Côte d’Ivoire is making up for lost time. Average per capita income has risen nearly 40% since the end of the crisis in late 2011, reaching $1,630 in 2017 or approximately the prevalent level of the mid-1980s. At this rate, the country could join the group of middle-income economies, as defined by the World Bank, by 2035, with income per capita at around $4,300.
However, this remarkable performance is tempered by two factors. First of all, the nation’s strong economic growth is not yet inclusive, as is now well established and acknowledged by the Government. The officially reported poverty rate consequently fell just five points between 2011 and 2015. One of the major challenges facing Côte d’Ivoire is therefore to improve the redistribution of the fruits of growth.
Second, the country needs a long-run sustainable economic growth model. The use of natural resources for production should not jeopardize future generations. Yet the country’s stock of natural capital is in danger. Côte d’Ivoire has one of the world’s highest rates of deforestation at a time when its coastal plains are being eroded by rising waters. The country’s urban populations are increasingly exposed to flood-related material and social damage. And Côte d’Ivoire is also highly vulnerable to climate risks, ranking the 147th least resilient nation of 169 countries.
This Seventh Economic Update for Côte d’Ivoire hence reviews the Ivorian economy’s state and outlook before turning to the impact of climate change on the country and, in particular, exploring the options available to mitigate these shocks in both the short and long term. With the clock ticking, the report advocates urgent, concerted action to make sure that “tomorrow never dies.”
Part 1: The state of the Ivorian economy
The start of 2018 marked an improved shift in the Ivorian economy. After some political and social instability in the first half of 2017 and a hard-hitting dramatic drop in world cocoa prices, both the country’s internal and external conditions stabilized. These developments are partly behind the good economic results posted by Côte d’Ivoire in recent months, but it is still too early to tell if the country will remain on an even keel.
The economy continued to grow rapidly, with a GDP growth rate touching on 8% in 2017. This performance was driven mainly by the agricultural sector, which enjoyed positive climate conditions and a rise in prices (with the exception of cocoa). Although the service sector kept up its momentum of recent years, the secondary sector slowed, owing partly to a downturn in public works contracts in the construction sector.
The fall in the contribution of private investment and consumption could be the more visible sign of a shift occurring in the nature of growth. Whereas the private sector accounted for 10.5 percentage points of growth in 2015, its contribution slipped back to 9.3 percentage points in 2016 and just 2.9 percentage points in 2017, although the shortfall was offset by the public sector and the external sector. A number of business variables – such as credit in the economy and the construction index – combine to confirm this private sector slowdown. It is probably due to the lack of improvement in the business climate, uncertainties created by the social unrest of the first half of 2017, and the presidential elections set for late 2020.
All financial and monetary indicators remained relatively stable in 2017, starting with inflation holding steady at less than 1%. The monetary policy conducted by the Central Bank of West African States (BCEAO) remained cautious owing to slightly less growth in credit than in previous years. The financial system is healthy on the whole, with an increase in bank equity even though the proportion of delinquent loans rose slightly from 9% to 9.9% between 2016 and 2017. Côte d’Ivoire’s mobile phone revolution continues to make strides as 34% of adults had a mobile account in 2017, which is three times more than those who had an account with a financial institution.
Externally, the current account balance deteriorated slightly from 1% to 2% of GDP between 2016 and 2017. Whereas the balance of trade improved with the good performance of the export sector, especially agricultural exports, the balance of services and primary balances posted a downturn. The external deficit was easily funded by a combination of foreign direct investment (FDI) and foreign aid as well as by government bond issues on the Eurobonds market.
Fiscal policy was brought under control in 2017 with a deficit lower than expected at -4.2% (versus the projected -4.5% of GDP), albeit deeper than in 2016. The increase in security expenditures was largely offset by contained investment expenditures, which were underspent. Public finance management also improved in three areas:
- Revenue collection. The authorities adopted a number of administrative reforms (e-payment, personal identification number, and database harmonization), which raised revenues by approximately 15% in real terms between 2016 and 2017. This effort was counterbalanced in part by the reduction in oil and cocoa taxation to protect economic players from the oil and cocoa price fluctuations.
