VZCZCXRO1690
PP RUEHMA RUEHPA
DE RUEHDK #0153/01 0381153
ZNR UUUUU ZZH
P 071153Z FEB 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9990
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE
UNCLAS SECTION 01 OF 02 DAKAR 000153
SIPDIS
SIPDIS
STATE FOR EB/IFD, AF/EPS, AND AF/W
TREASURY FOR OIASA/EBARBER, RHALL
E.O. 12958: N/A
TAGS: ECON EFIN EAID ETRD EINV SG
SUBJECT: SENEGAL'S ACCELERATED GROWTH STRATEGY - MOVING FORWARD OR
GETTING BOGGED DOWN?
DAKAR 00000153 001.2 OF 002
1. SUMMARY: On December 31, 2007, Senegal's National Assembly
passed a law to speed up the implementation of one of President
Wade's cornerstone economic policies, the Accelerated Growth
Strategy (AGS). The legislation also combines the AGS' goals into
Senegal's 2006-2010 Poverty Reduction Strategy Paper's (PRSP)
priorities, which are designed to achieve the Millennium Development
Goals by 2015. The law also called for the introduction of new
action plans to boost key strategic sectors (agriculture, fishing,
tourism, textile, and electronic customer support services) and to
establish Senegal as "a world class business environment." The AGS
has faced criticism for being overly optimistic given Senegal's
history of modest growth and for underestimating current
difficulties in key strategic sectors. END SUMMARY.
AGS DESIGNED TO BOOST ECONOMIC GROWTH AND IMPROVE OVERALL BUSINESS
CLIMATE
--------------------------------------------- -----
2. The AGS was officially "launched" in September 2007 but had been
a central point of discussion within the GOS and with donors since
January 2005. The underlying goal is to establish sustainable real
annual GDP growth of at least seven percent in a manner that creates
jobs, increases incomes, and reduces poverty. The AGS's stated goal
is to establish the private sector as the engine for growth instead
of the public sector. The AGS approaches this goal with two main
pillars: the selection and promotion of strategic sectors with high
potential for economic growth and the establishment of "a world
class business environment." Consultations among different
partners, including donors, researchers, and civil society groups,
helped formulate AGS's focus on the following sectors:
agribusiness; fisheries and aquaculture; tourism and artisanal art;
textiles; and communication and information technologies and
services. The National Assembly's action was not the final
bureaucratic step. Next, a committee will finalize the action plan
for the key sectors with the plan needing to be approved by a decree
from President Wade, before the end of February if the program stays
on track.
3. According to the action plan, the GOS aims to establish "a world
class business environment" by implementing structural reforms to
improve the business climate, reduce red tape, combat corruption,
reinforce the judicial system, improve transportation
infrastructure, enhance electricity transmission systems, modifythe
labor code to make it more flexible, improveprivate sector access
to credit, and update land ownership laws. Emerging from this
effort is suposed to be a new dynamic for entrepreneurship (wit a
focus on women and private investment.
4. The same basic package of action items to improveSenegal's
business climate have been on the GOS'sagenda for more than a
decade, but they have notbeen implemented, largely due to political
conflcts of interest. However, Senegal has taken some positive
steps lately, including progress on a new special economic zone to
ease access to land for investors, the reduction in the length of
time to create a business from 58 days to 2 days, a new focus on
public-private-partnerships, and the establishment of a regional
center in Saint Louis to monitor the drag on business of
administrative procedures.
BURDENED BY A COMPLEX VISION AND UNDERLYING REALITY
--------------------------------------------- ------
5. Actual implementation of the AGS will likely require financial
and program support from donors, and significant outlays from
Senegal's budgets, both national and local. An accommodation of
government-driven administrative bureaucracy is also assumed. The
Prime Minister's office is to create a National Steering Committee,
to "reinforce and strengthen consensus and communication among the
civil servants, the civil society, the private sector and all the
other economic and social development actors" to support the AGS's
goals. The strategy promotes a broad range of key principles
including using the cluster approach for strengthening targeted
sectors, promoting public-private partnerships, and building a
national "pact" for economic emergence by partnering with labor
unions and civil society.
6. Though the AGS objectives are clearly identified, critics and
observers find the scenarios for real GDP growth very optimistic,
given the historical trends of real GDP growth in Senegal -- which
has never reached 6.5 percent since 1994 and is anticipated to be at
4.8 in 2008 (according to Senegal's Department of Forecasting and
Economic Studies). Another concern is that ongoing, massive
subsidies to the energy sector, which in recent years had
contributed to a worsening of Senegal's fiscal deficit, could easily
undermine macroeconomic stability in the years to come. As noted by
one opposition leader "in a country with no major sustainable energy
development policy, the success for the AGS to meet a seven percent
real GDP growth per year, reduce poverty, create wealth, and attract
DAKAR 00000153 002.2 OF 002
new investors, might be seen to be an illusion."
7. Apart from the communication and information technologies and
services cluster, the main pillars of the AGS (agriculture, fishing,
tourism, and textile) are all facing deep-rooted structural
difficulties. For many, the AGS is not a plan for a more modern
economy, but rather a continuation of support to sectors which are
largely uncompetitive in a global economy. Politically and
socially, however, the GOS is hoping to keep them afloat since they
account for a huge portion of employment in the country and are key
to alleviate poverty in rural areas.
8. USAID/Senegal's economic growth program is designed to support
the AGS. Technical assistance and training is provided to develop
the policy reforms necessary for AGS implementation, promote
public-private partnerships and increase exports among the clusters
targeted by the strategy.
AGS TO BE ALIGNED TO PRSP II
----------------------------
9. The law passed by the National Assembly (as drafted by President
Wade's administration) requires additional complexity for the AGS by
requiring that it align with the country's development goals found
in the second Poverty Reduction Strategy Paper (PRSP II). The GOS
foresees that this cohesion of the two programs will require
additional extensive consultations with a broad range of partners
from the private sector, trade associations, donors, and civil
society. Also, the AGS and PRSP II have to be in line with the
Millennium Development Goals to alleviate poverty, improve
education, and health conditions.
COMMENT
-------
10. We applaud the goals of a program to significantly enhance
growth rates, and the GOS's engagement with the private sector and
donors on its implementation. Although ambitious, the framework of
the AGS appears sound. The risk is that, like many GOS programs, the
AGS will become overburdened by grand themes and special interests.
Applying what should be clear-eyed approaches to an economic growth
action plan to the development guidelines of the PRSP and MDGs risks
weighing-down both efforts. Moreover, it remains to be seen if the
government places sufficient urgency on implementing the necessary
policy reforms for the AGS to have any affect on growth rates in the
near future.
SMITH