The Economical Environment of Senegal

Capital: Dakar

Official language: French

Area : 196,723 kmsq.

Population: 13,711,597 (2009) approx

Currency : CFA franc

Prime minister: Souleymane Ndiaye

President: Abdouyale Wade

The area that today is Senegal once was part of the West African Empire of Mali, Ghana, and Tekrur. The country takes its name from the river that runs along its northern and eastern borders, forming the frontier with Mauritania and Mali. A poetic etymology from the Wolof people states that the name derives from the local term Sunugal, meaning “our dugout canoe” (everyone is in the same boat). The Republic of Senegal became independent in 1960 after three centuries of French colonial rule. Dakar, the capital since independence in 1960, lies on the Cap Vert peninsula, the most westerly point in Africa. Before independence, Dakar was the capital of French West Africa , which included nine French-speaking West African states. Although predominantly Muslim, Senegal is a tolerant secular state, whose peoples have lived together peacefully for several generations and have intermingled to some extent. Islam is a potential unifying factor. Wolof is the national language. Independent from France in 1960, Senegal joined with The Gambia to form the nominal confederation of Senegambia in 1982. However, the envisaged integration of the two countries was never carried out, and the union was dissolved in 1989. Despite peace talks, a southern separatist group sporadically has clashed with government forces since 1982. Senegal has a long history of participating in international peacekeeping.

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PESTEL ANALYSIS OF SENEGAL

Political environment affecting Senegal –

These are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. It will further depict how political factors shape the labor after Senegal in market evolution in Senegal after evolution 1945? Its by Pointing out the political factors as a key element in the evolution of the labor market since 1945. The change in the labor market is been mainly shaped by political factors as illustrated by four cases:

The Union franchise : 1946 to 1956

The loi-cadre :1956 to 1960

The early post independence State policy: 1960 to 1980

The post independance State policy at the adjustment structural era: 1980 to 2000

The union franchise: 1946 to 1956

This policy which affects the political factors of Senegal consists of 2 key issues-

The assimilation’s constitution adopted in 1946.

The extension of the investment policy through the adoption of the FIDES (Funds investment development economy society)

The loi-cadre : 1956 to 1960

A metropolitan France response to the growing favor for decolonization in the international community.

It introduced the breakdown of the French west federation and the drastic reduction of industrial investment.

The major consequence was the loss of major markets i.e. guinea, Soudan and ivory coast and the increasing obsolescene of production facilities.

The post independance State policy at the adjustment structural era: 1980 to 2000

The economic crisis that began in 1968, , as well as the effects of rapid population growth and accelerated urbanization deeply compounded the problem of an oversupply of unemployed and underemployed workers.

The adoption of structural adjustment policies led to the withdrawl of the state from the labor market in 1980.

Thus we conclude that the change in the labor market was determined by political factors as well as economic factors.

Economic environment affecting Senegal-

It includes economic growth, interest rates, exchange rates and the inflation rate.

Economic factors includes addressing the basic problems encountered by Senegal’s economy: lack of diversified output, the inefficiency of investments, the role of state in economic activity, and the excessive expansion of domestic consumer demand. These problems have been partly addressed by programs focusing on food self-sufficiency, fishing, and tourism, and by strengthening high-return activities. Projects such as the Manantali irrigation project, the phosphate-to-fertilizer recovery project, and the trawler modernization program are examples of what Senegal is doing within this policy framework. In the area of manufacturing, capacity utilization improvement, equipment modernization, and low-capital production are emphasized. Since 1994, the government has made progress in privatizing state-owned enterprises, reducing labor costs to improve competitiveness in the manufacturing sector, and liberalizing trade by eliminating export subsidies and removing restrictions on certain strategic imports. Private economic revenues accounted for roughly 82% of gross domestic product (GDP)

in 1999, but trade liberalization had not progressed as much as planned.

Social environment-

It includes the cultural aspects and includes health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. The key issue is safe operation of the equipments. It also consists of

1) Symbol stratification: The society historically which was organized into a hierarchy of castes, a rigid structure in which descendants of royal lines and nobles ruled over artisan castes and slaves. After independence, a new set of status criteria emerged. New means for achieving wealth, power, and status were introduced through the market economy and the development of the education system.

2) Symbol of social stratification- During the colonial era, nearly all the profits generated by the largest firms went to foreigners and the local nobility. The nationalization programs led by the government after independence favored a small number of citizens who entered into a new competition for status and power.

