting growth in the post crisis returns to investment vis-à-vis the steady 10 Unlike the first section of the report, which analyzes the macroeconomic situation until mid-2014, in the second section, 2013 is the last year of analysis, because all necessary and detailed data for the investigation of factors contributing to the economic recovery in cIv are not yet available for 2014 and 2015. - 25 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs state--given potential destruction of physical manufacturing, construction, trade, transport and capital during war--is an element at play. other services grouped in this category. It is reduction in uncertainty can also improve returns posited that the share of war vulnerable sectors in to investment, and help to foster productivity Gdp will decrease during war time and increase (david et. al., 2011). Moreover, the potential for during peace. In turn, war invulnerable sectors are countries to earn more from their commodity less sensitive to conflict conditions, tied to the exports can emerge, as cessation of conflict specific assets or capital required for their presents an opportunity to expand mineral development. subsistence agriculture requires exploration and related activities, while improved more arable land and less capital investment for bargaining power of government to get better development, and hence food crops are classified returns for extracted resources may also under this sector; their share in Gdp is anticipated contribute to this development. Importantly, to increase during war and to decline during political opportunities that are favorable for peace. Unclassified sectors are activities that can economic activity can materialize in an be cited either as war vulnerable-or invulnerable environment more conducive to growth-enhancing activities. the cocoa sector in cIv may be reforms (collier, 2009). considered unclassified—a sector which may experience either increase or decrease in share of Table 3 : Impact of war on GDP composition in Cote d’Ivoire over the period 2000-13 Gdp during conflict. after reaching the production Political conflict tends not only to affect stage, cocoa requires less investment, suggesting economic growth, but to bring about change to that war would not stop the development of cocoa the structure of an economy-- and there are production, making it a war-invulnerable sector. signs that the composition of output in CIV has however, because of war, the provision of been shaped by alternating episodes of war and extension services to cocoa and pesticides may peace. In a post conflict environment, following dissipate, while harvesting may become collier (2009), three types of sectors can be challenging. this suggests that cocoa production distinguished: war vulnerable-, war invulnerable- could also be considered as a war-vulnerable and unclassified sectors. War vulnerable sectors activity. are intensive in transactions and assets—with cote d’Ivoire Economic Update - March 2015 - 26 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs The analysis of sectors more-affected by conflict Political conflicts also diminish the efficiency and those less-so suggests that political crises and productivity of the economy, not only have carried an impact on CIV’s GDP composition through lower investment, but also through the and economic growth outturns. specifically, data choice of investments which would tend to focus highlight that the share of war vulnerable activities more on short-term ones and not necessarily in Gdp has decreased during war time and the most productive during war times. In the increased during peace (table 3). the data also case of CIV, data show that in fact, war has had a demonstrate that all war vulnerable activities have negative impact on the productivity of production not yet reached their pre-crisis shares of Gdp factors. Indeed, as shown in table 4, although the (2000-01), with manufacturing showing the slowdown in cIv’s total factor productivity started weakest overall recovery. sectors defined as less in the 1980s, the phenomenon accelerated during vulnerable to war conditions have performed as the 2000s, where the contribution of total factor this rubric would suggest as well, with the notable productivity to economic growth was lowest (-1.2 exception of 2010-11 in the aftermath of the global percent over the period 2000-2010). however, financial crisis. and the lack of full catch-up to since 2011, following the rise of investment, there pre-conflict shares of Gdp for the war vulnerable is a substantial increase in total factor productivity sectors is encouraging for growth in cIv looking (+0.4 percent over the period 2011-2013), which forward, with the momentum of growth in sectors bodes well for the Ivorian economy should that accounting for fully one-half of economic activity trend continue. still having a course to run before returning to previous peaks. Table 4 : Decomposition of GDP growth in Côte d’Ivoire (Contribution to annual growth rate, in percentage) Periode Real GDP Capital Labor Education Total factor (Average productivity annual growth rate) 1980-1990 2.8 0.3 2.9 0.2 -0.6 1990-2000 2.1 0.1 2.2 0.3 -0.5 2000-2010 0.7 0.3 1.4 0.2 -1.2 2011-2013 3.6 1.1 1.9 0.2 0.4 Source: IMF and Penn World Table; and Barro and Lee database for education. Note: Total factor productivity corresponds to the Solow residual; it represents the share of growth that cannot be explained by factor accumulation, it is therefore a proxy for the efficiency of the use of production factors. - 27 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs 5.2 CIV sectors and policies Data reveal that- when the overall economy is that have made a difference contracting (as during 2000-01 and 2010-11), or in periods of recovery