Corruption questions, debt cloud Senegal image: analysis


Senegal’s image as a promising investment destination is being tarnished by questions over its public finances and its unconvincing handling of corruption accusations, analysts and investors said.

Senegal took advantage of its reputation as one of West Africa’s more stable economies to launch a maiden $200 million bond in December, while incumbent telecom firm Sonatel is the region’s most fancied stock.

But spending choices by President Abdoulaye Wade that include a controversial multi-million-dollar monument in the capital Dakar have raised eyebrows at a time when Senegal is forecast to see an increase in its national debt.

Moreover investors say it has failed to address questions over official graft, including an alleged embezzlement of cash from the award of a telephone operating licence.

They warn that funds could shift to African economies seen as more transparent.
“We would expect more to be done to make it more transparent. Not enough effort is being done in that direction. That is a major disappointment,” said Luca Del Conte, executive director at London-based Africa specialist MediCapital Bank.

Senegal announced in March it was holding the former head of its telecoms regulator on suspicion that he embezzled around $250 000 from the 2007 award of a telephone licence to Sudan’s Sudatel, which has denied any wrongdoing.

While the official has since been released after putting the disputed cash into escrow, Wade’s government has yet to react to local reports alleging the involvement of more senior officials.

Parting gift

The affair comes after Wade’s government first denied and then admitted last October it gave a cash gift of $172 000 to the outgoing resident envoy of the International Monetary Fund.

The IMF official said he gave the money back as soon as he realised what it was.

Senegalese officials insist it would have been nonsensical to try to sway a departing official and argued that parting gifts were an African tradition.

But such affairs are beginning to hurt Senegal’s image.

The country slipped 14 places to 99th place in anti-graft watchdog Transparency International’s 2009 survey ranking countries according to perceived efforts to curb corruption.

In a rare diplomatic intervention, US ambassador to Senegal Marcia Bernicat last month told the government that keeping a $540 million US grant depended on it fighting corruption, earning herself a furious public rebuke from Wade.

Senegal’s lacklustre recovery from the global slowdown, with a growth rate of just over 3 percent seen this year, is triggering separate concerns over its public finances.

Standard & Poor’s Ratings Services downgraded its outlook on Senegal to “negative” from “stable” on May 27, forecasting that state spending and the weak recovery would bring government debt to around 40 percent of output by 2012, double the 2008 level.
“If the government does not adopt more active policies in addressing these risks … pressure on public finances may prompt us to lower the ratings on Senegal,” it warned of its “B+” long-term and “B” short-term sovereign credit ratings.
“Do the comparison”

London-based Business Monitor International saw no risk to bond coupon repayments but queried Wade’s decision to launch in April a $28 million “African Renaissance” monument in Dakar and to divert a third of tourist revenues from it to his personal charity — a move Wade has defended, saying it will help poor children.
“The authorities risk souring perceptions of their intentions to pursue fiscal consolidation,” said Alan Cameron, sub-Saharan analyst of the British-based business intelligence group.
“This would be especially so if the government returned to the international capital markets seeking funding.”

Senegal’s finance minister told Reuters last week the country may do just that in 2011, with plans to raise some $300 million in funds for road-building projects.

Already its maiden bond is suffering from market nerves over the Greek debt crisis to yield above 10 percent.

MediCapital’s Del Conte warned investors could favour debt from other countries seen as more transparent, noting that Kenya and Zambia are expected to launch bonds by year-end.
“As other similar products come up in the sub-Saharan Africa region, you have to do the comparison — and for Senegal it starts to look not so positive,” he said.
“The Senegal bond will suffer in the short-term.”

Pic: President Abdoulaye Wade of Senegal