Cote d'Ivoire Business Forecast Report Q1 2009

Peace Process: Down But Not Out

We believe that a renewed postponement in the presidential polls (which represents the fourth since late 2005) does not necessarily imply an end to the Ivorian peace process. For sure, the United Nations (UN) and the European Union (EU) have been lobbying hard for the Ivorian government to meet the November 30 deadline, and a delay could draw criticism from the international community. Both the International Monetary Fund (IMF) and the World Bank have stressed in the past that a successful conclusion of the polls would be crucial for the continuation of financial cooperation, especially with regards to international debt relief and poverty reduction programmes. Meanwhile, although Cote dIvoire is likely to experience an increase in economic expansion over the coming two years vis--vis 2008s 3.0% growth rate, we have lowered our projections to 4.5% for 2009 and 5.0% for 2010, down from our previous forecasts of 5.6% and 5.8%, respectively. The changes in our growth figures are mainly due to significant downward revisions in our global assumptions, especially regarding commodity prices.

In our view, the continuation of the peace process and the recovery of the economy will all depend on how the delay of the elections is handled by the parties involved. While a short postponement until Q109 is unlikely to cause any significant uncertainty or tensions, any longer timeframe could weaken both domestic and international confidence in the governments commitment to resolve the political stalemate. President Laurent Gbagbo is under particular pressure, as after the cancellation of the 2006 vote his mandate as head of state is no longer supported by the constitution but is mainly upheld by the UN. As a result, should the body withdraw its backing for Gbagbos presidency, the New Forces and opposition parties could put in question his legitimacy.

In our view, an expected depreciation in the euro is likely to limit the extent of disinflation in the Ivorian economy over the course of 2009. With the CFA franc pegged against the European single currency, the euros steep appreciation against the US dollar over the past year has been instrumental in isolating Cote dIvoire from the worst of the global inflation crisis. However, as the euro is likely to depreciate in Q408 and remain weak against the greenback in 2009, the moderation in inflationary pressures is likely to be limited, especially in H109.

According to Transparency Internationals 2008 Corruption Perception Index (CPI), Cote dIvoire graft problems have worsened slightly over the past year, with the countrys CPI score falling to 2.0 from 2.1 in 2007 and 2006. In our view, progress is likely to remain very limited over the medium term, as prosecuting corrupt government officials could prove extremely unpopular and disruptive in the run-up to the polls. Yet a successful holding of the presidential election in 2009 and normalisation of politics would greatly facilitate the fight against corruption over the coming years.