stagnant (2002-07) the contribution of the primary sector is positive or strongest; and when economic growth is rapid, the services There has been a shift in the roles of agriculture sector leads the way (figure 9 and table 3). the and services as drivers of economic growth in primary sector appears to be serving as a ‘safety CIV from the 1970s to the 2000s, with the former net’ for the economy during periods of overall being eclipsed by services (tertiary sector) as contraction, this having been the case particularly the prime mover for activity. tertiary sector during the post-electoral conflict of 2010-11, when contributions to overall growth now dominate in sharp decline characterized industry and services. the cIv economy, accounting for a full 62.5 percent this dynamic may be tied to the resilience of food of real Gdp growth over the 2000-13 interval, crop output to the harsher environment of politico- followed by industry (secondary sector) at 20.6 military conflict, as noted in the section preceding, percent and agriculture (primary sector) with potentially linked to donor support for food crop Figure 9 : Sectoral contributions to CIV real GDP growth over intervals, 2000-13 150 10 100 8 50 6 0 4 -50 2 -100 0 -150 -2 TerƟary sector contribuƟon (%) to GDP growth Secondary sector contribuƟon (%) to GDP growth Primary sector contribuƟon (%) to GDP growth Average GDP growth rate Source: Calculations based on data collected from INS and DCPE/DGE. Note: Sectoral contributions to GDP growth (share in %) left axis; average GDP growth rate, right axis. contributions amounting to 16.9 percent. the production during periods of crisis, a pickup in services sector now accounts for the largest share demand in neighboring countries for these of Gdp (52.7 percent), and has been the sector products, and improved incentives for production, displaying fastest growth during the 2000s (though given difficulties (increased taxation and a sluggish 1 percent for the period on average, deterioration of transport services) in the export services boomed during the current recovery crop sector occasioned by domestic conflict. phase, advancing 11 percent per year over 2012-13). cote d’Ivoire Economic Update - March 2015 - 28 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Within the primary sector, food crops have been a role--for example the firm- Barry callebaut (a the largest contributor to growth in the 2000s, a leading global supplier of cocoa products)- has change contrasted with the 1970s and 1980s invested to increase productivity and to facilitate when export crops were the leader in the availability of inputs for cocoa producers in the agriculture and for overall economic growth in country. CIV. this can be understood in part based on a World Bank analysis which found that a number On continued expansion of public-administration of export crops such as coffee and pineapple may related services, the tertiary sector in CIV has be on declining paths, while banana and sugar taken the role of prime driving force for appear to be stagnating in cIv11. this suggests economic activity over the course of almost the that the potential for several export crops to last 15 years. Growth in overall services value contribute to growth in cIv has been limited. the added was volatile over the 2000s, as conflict fact that food crops comprise the largest driver for carried direct adverse effects notably to transport growth in the primary sector contains a positive as and trade activities. however gains in public- well as a somewhat worrisome message. administration services, albeit grounded in stronger food crop output offers opportunities for increasing public payrolls contrasted with diversification of the primary sector; and carries improved efficiency, provided support for the the potential to reduce poverty, directly-and sector (table 5). on an upbeat note, onset of peace quickly, as smallholders account for the majority and return of high-level civil servants to cIv is of the population involved in food crop activities. likely to have contributed to the exceptionally But declining or weaker contributions of export strong performance of administrative services crops to growth generally imply a reduction in over 2012-13: overall staffing has been better foreign earnings that cIv needs to finance its managed (with recruitment frozen- save for health development. and education) and assignment of civil servants across the country improved, enabling efficiency Recovery from global recession, however, has gains and enhanced output growth. underpinned world prices of cocoa, coffee and other CIV agricultural exports to high-or record- Revitalization or incipient growth in services to levels; while reforms on the domestic front in enterprises, as well as in transport, trade, the wake of the 2010-11 crisis have improved telecommunications and finance is evident in the incentives for export crop production, leading to current recovery—developments encouraging strong performance of value added and exports for near-term economic prospects. Business in the 2012-13 recovery. all major crops exported services have grown quickly, with opportunity for by cIv reached record high prices in recent years; further expansion grounded to a substantial demand for chocolate increased, while high prices degree in policy changes geared toward improving and increased production in the rubber and the overall climate for doing business in cIv12. cashew sub-sectors have also contributed to transport and trade services have revived increased value added. the upturn in output of following several years of contraction—and grew export crops is also linked to policy changes in cIv smartly during 2012-13, largely due to the onset which have led to an increase in the cocoa farm- of