- Management of government arrears and payments. The Government made good on the payment of invoices accumulated in the electricity sector and has been paying all its invoices on time since the beginning of 2017. It also made payments on its arrears with suppliers of goods and services for a sum of over $400 million. In addition, it brought more transparency to financial transactions in the cocoa sector by funding an independent audit, which found irregularities costing the Coffee-Cocoa Board (CCC) nearly $300 million.
- Public debt management. With loans contracted on the international market on extremely soft terms in May 2017 and then in March 2018, the Government was able to meet its borrowing requirement at a reasonable cost and reprofile part of its existing debt. The country’s public debt is estimated at around 46% of GDP – representing a moderate risk – and debt servicing absorbs less than 15% of government revenue, which is three times less than in countries such as Ghana and Togo.
The Ivorian economy’s short- and medium-term outlook is positive, as it is on course to stay on a GDP growth path of some 7% to 7.5% in the coming years. The Government’s fiscal consolidation policy is expected to slow growth slightly, although the increase in private sector activities should partially offset this effect. The Government will have however to accelerate the implementation of reforms aimed at improving the business environment, scaling up its partnership projects with the private sector, and promoting the agricultural processing sector.
Inflation is forecast to remain contained below the community norm of 3%. Growth in the money supply should be controlled by the Central Bank of West African States’ prudent policy, and growth in bank loans is expected to remain in line with economic growth. The commercial banks look set to gradually diversify their portfolio driven by technological innovations, the use of new instruments, and increased competition from mobile telephony.
The country’s external situation should remain stable, albeit with a slight deterioration owing to an increase in imports required by a number of large-scale public works (Abidjan subway, fourth bridge, etc.).
The Government is on course to reduce its deficit from 4.2% of GDP in 2017 to 3% of GDP in 2019 – in compliance with the standards established by WAEMU – by means of a simultaneous revenue and expenditure effort. A raft of administrative reforms is set to increase the tax base and bring in more revenues. Expenditure effectiveness should be improved by new procurement procedures (with the introduction of an electronic system) and more stringent internal and external controls.
The Ivorian economy nevertheless remains vulnerable in a number of areas. Externally, the major risk will continue to come from commodity price fluctuations owing to the Ivorian economy’s lack of diversification. Where cocoa prices put a squeeze on the economy in 2016 and then 2017, the doubling of international oil prices over the past 18 months could well force the Government to pass the increase on with a more or less sharp rise in fuel prices, which would impact negatively on the transport sector.
Domestically, the political climate could deteriorate in the run-up to the next presidential elections. Greater uncertainty could put a brake on investments and slow economic activity. A rise in social unrest, as seen in the first half of 2017, could influence the management of fiscal policy if the Government were to agree to new demands.
In addition to these short-term risks, the sustainability of Ivorian growth depends in part on the sound management of its stock of natural capital. It would be counterproductive and dangerous to finance current growth by wasting the country’s natural reserves at the cost of future generations.
Côte d’Ivoire’s recent growth has been based partly on the use of its stock of natural resources, estimated by the World Bank to have diminished 26% between 1990 and 2014. The loss is not as great as in certain oil-producing countries (-63% in Nigeria) and certain agricultural-mining nations (-32% in Tanzania), but it is still a cause for concern. It comes in sharp contrast to the performance of emerging countries that have successfully developed their stock of natural capital, such as Brazil (+57%) and Thailand (+92%). Although this is just an approximation, it is borne out by a number of visible phenomena such as deforestation, depletion of water reserves, and coastal erosion.
The decline in the stock of natural capital due to the management of economic growth is compounded by climate change risks, which could significantly affect the country’s long-term stock of natural resources.
Mainstreaming natural capital in Côte d’Ivoire’s growth strategy calls for an effort from the authorities on at least three levels. First, they need to develop a monitoring framework to improve the evaluation of the impact of different economic policy choices on the country’s growth path. Second, they need to look into the instruments available to them to influence both public and private investors’ decisions. Third, they should consider the fiscal repercussions of these policies, since a good number of measures will not be financially neutral for the Government.
Part 2: The climate change challenges in Côte d’Ivoire
Although Côte d’Ivoire suffers from climate change, it could become one of the African continent’s champions in adapting its economy to the phenomenon and mitigating its effects. Like the vast majority of countries on the African continent, the nation’s contribution to the greenhouse effect is marginal. By 2050, it is projected that the country will be confronted with the combined effect of the increase in temperatures (+2°C), variation in rainfall (-9% in May and +9% in October), and rising sea levels (30 cm).