3) Social Welfare and change programs: Poor economic management has led to the intervention of the International Monetary Fund and the World Bank in State programs and policies. Two decades of structural adjustment programs have reduced government spending in all public sector activities, including social services. Urban and rural dwellers have adopted creative survival strategies, that have helped them cope with difficult times.

4) Infant rate- People value children greatly. A child is seen as neighborhood property, and so child care responsibilities are shared. Abandonment of infants is rare, and the strength of family bonds limits the need for institutional care of orphans.

5) Child rearing and education: By the time a child is five or six years of age, he or she is taught good values and etiquette. A child should greet elders, help parents with household chores, avoid foul language, and listen to the wisdom of elders. In their early years, boys and girls play together. As they grow older, gender roles become more sharply defined, with the girls remaining more with their mothers to learn household chores.

TECHNOLOGICAL ENVIRONMENT:

It includes technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality and leads to innovation.

The African Regional Center for Technology, with 30 member states, has its headquarters in Dakar. Most research facilities in Senegal deal with agricultural subjects. Dakar has centers for mining and medical research and a research institute on African food and nutrition problems. An institute of research for oils and oilseeds is at Bambey. The Senegalese Institute of Agricultural Research, with headquarters at Dakar, operates a national center of agronomical research at Bambey, a national laboratory of livestock and veterinary research at Dakar, an oceanographic center at Dakar, and numerous other technical facilities throughout the country.

The University “Cheikh Anta Diop” at Dakar, founded in 1949, has faculties of medicine and pharmacy and of sciences, and research institutes in psychopathology, leprosy, pediatrics, renewable energy, applied tropical medicine, applied mathematics, health and development, environmental science, adontology and stomatology, applied nuclear technology, and the teaching of mathematics, physics, and technology. The University of Saint Louis has an applied mathematics unit. Other facilities for scientific training include a polytechnic school; an international school of sciences and veterinary medicine, representing 13 French-speaking countries, at Dakar; and an institute of nutritional technology at Dakar. In 1987-97, science and engineering students accounted for 21% of college and university enrollments. In the same period, four technicians and three scientists and engineers per million people were engaged in research and development.

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ECOLOGICAL/ENVIRONMENTAL FACTORS-

Cultures are quite diverse in moral teachings or beliefs and vary in many ecological aspects like climate, geography, population size, and social organization. The Wolof culture is an African tribe located between the northwestern areas of the Senegal and Gambia rivers. This entire area has a tropical climate and a flat landscape. The climate is usually dry and the Wolof people generally depend on wells for their water needs besides agriculture. The Wolof people are a dominant group in Senegal. The majority of the Wolof is Muslim and is very religious. They are rural villagers and each village may consist of anywhere from 50 to 150 people. Although French is the main language spoken in Senegal, the Wolof language is quite popular. The division of labor is based on social status and gender. The Wolof recognizes the patrilineage descent among villages. The Wolof organizational structure is characterized by bilateral descent. The Wolof group is ideal to study because they represent a high percentage of Senegal’s population and there are a lot of documented sources on their culture. Identifying moral prohibitions and taboos concerning the Wolof culture is pertinent in understanding ecological and social factors and moral prohibitions by using the eHRAF database.

LEGAL ENVIRONMENT-

There are various legal factors which affect the environment of the country. The various laws which are being updated in wide range of areas example consumer protection legislation, environment legislation,Health, safety and employment laws etc. corruption has also been the vital factors which affects the legal environment of the country. There are a number of factors that facilitate non transparent and corrupt governance practices in Senegal.

These include:

• Lack of sufficient regard for the law and inadequate application of existing laws
• The politicization of the State bureaucracy and its inability to effectively deliver basic public services.
• Weak accountability mechanisms
• Limited transparency and access to governmental information
• Resistance to decentralization
• The limited scope and capacity of civil society organizations involved in anticorruption activities
• Widespread public tolerance and acceptance of corruption based on cultural and social norms and traditions.

Based on an analysis of Senegal’s political, institutional, legal and cultural context, it identifies four major, overarching problems that need to be addressed to significantly improve governance and reduce corrupt behavior:

1. Inadequate checks on executive decision-making resulting from the pattern of extreme concentration of power in the presidency.
2. The lack of transparency in government operations and lack of autonomy of control and regulatory institutions charged with monitoring public expenditures.
3. Lack of service orientation in delivery of services to the public
4. Inadequate and ineffective public opposition to corruption.