peace, reduction in ‘rackets’ and stronger gate price, allowing farmers to earn more revenue demand with rising incomes. though cIv was from sale of their crops. and increased foreign among the first countries in West africa to lay out direct investment in the sub-sector may be playing reforms in telecommunications, it was not until 11 “cote d’Ivoire: the Growth agenda: Building on natural resources and Exports”, report number 62572-cI. 2012. World Bank. Washington dc. 12 as noted in section 3, cIv ranked among the top 10 reforming countries in the world according to the 2014 and 2015 editions of the “doing Business report” of the World Bank. - 29 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs the present decade that regulatory and economic more-than 4 percent per year over 2010-11. With conditions stimulated investment and set the stabilization of domestic conditions in the last stage for sustained growth in the sector, powered years, leading as well to a re-opening of the by advances in mobile telephony, ‘mobile money’ EcoWas market to cIv agro-processors— and other It services. In 2012, a new law implementation of new mining codes, and passage regulating telecommunications replaced the 1995 of reforms for the energy sector (electricity Table 5 : Growth of real value-added in CIV services sectors over 2000-13 2000-13 2000- 2002- 2008-09 2010-11 2012- 01 07 13 Average tertiary sector 2.0 -1.6 0.4 4.1 -0.8 11.1 growth Growth rates of tertiary sub-sectors (%) Transport -1.5 -4.5 -1.8 -0.7 -0.5 0.8 Telecommunications 0.5 0.7 -0.3 1.1 1.3 1.2 Trade services -0.1 -2.6 -0.2 1.0 -0.2 2.0 Banking and insurance 0.5 1.1 0.4 0.5 -0.5 1.2 Services to enterprises 1.0 0.8 1.0 1.2 0.6 1.2 Other services 1.5 2.9 1.3 1.0 -1.6 4.7 Source: Calculations based on data collected from INS and DCPE/DGE. Note: ‘Services to enterprises’ comprise legal and accounting activities, management consulting, auditing, architecture, security, advertising etc.; ‘other services’ comprise public administration-oriented services. telecoms code, introducing new measures that generation- marketing and pricing)—secondary have helped to deal with modern sectoral issues. sector output boomed (more-than 10% annual for the financial sector, however, evidence gains in 2012-13), with all segments enjoying a suggests that there is some distance to go before substantial boost to value added. the country fully recovers from the crisis period of 2010-11, with non-performing loans and weak Opportunities and challenges face policymakers capitalization standing as encumbrances to in their efforts to sustain momentum in the expansion. industrial sector. among favorable developments, analysis suggests the return of dynamism to agro- Output in manufacturing, extractive industries industries, petroleum (refining) and other and construction (the secondary sector) has also manufacturing activities, which if sustained by been quite volatile over the longer term due to continued domestic reforms and a supportive the exposure and sensitivity of activity to international environment, could provide a conflict; but extractive- and agro-businesses in foundation for further industrial development. In particular are now benefitting from the onset of contrast, the recent boom in secondary growth peace and an improved policy environment. has been underpinned to a strong degree by a production from cIvs gold mines-, agricultural surge in construction, largely driven by public processing industries13 and other manufacturing infrastructure rehabilitation efforts, which may experienced significant variability tied to episodes suggest a “natural limit” to gains in this sector. of political disarray—highlighted by average and, though recently in recovery, lingering contraction of the broader secondary sector of difficulties in the energy- and extractive industries 13 agro-business in cIv is grounded in various stages of processing of domestic cocoa, coffee, palm oil, cashew and sugar cane production. as a capital-intensive sector, it is characterized by a substantial and long-term presence of multinational firms and attendant foreign direct investment inflows, and hence is highly exposed to the incidence of domestic instability. cote d’Ivoire Economic Update - March 2015 - 30 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs could serve, in the absence of additional policy measureable recovery in export shipments. public improvement, as a drag on overall growth for cIv infrastructure investment carries a particularly into the medium term. strong impact on economic growth (calderon and severen, 2004). and recovery in private investment 5.3 Key elements underlying during peace, realized both as inflows of foreign the current growth recovery: direct investment and domestic fixed capital are they sustainable ? spending, may be anticipated to complement increased public spending, assuming a conducive regulatory environment, and provide additional support for recovery. Analysis of developments in CIV suggests that domestic investment— including public spending on reconstruction of infrastructure as well as private investment--and to a lesser extent-exports- have played critical roles in supporting recovery from episodes of crisis. the dominance of domestic factors underpinning post- conflict recovery in cIv contrasts with the experience of many countries in similar circumstances, where a more robust The economic literature suggests that exports resumption of export growth and return of foreign and investment are key among demand investment tended to serve as driving forces for segments of GDP that help account for recovery economic rebound.14 as highlighted in this in the wake of conflict; in particular, government section, underlying strength in private sector outlays on reconstruction