This article was written by Sara Niemann
The economic environment in the Cote d’Ivoire has been improving in recent years due to both increasing political stability and a commitment by national and foreign communities to reinforce positive economic change. Unfortunately, internal political conflict during the past decade delayed much economic progress and deterred foreign investment so that the Cote d’Ivoire, once a thriving center of economic success in Sub-Saharan Africa, must look to rebuild itself. A civil war in 2002 divided the nation, and while fighting mostly ended in 2004, economic decline continued. By 2008, unemployment reached a staggering 43% and the violent post-election crisis in 2010 only added to the detriment of the economy (Côte d’Ivoire: Enhanced Heavily Indebted Poor Countries Initiative 9). Now with a few years of political stability, the government’s commitment to economic growth through policy reform and monetary aid from international groups, the Cote d’Ivoire is looking towards a bright and prosperous economic future. During the past few years economic growth has gone from 2.4% in 2011 to 8.1% in 2012 and is projected to remain at approximately 8-9% through 2014 (Cote d’Ivoire 2). While political conflict was delaying efforts to increase economic growth, the government is now slowly working to implement significant improvements for regulatory policies affecting employment, poverty levels, property registration, access to credit, and foreign investment. Though starting a new business is still a difficult task given lengthy timelines and necessary startup capital restraints, the Cote d’Ivoire government has outlined and slowly started to implement policies which improve the overall economic environment for established business and upcoming entrepreneurs.
Within the past two years, international community aid groups have recognized the Cote d’Ivoire’s commitment to economic reform and supported their efforts through debt relief and investment. In 2011, the International Monetary Fund (IMF) approved a $615 million loan to the Cote d’Ivoire as part of the Extended Credit Facility. This program offers financial assistance for countries with a poor repayment history. The program aims to expedite the economic strategies that will create a strong private sector, increase foreign investment, and add to long-term employment. (Camard, “Resilient Côte d’Ivoire Gets $615 Million IMF Loan to Back Recovery”). With successful reforms in various industries including public finance, energy, cocoa and coffee, the government was further able to secure debt relief from the IMF through the Heavily Indebted Poor Countries Initiative. The government had to outline and institute changes across both economic and social channels in order to be considered for the initiative. Just a few examples of these changes include increasing textbooks in classrooms, increasing the percentage of professionally assisted births, reduction of taxation on certain sectors, and publicly available recordings of payments made to the government from energy sectors (Côte d’Ivoire: Enhanced Heavily Indebted Poor Countries Initiative 7-8). Through these two substantial programs, the Cote d’Ivoire was able to decrease its overall debt and put funds into needed programs, increasing its economic strength greatly in just a few years.
Agriculture is the major economic driver in the Cote d’Ivoire and employs approximately 68% of the population, accounting for about 29% of gross domestic product (GDP). However, industry and services are arguably more important than agriculture and contribute to approximately 71% of gross domestic product (Cote d’Ivoire Economy). The government has outlined the necessary steps for reform for its most important sectors including: cocoa, coffee, public finance, hydrocarbon, and electricity. As the world’s largest producer of cocoa and one of the top ten producers of coffee, this sector is a major contributor to the economy. Like all agriculture economies, production and pricing is highly dependent on environmental factors such as weather and pest control. The Coffee and Cocoa Council is working to increase stakeholder visibility and to reform price structures, including a minimum price guarantee for producers. Regarding reforms in public finance, the government has suggested a mix of mergers, privatization, and liquidation while the government slowly withdraws its involvement to create a more competitive environment. In the energy sectors, certain laws have been amended to encourage oil and gas exploration, as well as increase public transparency of production and sales (Côte d’Ivoire: Letter of Intent 7-9).
For entrepreneurs in the Cote d’Ivoire starting a new business is still a difficult process. Of the 185 economies surveyed for the “Doing Business 2013” report (a World Bank report measuring business regulation in various countries), the Cote d’Ivoire ranks 177, meaning it is one of the more difficult countries in which to conduct business. For entrepreneurs in particular, the hurdles of a starting a new business can be overwhelming. The lengthy and complicated steps needed to register a business, as well as the “all-in” capital needed are major deterrents for those thinking of starting a new business. Along with other economic reforms, the government is taking steps to improve the ease with which one can start a business. For example, in 2003 the typical time to start a business took around 62 days. By 2013 this timeline had decreased to 32 days with unnecessary steps eliminated after government review. The cost of paid-in minimum capital in 2003 was approximately 213% of income per capita, compared to 185% in 2013 (Ease of Doing Business in Cote d’Ivoire 20). A new business facilitation center has also opened to offer a space for new business ventures to gain access to educational tools throughout the startup process. (2013 Investment Climate Statement – Cote d’Ivoire).
