Senegal’s democracy at stake

A key democratic election in Senegal [View in browser]( [Bloomberg]( Welcome to the [Year of the Elections](, Bloomberg’s new newsletter on the votes that matter to markets, business and policy amid the most fragmented geo-economic landscape in decades. Weeks of upheaval sparked by a bid to delay presidential elections in Senegal have cast a pall over one of Africa’s top investment destinations and a nascent oil and gas producer.  The fact that [the vote will go ahead]( on Sunday — albeit a month later than originally planned — is a boost for democracy in Africa, where elections are all too often stolen or circumvented, and trust in the system is eroding. International interest in the contest extends well beyond ensuring that [due process is followed](and stability is restored. Hydrocarbon production is due to begin in the third quarter, and there will be no shortage of customers in Europe who have sought to diversify their supply following Russia’s invasion of Ukraine. Diplomatic considerations are at play too. France, in particular, has lost its long-standing grip on the Sahel region [after falling out with junta leaders]( and withdrawing troops that were deployed there to help quell jihadist insurgencies. Maintaining good relations with Senegal will be pivotal for Paris to retain influence in the region. For investors who have piled into bonds in one of the world’s fastest-growing economies, an end to a to-and-fro over the election date [came as a relief](. But the appointment of a new leader won’t necessarily bring an end to political uncertainty. Victory by the ruling coalition’s candidate, Amadou Ba, who was handpicked by President Macky Sall and served as his prime minister before stepping down to campaign, would likely ensure there is policy continuity. His main challenger Bassirou Diomaye Faye, who has no previous experience in government, has touted himself as an anti-establishment candidate determined to assert Senegal’s financial and political independence from Paris. It isn’t clear who will win, but a peaceful, credible vote will go some way toward restoring Senegal’s reputation as a bastion of stability in an otherwise volatile region. There have been eight [coups in West and Central Africa]( since 2020, several of them celebrated by a citizenry disenchanted with governments that failed to deliver jobs, security and better living standards. Gabon, Guinea, Burkina Faso, Mali, Niger and Chad are all currently under military rule. Senegal has never had a power grab but its institutions have been under siege, particularly since Sall postponed the vote scheduled for Feb. 25 and lawmakers sought to amend the constitution to extend his rule by at least 10 months. The nation’s citizens stood firm, taking to the streets to reject any subversion of the electoral process and demand that their civil rights be protected. The country’s top court [ruled that any extension]( to Sall’s tenure would be illegal. Their steadfastness has come at a cost. At least 60 people have been killed and as many as 1,000 have been arrested since antigovernment protests erupted in March 2021, according to civil rights groups. An election that upholds the will of Senegal’s people is the least they deserve. —[Yinka Ibukun]( A rally in Dakar after the release of Faye and opposition leader Ousmane Sonko on March 15. Photographer: Annika Hammerschlag/Bloomberg Senegalese Economy Q&A We spoke with Yvonne Mhango, our Africa expert at Bloomberg Economics, for her perspective. As Senegal prepares for elections, what are the key economic headwinds it’s facing? In recent years, Senegal has had to navigate several crises including the pandemic, the sharp rise in cereal prices induced by Russia’s invasion of Ukraine, and India’s restrictions on exports of rice, an important food import. This has manifested as high debt, elevated inflation and a weaker external position. Stabilizing debt — currently around 80% of GDP — is a key focus of the current administration, which is implementing an [International Monetary Fund-endorsed fiscal consolidation strategy](. The plan is to lower the budget deficit to 3% of GDP by 2025, by removing energy subsidies and boosting revenue collections. Looser fiscal policy is a likely outcome in the event that an opposition candidate wins the election, raising Senegal’s debt vulnerability. What will the outcome of the election mean for the Senegal’s relationship with the IMF? Ba would be likely to continue pursuing fiscal consolidation under the current IMF program. If Faye were to win, there is a risk that he would decide to shift from the current arrangement, as it may not be aligned with his policy plans. Renegotiation of the terms in the current program is possible, though it’s unlikely the IMF program would be scrapped. An extension of the timeline for the government to meet the targets is a more probable outcome. Halting the debt-stabilization strategy would spook investors and drive up eurobond yields, increasing Senegal’s borrowing costs. The Markets Take [Colleen Goko-Petzer](, reporter on the emerging markets team, outlines the possible market reaction. Holders of Senegalese dollar debt are pinning their hopes on a victory for Ba, Sall’s anointed successor. Any other outcome is likely to unsettle the nation’s bond markets. Investors value Sall’s government for its economic track record, with annual growth having averaged more than 5% since 2012. Senegal’s dollar-denominated bonds [have delivered returns](of 123% since then, outperforming peers in a Bloomberg index for sovereign emerging and frontier hard currency bonds, which averaged 47%. After initial disruptions following the delayed vote, Senegal’s 10-year spread is trading near four standard deviations from its six-month average, indicating that potential downside risks are already factored into current prices, so an expected result may suggest a rally. Potential risks for the market include contested election results and protests, which may lead to the spread widening. The appointment of an opposition leader not aligned with the current administration’s policies may also impact the markets negatively. A relatively smooth election could lead to a bond rally and the potential sale of new debt, which investors would view positively, particularly given the scarcity value of new high-yield debt. Corporate Stakes [Mike Cohen](, an economy and government editor for sub-Saharan Africa, looks at the impact on companies. Sall’s administration bolstered investment in transport links, power plants and other infrastructure and drew in foreign capital. The outlook is even brighter, with oil and gas projects being developed in partnership with companies including [BP Plc](bbg://securities/BP%7C%20LN%20Equity), [Endeavour Mining Plc](bbg://securities/EDV%20CN%20Equity) and [Kosmos Energy Ltd.](bbg://securities/KOS%20US%20Equity) expected to start coming on stream from the third quarter. More than 1 billion barrels of proven crude oil reserves and 910 billion cubic meters of proven natural gas reserves have been discovered in the country since 2014. The IMF expects gross domestic product to expand more than 8% this year because of the anticipated energy boom. Hydrocarbon [production may stall if Faye]( wins the election and follows through on a pledge to renegotiate all gas and mining contracts the government signed with private companies. His plans to review the country’s use of the West African currency — the euro-pegged CFA franc — would also likely spook foreign investors. 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