of infrastructure, and capital spending in the current cIv recovery is of the return of public capital spending in general particular note, underscoring the likely can exert a powerful multiplier effect and help importance of business-friendly changes in to underpin an acceleration in GDP growth. regulations and institutions15. conditions in the international environment, including demand inexport markets, and supply Exports of goods and services have increased in and other factors affecting commodity prices, can the current recovery, but momentum is not work to abet-or to hinder- recovery of exports in a particularly strong, and prospects for a post conflict environment. But resuscitation in sustained revival in the near term are uncertain. production of exportable commodities and goods figure 10 shows that real exports have increased combined with improved functioning of trade from the second crisis in cIv to the period of logistics during peace are expected to underpin a 14 this is based on the review of empirical work that finds that, on average the boom in exports and investment are important factors to the economic recovery in post-conflict environments (see david el al., 2011). Ideally, case studies would allow comparing the experience of economic recovery in cIv with the experience of specific countries in post-conflict situation. such case studies are at the moment quite rare. 15 the method of analysis for contributions to growth recovery in cIv is comprised of an examination of developments in four demand factors over intervals of conflict and relative stability in the country: (i) real exports of goods and services, and three components of investment- (ii) foreign direct investment, (iii) public infrastructure spending and- (iv) domestic private fixed investment. analysis of the dynamics of the factors is carried out by comparing the average real value of each during 2012-13 (current growth recovery) with values in 2008-09--a relatively peaceful period in cIv, relevant for understanding changes in performance. an additional comparison is made with developments during 2010-11 (second politico-military crisis) in order to better distinguish between catch-up effects and potential shifts in underlying growth paths. - 31 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs current recovery, but in fairly insubstantial in figure 11, although the volume of goods exports quantities: exports stood 3.2 percent higher in increased during the period of economic recovery 2012-13 than during 2010-11, but some 2.9 compared to the period of the second political and percent below the previous recovery of 2008-09. military crisis, volumes remain below levels of the the low progress in the value of exports during the 2008-09 period. however, it must be stated that recent period of economic recovery may be related the volume of cocoa exports significantly to the reduction in major Ivorian export products increased. the good performance of the cocoa prices. according to the data from the World sub-sector is related to the farm-gate price Bank’s Global Economic prospects, after having increase to encourage the production of cocoa. reached a peak in 2011, most of the exports thus, the increase in farm-gate prices appears to Figure 10 : Exports of goods and services: real values over intervals, 2008-2013 2750 Exports of goods and services (billion, 2700 2009 constant CFAF) 2650 2600 2550 2500 2450 2008-09 2010-11 2012-13 Exports of goods and services 2724,64 2563,79 2644,84 (billion, 2009 constant CFAF) Source: Calculations based on IMF macroeconomic framework for CIV. products of cIv registered declining prices in the have started to show positive effects. Moreover, 2012-13 period. this is the case with rubber the establishment of a ‘single Window’ for foreign whose price decreased by 20.3 percent between trade (Guichet Unique du commerce Extérieur- 2012 and 2013, coffee (robusta) whose price fell by GUcE) will further boost Ivorian exports. however, 8.4 percent, palm oil whose price was down by in the short term, it is possible that trade in cIv 14.3 percent; only the price of cocoa increased by will continue to be hampered by problems in 2 percent during the same period. falling in prices inland logistics, port facilities and border controls, had negative impacts on the production of as well as continued sluggish growth in Euro area commodities, further reducing the contribution of import demand due to tepid economic recovery in exports to economic recovery. Indeed, as reflected this market. cote d’Ivoire Economic Update - March 2015 - 32 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Figure 11 : Volume of goods exports of CIV: different intervals, from 2008 to 2013. 12000000 1200000 10000000 1000000 8000000 800000 Export of goods 6000000 600000 4000000 400000 2000000 200000 0 0 2008-09 2010-11 2012-13 Total exports (leŌ) Raw cocoa exports (right) Source: Calculations based on data from the DGD/ DCPE. Additional impetus for recovery from the conflict recovery in CIV—led by determined external side, notably foreign direct investment efforts to rehabilitate infrastructure through (FDI) has also been slow to gain momentum, public outlays financed from domestic sources although the ‘pipeline’ of potential FDI continues either budgetary or through issuance of to expand for both resource-based and Treasury securities. CIV’s investment rate (i.e., agribusiness oriented investors. a recovery in the share of gross capital formation in GDP) has investment inflows has started, but adoption of a grown significantly since 2012 and increased ‘wait and see’ attitude on the part of investors has from 12.1 percent to 14.6 percent in 2013 with yielded only modest gains to date: a 3 percent public and private investment rates of 