beyondbrics

By Katrina Manson

Following months of violent unrest in Ivory Coast, the IMF predicts that west Africa’s economic giant will contract 7.5 percent this year, making it not only the worst performer on the continent in 2011, but the only sub-Saharan economy predicted to shrink. It’s a massive drop: even in the depths of its civil war in 2003 , its economy contracted only 1.7.

“This year’s a write-off, the first six months at least,” says Christopher Hartland-Peel, associate director at Exotix, a frontier markets brokerage.  At least 1,500 were killed in violence that erupted after presidential incumbent Laurent Gbagbo refused to leave power after losing. November’s run-off vote to Alassane Ouattara. Instability remains rife and reports of massacres of hundreds are still trickling in.

The latest disaster comes on top of a decade of stagnant growth that kept pace with the country’s drawn-out crisis. Even in 2010, as elections intended to rule a line under its woes, the world’s biggest cocoa producer grew only 2.6 percent, lagging many of its continental brethren, including Uganda, Ghana and Kenya.

Yet the conflict that followed Gbagbo’s refusal to leave power may not have hit growth the country’s prospects as hard as many feared.

“I don’t think anyone believes the IMF has a grasp on how the future’sgoing to pan out and thus on growth this year, there still lots ofuncertainties: you suck your thumb, lick it and stick it in the air.Who knows,” says Stephen Bailey-Smith, head of Africa research at Standard Bank, who believes Ivory Coast may well rebound ahead of time.

“I think we may be nearer flat, marginally lower, maybe 1 or 2 percent down. A lot depends on how swiftly they get the security situation sorted out,” Bailey-Smith says.

Although Gbagbo was seized by republican troops loyal to president-elect Ouattara with the help of French and UN forces earlierthis month, calm is yet to return to the commercial capital Abidjan, from where an estimated one million people fled. Violence continues in the port city, alongside reports of door-to-door reprisals. Rifts within the pro-Outtara military also threaten to be explosive. Militia leader Ibrahim “IB” Coulibaly, who helped Ouattara gain control of the city, was killed in a gun battle with Ouattara’s forces on Wednesday.

Besides that, Ouattara must form an inclusive government, mindful that 46 percent of the electorate voted against him. But despite two months of business closures, suspended pay and damage, alongside continuing spurts of violence, prospects look good. Many believe the economy will be the easiest to tackle of Ivory Coast’s many challenges ahead.

Even the IMF says growth in Ivory Coast will rebound to rise six percent in 2012, outpacing Cameroon, Mauritius andSouth Africa among others What’s more, it predicts growth will hold steady, at 6 percent in 2016.

In the greatest signal of a return to stability, some local bank branches of BNP Paribas, Société Général and Citibank reopened under armed guard after ten weeks on Thursday, after stocking up on cash. Talk of holding an investor conference in the next few months is spurring hope, and high commodity prices will help resumption of exports in cocoa, oil, rubber cotton and palm oil add to depleted government coffers as the port reopens.

Investors also point to growth in consumer goods, telecoms, banking, alongside potential for vastly underdeveloped health insurance and local manufacturing. Finally, international commitment and donor support is already forthcoming, reinforcing investor hopes for the chances for stability under Ouattara, a former IMF technocrat.

The French have promised €400m and the IMF says if all goes well, the nation may be eligible for debt relief next year.

Ouattara’s government has already said it has made $395m available for two months back wages, likely to spur spending nationwide.

“Investment has been woeful for ten years and people have been under-consuming,” said Bailey-Smith. “You will have a natural rebound.”

Related reading:
Ivory Coast eurobond: triumph of hope, beyondbrics
Ivory Coast: collateral bond damage, beyondbrics
Cocoa crisis builds in Ivory Coast, beyondbrics
Ivory Coast: a crisis for cocoa?, beyondbrics
Ouattara in battle to unite a nation, FT
Exuberance over Gbagbo fall may not last, FT