Côte d'Ivoire: Despite military mutinies, economic growth will continue

03 May 2017

Intermittent mutinies by sections of the Ivorian armed forces are likely in 2017. Whilst destabilising, an outbreak of civil war is not anticipated. However, payments to mutinying soldiers will divert funds from counter-terrorism efforts. Côte d’Ivoire will maintain robust growth rates despite a slump in global cocoa prices, as the government maintains planned investment in large capital projects.

Security Environment

Whilst the risk of civil war in Côte d’Ivoire has decreased since post-election violence in 2010−11, stability was threatened by military mutinies in January 2017. On 6 January 2017, troops in Bouaké took to the streets, demanding the payment of bonuses previously promised to them.

Participating troops were primarily former members of the rebel Forces Armées des Forces Nouvelles (FAFN), which was incorporated into the army following the 2010-11 conflict. During mutinies that followed across the country, four soldiers were killed in Yamoussoukro and Abidjan port was briefly closed, disrupting cocoa exports. The government offered staggered bonuses to the troops totalling around USD 19,000 each. 

The mutinies highlight the lack of integration between the FAFN and the national army. The FAFN exists under a distinct command chain and retains its own weapons and ammunition. The sizeable settlements offered will strain military finances, preventing reforms aimed at improving integration in the army. 

Whilst the army is essentially loyal to the government and civil war is not likely, further destabilising mutinies will be likely in 2017, as troops see the lucrative payoffs offered to others. 

Payment of bonuses will divert funding from counter-terrorism efforts on the Malian border.

In March 2016, al-Qaeda in the Islamic Maghreb claimed responsibility for an attack in which gunmen killed 19 people at a hotel in Grand Bassam. Companies will continue to be exposed to heightened terrorism risks in the medium term.

Trading Environment

Following a 35% fall in cocoa prices in 2016, and unscheduled payments to civil servants and soldiers in the past two months, Côte d’Ivoire’s fiscal deficit is forecasted to widen to 4.5% of GDP this year, from 3.9% in 2016. The government secured USD 658 million in International Monetary Fund (IMF) loans in December 2016 and is reportedly approaching the organisation for further budgetary support. 

Increased borrowing to fund the deficit should not substantially elevate sovereign credit risks in the medium term. Côte d’Ivoire has run a primary surplus in the last three years and keeps borrowing costs low through its engagement with the IMF. President Ouattara also announced plans in April 2017 to cut the government budget by 10% in 2017 to offset reduced revenues.

The country’s sovereign credentials will mitigate the need to pull back from planned spending, allowing public investment to be a key driver of economic growth. The government’s National Development Plan aims to channel USD 5 billion worth of funding into large capital projects within the next five years. 2017 will see the construction of three major projects, including two hydropower plants totalling USD 1.1 billion in Soubré and Songon. As a result, Côte d’Ivoire’s economy is projected to grow by 7.8% in 2017.

Investment Environment

Contract alteration risks in Côte d’Ivoire’s cocoa industry will recede as a result of recent price falls. In previous years, domestic companies had campaigned to expand their share of cocoa exports, elevating concerns among international firms over local content requirements. 

In 2014, traders were instructed to export 150,000 tonnes of the harvest through domestic exporters, selected by the industry regulator. The quota later rose to 220,000 tonnes. 

However, many domestic companies, who had gambled on continued price rises, were unable to withstand price falls and were forced to default on purchase deals, leading to industry losses of USD 329.5 million. As the government looks to support the struggling sector, it is likely to take an accommodative stance towards foreign firms, reducing the likelihood of contract alterations or expropriation.

Pricing chart for Cote d'Ivoire

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Nigeria, Trinidad and Tobago and Russia, all of which have been the subject of recent enquiries from JLT's client base.

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