7.5 increase from the recent crisis period, percent and 7.1 percent, respectively. public representing a marked underperformance investment in infrastructure, grounded in support contrasted with levels prevailing in the time of for energy (electricity) and transport services previous peace (2008-09). as is the case for through the “programme présidentiel d’Urgence” exports, recent policy initiatives to facilitate fdI, (or ppU)16 surged nearly three-fold (170 percent including more business friendly mining and increase) from 2010-11 to 2012-13, a substantial investment codes, the positive rating of cIv by rise from the previous period of relative stability fitch and Moody’s credit rating agencies and, the during 2008-09 (figure 12). furthermore, the successful issuance in the euro-bond market, as efficiency of public investment has been improved, well as increasing returns in the extractive- and through better public procurement management: agro-business industries, should support more the number of days for processing public favorable prospects for the medium term. procurements was reduced from 322 to about 100 days over the last years. and as earlier noted, The robust advance in domestic investment has public infrastructure investment is viewed to carry been the most important factor driving post- substantial positive spillovers for overall growth, 16 the ppU program, initiated in 2011, aims to restore targeted public services to promote rapid return to normalcy for the majority of cIvs population, through investment in water, health, education, electricity, sanitation and transport. Major ongoing projects include: construction of a third bridge on the abidjan lagoon, and extension of highways connecting abidjan to the capital Yamoussokro, as well as to coastal Grand Bassam; construction activities for the soubre hydroelectric dam commenced in 2013, as did building of a thermal power plant in azito. - 33 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs notably in facilitating private sector activity, and of the recovery underway. this development, such benefits are undoubtedly accruing in the highlighted in figure 13, likely reflects increasing case of cIv. confidence- with the restoration of political stability- in improved prospects for growth and Figure 12 : Public infrastructure spending: real values over intervals, 2008-2013 400 Public investment in economic 350 infrastructure (billion, CFAF) 300 250 200 150 100 50 0 2008-09 2010-11 2012-13 Public investment in economic 97,5 128,9 347,6 infrastructure (billion, CFAF) Source: Calculations based on SIGFIP data, CIV Ministry of Budget. development on the part of private sector entities. Domestic private investment has more-than and the outlook for continued reforms that serve doubled in the current recovery contrasted with to improve the efficiency of business in cIv the period of previous peace, supported by the appears favorable, based on the track record improvement in confidence of domestic private established by the current government17. against entrepreneurs, following the normalization of this background, and with expectations of a the socio-political situation, public investment medium-term revival in fdI inflows, private spillovers, as well as improvements in the business will clearly come to provide a stronger business environment resulting from policy driving force for growth than was the case in reforms in the country. the gain in private earlier episodes of recovery. investment spending is a new and important part 17 cIv has made particular strides in improving conditions for (1) business start-up and related costs; (2) dealing with construction permits; (3) registering property and (4) enforcing contracts. Moreover, the cost of acquiring electricity (as a percentage of income per capita) decreased by some 8 percent in 2013, while the effective business tax rate (as a percentage of profit) declined from 44 to 39 points. such efforts were maintained in the 2015 doing Business, where cIv is also making progress in the following areas: (1) access to credit, (2) protection of minority investors, and (3) cross-border trade. Moreover, since 2010, cIv demonstrated steady growth and registered the most dynamic growth in sub-saharan africa in terms of the cpIa index performance. cpIa is an index developed by the World Bank to assess the quality of economic policy and institutional framework of the member countries. cote d’Ivoire Economic Update - March 2015 - 34 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs Figure 13 : Domestic private investment: real values over intervals, 2008-2013 600 DomesƟc private investment (billion, 2009 500 400 constant CFAF) 300 200 100 0 2008-09 2010-11 2012-13 DomesƟc private investment 260,50 241,75 565,05 (billion, 2009 constant CFAF) Source: Calculations based on IMF macroeconomic framework for CIV. 5.4 Some conclusions and policy implication Among conclusions that may be drawn from the 1980s, when growth was powered by agriculture, preceding analysis : especially by export crops; • sporadic politico-military instability has plagued • the share of war-vulnerable activities the economy of cIv for most of the 2000s, with only (manufacturing, construction, transport, trade and intermittent breakouts of relative domestic other services) decreased as a share of Gdp peace—an unfavorable environment for economic during conflict, and increased during interludes of growth; peace—and these sectors have not yet recovered • “peace dividends”, or catch-up growth effects, pre-war shares of Gdp—suggesting potential are not automatic, but examining turnaround in space for further growth; contributions to growth across many sectors • it is likely that (international conditions during 2012-13 suggests that such dividend has remaining