Question

1. Is Côte d'Ivoire politically or economically risky? Why or why not?

Answer 1

Cote d'Ivoire Country Risk Report Q2 2020

Economists expect that economic growth in Côte d'Ivoire will remain robust in 2020, driven by a large project pipeline boosting construction. More modest expansion in the agricultural and manufacturing sector – due to a deceleration of cocoa production growth – will see headline real GDP growth slow slightly from 2019. And the pandemic also greatly impacted the economic degrowth of the country.

There is likely to be an uptick in political and social instability in the run-up to, and aftermath of, the upcoming general election in Côte d'Ivoire. Though the election result is difficult to predict at this time, it seems likely that the outcome will be peaceful, given the likelihood of agreements being struck between rival political candidates.

We expect that the Ivorian current account deficit will widen slightly in 2020 and 2021 on the back of rising demand for capital goods imports and primary income outflows. Côte d'Ivoire will see its budget deficit narrow in 2019 and beyond, driven by improved revenue-collection measures.

Key Risks
The downside risk of renewed civil war started by tensions surrounding elections in 2020 could derail the country's substantial economic and political progress since 2011.

Election-related spending poses the main budgetary risk

In 2020, the budget deficit is expected to remain close to the WAEMU convergence criterion (3% of GDP). Strong economic activity and collection efforts are expected to support an increase in tax revenues, which represent less than 17% of GDP. Investment expenditure, mainly in infrastructure projects, should continue to absorb the bulk of budgetary resources. Spending will include implementation of the government's 2019/2020 social programme with, in particular, the gradual rollout of universal health coverage. Current expenditure is set to increase with the costs of organising the election, while efforts to control the public wage bill should be kept up. The cost of debt service is also expected to increase. The deficit is expected to be financed by domestic and external borrowing. Fiscal policy should get support from IMF programmes, which are expected to be extended into 2020. Debt, which is at its highest level since the country benefited from restructuring under the HIPC initiative, is expected to stabilise. The risk of debt distress remains exposed to external shocks, such as a fall in cocoa prices, or domestic shocks, including the threat of fiscal slippage during the election period.

The current account deficit is expected to stabilise after being hit in 2017 by the combined impact of a deterioration in the terms of trade (with the fall in cocoa prices) and higher imports. The trade surplus should be virtually unchanged, with increased imports of capital goods offsetting higher exports. Deficits in the balance of services (freight and services related to project implementation), income (profit repatriation by foreign companies and debt interest payments) and transfers (remittances by foreign workers) will push the current account into the red. Financial flows, mainly FDI, project loans and portfolio investments, will finance the current account deficit and may contribute to the accumulation of WAEMU's common foreign exchange reserves.