COMPETITIVE ADVANTAGE USING “THE PORTER’S DIAMOND”

Michael porter’s competitive advantage of nations will be used as the theoretical model for this study. This theory provides a framework to examine how nations gain a competitive advantage in the global marketplace based on specific determinants found within the industries within a nation. Michael porter’s competitive advantage of nations explores how businesses within a nation gain a competitive advantage. Porter believes that groups or clusters of interconnected firms, suppliers, related industries, and various institutions that arises in particular locations of Senegal, the government has to think about economies, assess the competitive advantage of the locations and set public policy.

The 4 primary determinants of his model are:

1. factor conditions
2. demand conditions
3. related and supporting industries
4. firm strategy, structure, rivalry

FACTOR CONDITIONS- are the basic inputs of production that is necessary to compete in an industry. E.gs are skilled labor, infrastructure, or capital resources.

DEMAND CONDITIONS- are the quality of the home demand for a product or service in an industry.

RELATED & SUPPORTING INDUSTRIES- are defined by whether a nation has the supplier and related industries are competitive.

FIRM STRATEGY, STRUCTURE & RIVALRY- conditions within a nation that administer how companies are created, organized, and managed along with the type of domestic rivalry.

According to porter these determinants individually and as a structure provide the atmosphere for nations to gain a competitive advantage. Porter positions these determinants in a “diamond” pattern.

Senegal’s performance and competitive advantage in manufacturing relates to growth of manufactured exports which is often considered crucial for economic development. The reasons are:

Price and income elasticities of demand, as well as price elasticities of supply are greater for manufacturing than other industries.

Positive externalities and external economies are thought to be associated with manufactured exports.

In Senegal, demand is for two main sectors:

1) Gold Mining

2) Infrastructure, Power & Communications

Gold Mining- the mining deposits consists of 2 projects:

Sabodala gold operation- Strategically located at epicentre of a major new gold district. Positioned on one of the world great gold’s belts.

Grand cote mineral sands project- development project with tier 1 pot

SABODALA PROJECT

A strong operating margin provides for a robust project-

Volume mined : 55 Mtpa

Heavy Mineral grade: 1.7%-1.8%

Infrastructure, power and communications-

For a developing nation, Senegal has a well organized infrastructure compared to most other African countries 

The World Bank estimated that in 1995 there were 507 kilometers (315 miles) of paved road per million people. The CIA World Fact Book 2001 notes that there are 14,576 kilometers (9,058 miles) of highway, 4,271 kilometers (2,653 miles) of which are paved. Although the railway system is somewhat antiquated, it carries more than 3 million tons of cargo per year.

The railway network, which extends across 906 kilometers (563 miles), links the major cities to Dakar and provides services between Senegal and Mali.

According to the U.S. Department of State Country Commercial Guide, the airport at Dakar is one of the principal international airports in West Africa, handling a variety of aircraft on its 2 runways. The airport serves more than 24 international airlines, handling 1.5 million passengers per year and moving more than 20,000 metric tons of international airfreight.

There are direct flights to Europe and North America, along with frequent flights to several African countries. Secondary airports are located in the regions of Saint-Louis, Tambacounda, and Ziguinchor. In total, there were 20 airports in 1999.

The competitive advantage of French firms in this sector relates, in part, to concessional funding (funds are granted in exchange for specific contracts) given by the French government to the Senegalese government for the modernization of the telecommunications network.

The competitive advantage is also demanding in its export sector-

The composition of exports –

Manufactured exports are heavily concentrated in three sectors: fishing and fish-processing, chemicals (the ICS) and oilseeds (mainly groundnuts). This will be clear from the following table:

These three sectors represented 81 percent of manufactured exports in 1974.

By 1999 this share increased to 93 percent. Within this subgroup, substantial change has taken place. In the 1970’s, the groundnut oil sector dominated, with 56 percent of manufactured exports in 1974. In the 1980s, with the creation of the ICS, coupled with a decline in the groundnut harvests, the situation changed markedly. By 1999, the groundnut industry’s share had plummeted to less than 12.6 percent while chemicals were up to 39.8 percent.

The fishing industry also experienced a large expansion, and accounted for just over 40.6 percent of manufactured exports in 1999.