conducive) growth recovery in cIv will occurred for cIv—indeed, all sectors and sub- continue for several years, albeit at a more sectors have contributed positively to the recent attenuated pace—as war vulnerable sectors growth recovery, which has been a broad-based recapture pre-conflict levels of Gdp, and recent process; policy changes bear fruit in stimulating private • contrary to the experience of most post-conflict investment and exports. countries, cIv growth recovery has been driven more by domestic than by external factors— Implications for policies that could support the critically as a strong response of the private sector momentum of recovery and underpin improved has taken hold, with capital spending by business growth performance for the medium term : leading the advance, complementing substantial • a recovery characterized by positive increases in public outlays on infrastructure contributions from all domestic sectors, as well development; as from private investment, holds potential to • across domestic sectors, the recent growth support sustained growth in the next years: recovery has been driven more by services; this is o private sector involvement in the economy could a change from developments during the 1970s and be enhanced by continued improvement in business environment, as well as through sectoral - 35 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs reforms to support telecoms, transport, financial o working to cement the consolidation of peace services and manufacturing—sectors currently and reconciliation—a confidence building measure performing below potential. private sector for foreign investors, helping to attract fdI; development would also require improving access o improving international competitiveness through to finance for sMEs, their managerial and implementing plans for revitalization of transport, technical capabilities as well as access to public logistics and related infrastructure; phyto-sanitary and private markets through subcontracting. issues for agriculture, and further development of o côte d'Ivoire has made significant progress in private production and exports; improving the business environment as evidenced o strengthening human capital to reduce the by the country’s doing Business rankings. this existing gap between the workforce skills and the progress should contribute more to the needs of the economy, and introducing greater development of the private sector in the coming flexibility in wages in the non-food manufacturing years. however, it is important to continue to industries where the country could improve its improve governance for a more dynamic and competitiveness, and prosperous private sector. to do so, fighting o implementing and closely monitoring recently against corruption, and implementation of approved mining and investment codes. institutional reforms to improve competitive • financing of infrastructure investment has functioning of markets should be pursued. traditionally come from domestic sources--either o In agriculture, food crops offer some promise for budgetary or through issuance of treasury diversification of production, and an important securities on the domestic (regional) market; opportunity for a quick and direct impact on the authorities may wish (and have done so) to poor as a large number of smallholders are diversify the loan portfolio for investment by involved in this sector--therefore a need to find a looking to international sources—including a balance in development of both food- and export broadening of creditors to include bilaterals crops. to this end, value chains in agribusiness, (offering semi-concessional lending terms), ppps, and infrastructure to facilitate access to markets as well as international bond issuance. debt and institutional reforms to facilitate the sustainability (and improvements to debt commercialization of food products should be management capacities) will require additional further developed. focus with the on-take of such funding. similarly, • however, a recovery that is driven largely by it is important to continue to improve the rate of domestic factors may be limited in time due to the implementation of public investment and fact that it is linked to infrastructure spending, and mobilization of public revenue, which will lower also because of the restricted size of domestic recourse to financial markets for the financing of market; this suggests that cIv could also seek to infrastructure, thus reducing the risk of promote complementary external contributions to unsustainable debt. growth (exports and fdI) by: cote d’Ivoire Economic Update - March 2015 - 36 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs III. Potential effects of changes in oil and non-oil commodity prices, and depreciation of the euro on the CIV economy 6.recent developments in commodity and currency markets: a moderate overall boost for cIv growth. price, with substantial real income shifts from oil- exporting to oil-importing countries18. Effects on individual countries will vary greatly, depending on a number of factors. among these are (i) their net position in oil trade; (ii) the importance of oil in Dramatic change in the trajectory of world the consumer basket; (iii) the extent to which commodity prices since mid-2014 will carry a domestic prices are affected by subsidy policies mix of effects to the economy of CIV, on balance (these last two items will affect the extent to which having provided a moderate degree of support domestic inflation and real incomes are affected) for GDP gains during the second half of 2014- and (iv) the shares of oil-related revenues and with stimulus likely continuing for coming spending in the fiscal position. months. International oil prices plummeted by about one-half