Economic development and the climate are inextricably linked: without suitable measures, climate change and variability will jeopardize the hard-earned progress made in the past few decades and could plunge millions of Ivorians into poverty. In the absence of a thorough study on the impact of climate change on the Ivorian economy, the report presents a preliminary approach based on piecemeal information and extrapolation of the findings of studies conducted for other countries and the African continent as a whole. The Intergovernmental Panel on Climate Change (IPCC), for instance, estimates that climate change could reduce GDP by 2% to 4% across Africa by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 to 770 billion. These losses would be borne by the agricultural sector, human capital, and infrastructures.
More critically, climate change could plunge 2% to 6% more households into extreme poverty by 2030. In Côte d’Ivoire, that would amount to nearly one million more people in a situation of extreme poverty (living on less than $1.90 per day), in addition to the six million poor in the country today.
The report focuses in particular on the cocoa sector and coastal erosion to clearly illustrate the costs of climate change. Cocoa, which represents one third of the country’s exports and earns an income for over five million people, is one of the major causes of Côte d’Ivoire’s deforestation today (60% of the forests disappeared between 1990 and 2015). Cocoa growing is also jeopardized by the eventuality of gradually rising temperatures reducing soil fertility in the southeast’s traditionally agricultural regions.
Côte d’Ivoire’s 566-km coastline is one of the longest in West Africa alongside Nigeria, Mauritania, and Senegal. Nearly 7.5 million inhabitants, or 30% of the Ivorian population, live on the coastal plains where nearly 80% of the country’s economic activities are found.
Today, more than two-thirds of the Ivorian coastline is affected by coastal erosion. Loss of land to the sea has already had dramatic impacts. The former colonial town of Grand-Lahou has now completely disappeared under water and the historic town of Grand-Bassam, a UNESCO World Cultural Heritage Site, is also in danger. Loss of beaches and dunes, which provide natural flood protection, has exacerbated the impacts of floods from the sea that engulf towns and villages when strong storms strike. It also represents a threat to the country’s economy in terms of the potential impact on major industrial facilities and infrastructures such as the Société Ivoirienne de Raffinage (SIR) oil refinery, Abidjan International Airport, the Abidjan and San-Pedro port authorities, coastal roads, industrial plantations, and large hotel complexes in Abidjan, Grand-Bassam, Assinie, and San-Pedro. The cost of coastal zone damage from climate change has not been estimated in detail. However, a case study on the Port-Bouët area (0.4 million inhabitants) puts a figure of CFAF 1.4 million to the cost of erosion and floods from the sea in 2015 alone.
The Ivorian Government has understood the importance of taking action to address the dangers of global warming, and is already very active on the international scene. Côte d’Ivoire is one of the African countries to have presented among the most ambitious short- and long-term risk reduction strategies. Such a strategy may come with a high price tag, but it is less expensive than the cost of inaction. Experience has shown, for example, that it costs approximately ten times more to rehabilitate a road not designed for climate risks than to incorporate the risk when building the road.
An effective reduction and adaptation policy needs to involve all stakeholders. The Government may do well to put in place reference frameworks, if not incentives and sanctions, but implementation of the strategy depends on all the stakeholders. Today, however, there appears to be relatively little involvement by local players in Côte d’Ivoire. The widely held idea that the effects of climate change will inevitably be felt in the future can be seen from there being no or little public debate on climate change issues and public opinion’s lack of interest in the subject. It is vital to better explain climate change to the population, especially its origins, repercussions, and the adaptation means available. All Ivorians need to understand that they can improve their relationship with nature and help combat climate change, whether in the form of taking public transport rather than traveling by car or businesses funding reforestation projects.
Climate change mitigation and adaptation offer many economic opportunities and benefits for Côte d’Ivoire. The cost of clean technologies has come down and the 2015 Paris Climate Agreement sent a clear signal to business and investors the world over that a low-carbon future is possible. Bilateral and multilateral donors have also firmly committed to the goal. The report spotlights (i) renewable energy; (ii) cocoa sector adaptation; (iii) integrated coastal zone management; and (iv) road transportation modernization and adaptability. These sectors all have an important role to play in climate change mitigation while helping to modernize the economy, reduce pollution, improve the population’s health, and increase government revenues through better carbon taxation as they create new green jobs.