AUTHOR Leo Morawiecki Associate Investment Specialist, Fixed Income
Côte d'Ivoire is an African story that is remarkable on numerous levels.
Like many West African countries, Côte d'Ivoire has experienced its share of social unrest over the last few decades. This includes a bloody civil war that ended in 2011. Now, however, the country is a bastion of stability in an otherwise volatile region. Coups have erupted in neighboring Mali (2020 and 2021) and Burkina Faso (2019). Offshoots of Islamic State pose a serious threat to the civilian way of life.
Why has Cote d’Ivoire thrived where others have not?
On one level, we can attribute its prosperity to the country’s remarkable economic success. Annual growth averaged 7.2% (Chart 1) over the past decade, making it Africa’s fastest-growing economy, according to the International Monetary Fund (IMF). That said, economic success alone can’t bring peace to a country. So, what does?
Chart 1. Gross domestic product growth (year-over-year, % change)
Source: Haver, February 2024.
Lesson learned
Côte d'Ivoire is one of the world’s largest cocoa exporters. The country flourished in the 1980s as demand soared. But then global prices crashed, sparking armed conflict between the predominantly wealthy landowners in the south and the poor north. The cocoa market remains volatile. Côte d'Ivoire exports were expected to fall around 28% in 2023, thanks to an especially powerful El Niño late last year. True, cocoa price rises have helped offset some of the losses. However, this dramatic production slump reinforced the government’s need to diversify its income stream.
From a debt-servicing standpoint, the primary concern for Côte d'Ivoire is not its overall debt, which amounts to a modest 56% of gross domestic product (GDP), nor the possibility of currency devaluation, as it’s pegged to the euro. Instead, the key issue lies in the country's capacity to endure another shock, such as a surge in food and energy prices, given its low tax revenue to GDP ratio of 12.7%.1
A shock of this nature could pressure the government to reintroduce extensive subsidies. Implementing these handouts could potentially derail the country's efforts to achieve a 3% budget deficit target by 2025, set by the West African Economic and Monetary Union.
There are positives. The recent discovery of the Baleine offshore oil and gas field, which could deliver a maximum of 150,000 barrels per day in the medium term, will ease the energy import bill. The ongoing development of the country’s long-neglected mining sector will further support the current account.
Bond markets ramping up
For bondholders, Côte d'Ivoire is a potentially compelling investment case. There’s a clear fiscal consolidation plan, economic growth remains high, and the debt-to-GDP ratio is low. The political landscape is relatively stable, and policymakers are rationalizing the tax exemption system. These are widely acknowledged as positives, even among the country’s opposition Democratic Party of Ivory Coast (PDCI). Furthermore, the government’s flagship National Development Plan (NDP) has also prioritized spending on infrastructure, with recent projects including bridges, bypass roads, we well as hotels and stadiums. Developed in anticipation of hosting the 34th edition of the African Cup of Nations (AFCON).2
The NDP is also beginning to bear fruit with intercity connections between Abidjan in the south and Korhogo in the north. This development also extends to rural parts of the country, but it is hard to ignore shortfalls this creates elsewhere, such as education.3
Open for business
Since the Covid pandemic, concessional financing has provided a lifeline to many emerging market countries. The Côte d'Ivoire is no different. It received €3.5 billion from the IMF in May 2023. The country continues to meet the program’s conditions for disbursements.
Encouragingly, Côte d'Ivoire became the first Sub-Saharan African (SSA) country to return to the primary bond market, with a $2.6 billion Eurobond issue in January. Prudently, the government allocated some of the funds for liability management and to streamline the amortization profile. Simultaneously, it ring-fenced approximately $1.1 billion for sustainability-related projects as part of the country's 2023 sustainability framework. The debt deal was heavily oversubscribed, confirming renewed investor confidence in the region. Benin has since followed suit with its inaugural US dollar issue. These deals could be the first step in rousing the wider market back to life after two years of no issuance.
Currently rated BB, government officials hope rating agencies will upgrade Côte d'Ivoire’s debt to investment grade (IG) in the next couple of years. It’s no surprise the country remains one of the most heavily owned credits among investors, and spreads are well inside the SSA average (Chart 2).
Chart 2. Spreads on Côte d'Ivoire bonds are well inside the SSA average
Source: JP Morgan, February 2024.
Final thoughts
Regardless of whether an upgrade to IG materializes, in a world of significant geopolitical and economic uncertainties, Côte d'Ivoire is an African story that is remarkable on numerous levels. Indeed, against all the odds, les Éléphants triumphed in the AFCON final, beating favorites Nigeria.
This could herald the start of a long line of victories on and off the field.
1 World Bank, Haver Analytics 2023.
2 The Africa Cup of Nations (AFCON), more commonly referred to as the TotalEnergies Africa Cup of Nations for sponsorship reasons, is the main international men's association football (soccer) competition in Africa.
3 Teaching At The Right Level Africa, 2023. https://teachingattherightlevel.org/cote-divoire/.
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