between mid-2014 and the early The net effect of oil market developments on the weeks of 2015, bringing to a close a four year CIV economy is likely to be small. simulations period of relative price stability. Upward surprises suggest that the impact on real Gdp will be in global oil supply and downward surprises in modest mainly because while oil-related products demand, the unwinding of some political risks, represent as much as 30 percent of exports, they changing opEc policy objectives and a firming are also some 28 percent of imports and overall, U.s. dollar have all contributed to this the country has alternated between being a net development. analysis at the World Bank suggests exporter of oil and a net importer. as a result, the that the rapid decline in oil prices could produce direct “income effect”, i.e. change in the current net positive effects for global growth and inflation account balance position, is estimated to be a (a boost of some 0.5 percentage points for the small proportion of Gdp, carrying little added former and a decline of 0.5 or more for the latter) impetus for gains in domestic demand19. over the coming year on a 30 percent decline in oil 18 “Global Economic prospects: “having fiscal space and Using It”. January 2015. World Bank; and simulations of an oil price shock undertaken by World Bank staff using a trade-linked global economic model. 19 In technical terms, model simulations suggest a slight positive effect on external accounts (0.38 point improvement of the current account balance with respect to Gdp under the oil shock), as in the oil shock scenario the relative price of cocoa (for which cIv is the world’s largest exporter) firms versus the baseline. - 37 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs activity, however, should be stimulated to a degree developments is to improve the current account as lower oil prices lead to an easing of inflation- balance of cIv (a positive ‘income effect’ for as much as 1.5 percentage points in the short residents), which if continued, can lead to stronger term- helping to support an improvement in the spending by consumers and business. pace of consumer spending- and to a lesser degree in investment. finally, model simulations In currency markets, the euro depreciated by 10 suggest that a moderate tightening of the fiscal percent versus the U.S. dollar over the course of position due to a loss of oil-related revenues will 2014, against the background of relative offset some of the incipient gains in demand, to stagnation of economic activity in the Euro Area yield only a small boost to overall activity. and easing monetary policy there, contrasted with a clear revival of real GDP growth in the At the same time, prices for CIV’s key commodity United States and prospects for a gradual exports have also softened, but to a much tightening of financial conditions. this trend may smaller degree than the falloff in oil prices- be sustained over coming months as suggesting an implicit upturn in the country’s developments in economic activity (notably terms of trade. cocoa constitutes the largest employment and inflation) and in monetary policy share of cIv’s goods exports (about 30 percent) continue to diverge- resulting in a widening of and the country is the world’s largest exporter of interest rate differentials favoring the U.s. the commodity. coffee, rubber and palm oil currency (figure 14)20. the United states has constitute other import exports. contrasted with moved toward halting asset accumulation by the oil’s 50 percent plunge since mid-2014, the decline federal reserve and hinted at eventual increases in cocoa has amounted to 10 percent since august in policy interest rates, while continued sluggish of last year; that for coffee 5.5 percent since april- growth and easing inflation in the Euro area have , with rubber and palm oil experiencing sharper led the EcB to lower policy rates and consider 25 percent declines. the overall effect of these additional expansion of liquidity. Figure 14 : Figure 14 : US dollar per euro (left) and interest rate differential (right), 2011-2014 1,4500 1,600 1,400 1,4000 1,200 1,000 1,3500 0,800 0,600 1,3000 0,400 0,200 1,2500 0,000 -0,200 1,2000 -0,400 Dollar per euro (left) Differential (Euribor-Libor, right) Source: International Monetary Fund. 20 the differential between six-month Euribor and Usd-libor moved by about 25 basis points in favor of the dollar from april through december 2014 reflecting actual and expected changes in relative monetary stances; over the same period the dollar gained a sharp 10.8% versus euro to average $1.2331 in december readings. cote d’Ivoire Economic Update - March 2015 - 38 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs The CFA franc (CFAF), tied to the euro, has In order to better understand the effects of the declined in step against the dollar during 2014. depreciation of the euro (CFAF) on the economy Important questions arise as to what effects this of CIV, simulation of a 10 percent decline of the depreciation-and prospective further weakening euro vis-à-vis the dollar was undertaken in the of the CFAF in the short run-could carry to the context of a global trade-linked model, economy of CIV. among issues to examine are maintained by the World Bank21. on balance, the implications for trade flows, and the overall effects results of this exercise suggest that Gdp on the balance of payments for the country; dynamics in cIv have likely benefitted moderately spillovers from a changing net export position to (0.5 percent stronger growth in 2014)- and would real Gdp growth-and hence to domestic demand continue to do so-(with real output boosted by and the inflationary consequences of depreciation. more-than 1 percent during 2015-16) from the In broader