On Thursday, September 26, Prime Minister Ousmane Sonko presented to the press the state of play of the country’s public finances. Undoubtedly, this exercise is to be welcomed. Telling the truth about the real economic situation of the country is a salutary act and at the same time a commitment to always tell the truth about the reality of the country and to govern with transparency. But we will especially remember the very serious accusations made against the outgoing regime which disguised the figures, lied to the people and their “partners” about the state of public finances, in particular on the public debt and the budget deficit. So, the question that should be on everyone’s lips is this: why did Macky Sall and his ministers do this?
The obsession with the “business climate”
Several commentators and most of the media, including “Le Soleil” on Saturday September 28, focused on the “risks” incurred by Senegal with the financial markets and investors. Some fear the impact on the “credibility” of Senegal’s signature, etc. Apparently, Prime Minister Ousmane Sonko seemed more concerned about the content of the information he wanted to share with the Senegalese people than about market reactions. It is the obsession with seeking to “reassure” foreign investors and the markets which undoubtedly lost the Macky Sall regime and pushed it into a spiral of lies and falsification of figures.
Many remember the outgoing regime’s obsessive preoccupation with presenting a rosy picture of the country in order to obtain a good “ranking” in the World Bank publication called “Doing Business” (DB). This thing, which was a real scam, served as an instrument for manipulating figures and spreading lies with the aim of forcing countries to further liberalize their economies. It was finally thrown in the trash on September 16, 2021, following yet another scandal! At the time when the DB haunted the sleep of African leaders, the Senegalese press reported “a sleepless night” for Macky Sall after a “bad ranking” for Senegal! So to avoid other “sleepless nights” for the President, firm instructions had undoubtedly been given to improve “the business climate” in order to obtain a better rating in future editions of the DB. Therefore, it is not impossible that the services of the Ministry of Finance may have engaged in manipulation of figures to achieve this objective.
Improving the “business climate” is part of the neoliberal credo according to which opening a country to foreign investors is essential to stimulate growth. It is above all growth driven by exports of basic products, thus reinforcing the extroverted character of African economies, such as that of Senegal. And the measures intended to improve the “business climate” have cost the country very dearly. But the Macky Sall regime wanted to go even further in its allegiance to the neoliberal credo. From July 6 to 8, 2023, Senegal organized the first edition of the “Invest in Senegal” international forum in Dakar. During the closing session, Prime Minister Amadou Bâ said that “Senegal is and will remain an Open to Business country”! Father Leo must have been turning in his grave!
Avoiding the neoliberal impasse
The new regime must not take this path. He must avoid being obsessed with the reactions of financial markets and private investors. Otherwise, it risks losing its sovereignty in the definition and implementation of its economic policies. With the use of foreign private investment, Senegal and other countries in the region lose doubly. They grant incentives and tax exemptions to attract investors who then organize fraud and tax evasion which further deprive countries of financial resources. It is estimated that in West Africa, the tax advantages offered to multinationals cost countries more than 10 billion dollars per year. To make up for these losses, they turn to the financial markets and accumulate commercial debt which is taking proportions increasingly worrying.
The obsession with the “business climate” also favors illicit financial flows, especially from the extractive sector. Indeed, trade liberalization is a source of massive tax evasion. According to the 2020 UNCTAD report on Africa, illicit flows linked to trade liberalization contributed 58.7% to illicit financial flows estimated annually at 88.6 billion. West African countries are among the main victims of this scourge, including Senegal, with capital flight estimated at just over 5% of its gross domestic product (GDP). Pursuing such policies would put the country in a vicious circle that would make it even more dependent on the outside, thus alienating its sovereignty in the development of its economic policies.
Change paradigm
We must therefore avoid this circle, by revising the policy towards foreign investors and the use of financial markets, without however completely renouncing these sources of financing. In fact, what is needed is a paradigm shift in terms of financing the economy, favoring the mobilization of internal resources and other avenues. This is possible if the State gives itself the means to tax the profits of foreign companies, particularly in the extractive sector. The tax adjustments initiated by the regime have shown all the potential that exists domestically. The Economic Commission for Africa (ECA) says that by improving their tax collection capacities, African countries could increase their tax revenue by 3 to 5% of GDP.
Apart from the mobilization of internal resources through tax policy, there is another interesting source of financing for Senegal, with migrant remittances, which are estimated at 10-12% of GDP. These remittances could be transformed into an important lever for productive investment. For example, the State could study the possibility of issuing Treasury bonds intended for the diaspora, denominated in foreign currencies but repayable in national currency.
Finally, South-South cooperation constitutes an important source of financing for Senegal. It is a cooperation based on horizontal relations and which is taking over North-South cooperation, given the increasingly important economic and financial weight of the Global South, with the BRICS + whose gross domestic product (GDP) exceeded that of the G7, made up of the United States and its main allies.