terms: decline of the euro-dollar exchange rate, based on • a fall in the cfaf/Usd exchange rate would the following observations (table 6): suggest a gain in competitiveness for cIv exports- • competitiveness of cIv exports is enhanced by not only to the U.s. market, which accounts the assumed depreciation of the nominal directly for 11 percent of outbound goods exchange rate; the decline in the cfaf/dollar rate shipments- but also to other trade partners, and translates into a fall in cIv’s real effective an attendant pickup in cIv export values and exchange rate- a good measure of the global volumes; in similar fashion, dollar-denominated attractiveness of cIvs exports-of some 2.7 imports into the cIv market would be anticipated percentage points from baseline over the to come under some downward pressure, as simulation period22; import prices increase in-line with adjustments in the exchange rate. Table 6 : Model simulation: 10% depreciation of euro vs dollar Differences from baseline, percent-or percentage change1 2014 2015 2016 Nominal exchange rate (%)2 Euro per dollar 10.0 10.0 10.0 CFAF per dollar 10.0 10.0 10.0 Real Effective Exchange Rate (%) Euro -4.6 -4.4 -4.3 CFA -2.8 -2.7 -2.7 Real GDP (change in %) 0.5 1.2 1.6 Exports 0.7 1.4 1.9 Imports 0.4 0.3 0.1 Current account (% GDP) 0.2 0.5 0.8 Source: World Bank, Development Prospects Group. Notes: 1/ Exchange rate and current account are differences from baseline levels in percent. GDP and trade are differences in growth rates from baseline. 2/ Depreciation represented as increase in domestic price of the U.S. dollar. 21 the euro-depreciation simulation is carried out over a 3-year forecast horizon (2014-2016), using the ‘isIM’ World Model system developed at the World Bank (dEc prospects Group). the model, which is used to generate projections found in Global Economic prospects reports of the World Bank, is grounded on the demand side of economies, and links some 140 countries through connections in goods trade and country-specific export- and import prices, tied in turn to exchange rate projections. for this simulation, the dollar-per-euro exchange rate has been lowered by 10% in 2014 and sustained at this level for the following two years (against an unchanged baseline forecast for exchange rates), and the effects on trade and Gdp dynamics as found for cote d’Ivoire are examined. 22 the real effective exchange rate (rEEr) takes into account the nominal exchange rate of a country’s key trade partners, as well as price developments in the home-as well as partner markets- to arrive at a measure of real competitiveness. a 2.7 percent improvement in cIvs rEEr (contrasted with a greater 4.5 percent gain for the Euro area) is tied to the large share of cIv trade that is carried out with the cfa (WaMEU) and Euro Zones, such that nominal exchange rates versus partners are changed fairly little, as well as stronger inflation pass-through of currency depreciation for cIv vis-à-vis Europe. - 39 - cote d’Ivoire Economic Update - March 2015 IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs • in turn, exports experience a gradual build-up in initial fillip to Gdp in cIv, complemented by momentum contrasted with baseline, amounting positive spillover effects to domestic demand, to almost a 2 point boost to volume growth by consumer outlays (posting a 0.5 point 2016; though cIv exports are largely priced in improvement), as well as investment spending (up dollars (cocoa, cashews, coffee, rubber etc.), cfaf by nearly 2 points), which serve to underpin Gdp exporters will gain from currency depreciation- all growth at a pace which averages 1.1 percentage else equal- as receipts in local currency will be points stronger than baseline; though the higher; moreover, on the supply side, a gradual simulation results portray a beneficial overall net movement of resources toward the tradable goods effect of currency depreciation for cIv growth sector is likely to be induced by higher returns to dynamics, an important downside risk is the exporting; imports are viewed to rise only higher inflation brought about by depreciation-the moderately from baseline gains as higher import extent to which wage costs (not captured by the prices serve as a restraint on demand; and given economic model) can serve as a conduit for the developments in trade flows, the current account spread of imported inflation, and the limited set of balance improves as a proportion to Gdp by 0.8 instruments available to policymakers to dampen percentage points by 2016; upward price trends. • fairly strong gains for net exports provide an cote d’Ivoire Economic Update - March 2015 - 40 - IvorIan EconoMIc pErforMancE sIncE thE End of thE post-ElEctIon crIsIs references caldéron, c., and servén, l. (2004). “the Effects of Infrastructure development on Growth and Income distribution,” World Bank policy research Working paper no. 3400. World Bank: Washington, d.c. collier, p., (2009). “post-conflict recovery: how should strategies be distinctive?” Journal of african Economies 18, aErc suppl. 1, pp. i99-i131. david, a., Bastos f. and Marshall Mills (2011). “post-conflict recovery: Institutions, aid, or luck?” IMf Working paper no. 11/149. International Monetary fund: Washington, d.c. direction de la conjuncture et de prévisions Economiques (2014) « note de conjuncture Juin 2014 ». World Bank (2012). “cote d’Ivoire: the Growth agenda: Building on natural resources and Exports,” report no. 62572-cI. World Bank: Washington d.c. World Bank (2014). doing Business 2015: Going Beyond Efficiency. World Bank: Washington d.c. World Bank (2014) “sources of Economic Growth in cote d’Ivoire: a diagnostic of Growth opportunities and challenges”. Mimeo. World Bank: Washington d.c. - 41 - cote d’Ivoire Economic Update - March 2015