In all the economic sectors of the Cote d’Ivoire, foreign investment plays a critical role. The government is looking to double its foreign investment during the next two years. It is estimated that approximately 26% of capital in Cote d’Ivoire firms is from foreign investment. The two largest investors are Lebanon and France, who contribute approximately 53% and 26%, respectively, of all foreign investment. (2013 Investment Climate Statement – Cote d’Ivoire). The government is working to further promote foreign investment through various reforms and incentives. For example, a new tax code was inducted in 2012 giving new incentives to investors, which include certain tax reductions and exemptions on equipment and new construction in industrial zones (depending on location). The new code further incentivizes growth in sectors such as low-cost housing construction, factory creation, and infrastructure development. Another example of a commitment to improving foreign investment includes a new investment promotion center, le Centre des Promotion des Investissements en Cote d’Ivoire (CEPICI). This center provides investment information, advice and assistance for new entrepreneurs and investors. Ideally entrepreneurs can come to the CEPICI for advice in all areas and investors can come to find out more about upcoming projects. The services at the CEPICI include matching new businesses with investors and information about public-private liaisons. While foreign investment is major part of the Cote d’Ivoire economy, many investors still report that corruption is prevalent issue. Corruption complaints include delays or favoritism among established investors. As discussed in the next paragraph, the government has started taking initial steps in the judicial system to avoid corruption; however, in effort to promote competitive foreign investments in all sectors, decreasing the prevalence of corruption would likely aid in attracting new investors (2013 Investment Climate Statement – Cote d’Ivoire).
The Cote d’Ivoire has made certain strides in policy reform that promote growth and encourages investment; however, a number of factors continue to restrict growth. Access to lines of credit and property law are two major sources of difficulty for many businesses. In 2005, just 0.2% of adults had registered credit lines. This has now increased to 2.9% in 2012 (Ease of Doing Business in Cote d’Ivoire 55). Without the available lines of credit, entrepreneurs must have significant savings before starting their business. This alone may deter individuals from even considering the idea of starting a business and with a reduced number of players, the market becomes less creative and competitive than desired. In 2012, the Cote d’Ivoire scored a six of ten on the Strength of Legal Right Index which measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders, and thus fosters a secure lending environment. Without a secure lending environment, neither individual borrowers nor lenders can foster relationships that will create a competitive private sector. Contract and property laws are also weaker than desired in Cote d’Ivoire (Ease of Doing Business in Cote d’Ivoire 50-52). Enforcement of these laws can be time consuming with court cases moving incredibly slowly (with an average settlement time of eight years). It is widely accepted that courts are still influenced by political or financial incentives meaning even when international law should be enforced, local law offices may not comply. Recent changes to the business judicial sector include adding a commercial court that is trained and organized to hear business cases, as well as increasing the numbers of appeals courts to avoid backlog of other business cases. The court has more than one judge (to avoid corruption charges), publishes decisions quickly, and keeps more accurate and complete electronic records. Along the same lines of property law, obtaining legal property ownership can be quite difficult. Long-standing property rights in villages or with certain ethnic groups prevent land from being sold. Instead, many businesses are forced to sign long-term leases instead. (2013 Investment Climate Statement – Cote d’Ivoire) Ideally, with stronger property and contract laws entrepreneurs and investors would feel more secure in taking the risk involved with starting a new business.
The Cote d’Ivoire looks poised for a future of economic and financial success; however, this success is highly dependent on the government’s commitment to address critical social issues such as poverty, unemployment, health, and civil unrest, in addition to implementing economic reform. Keeping this in mind, the government has started to initiate reforms that promote competition and privatization, reduce poverty and unemployment, as well as foster long-term national and foreign investment. Through short-term strategies and global aid, the Cote d’Ivoire has already seen significant improvements in some of its most critical economic sectors. With continued political stability and completion of the reforms outlined through the IMF initiatives, the economic environment of Cote d’Ivoire looks to be increasingly promising for entrepreneurs and established businesses alike.
African Economic Outlook. Cote d’Ivoire. African Economic Outlook. 5 January 2013. Web. 15 June 2013.
Bureau of Economic and Business Affairs. 2013 Investment Climate Statement – Cote d’Ivoire. U.S Department of State. April 2013. Web. 13 June 2013.
Camard, Wayne. “Resilient Côte d’Ivoire Gets $615 Million IMF Loan to Back Recovery.” IMF Survery Magazine. International Monetary Fund. 4 November 2011. Web. June 12, 2013.
Doing Business Report. Ease of Doing Business in Cote d’Ivoire. 2013. The World Bank Group. 2 May 2013. Web. June 12, 2013.
International Development Association and the International Monetary Fund. Côte d’Ivoire: Enhanced Heavily Indebted Poor Countries Initiative—Completion Point Document and Multilateral Debt Relief Initiative; Press Release. International Monetary Fund. 29 May 2012. Web. 15 June 2013.
International Monetary Fund. Côte d’Ivoire: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding. International Monetary Fund. 13 November 2013. Web. 15 June 2013.
The World Factbook. Cote d’Ivoire Economy. Central Intelligence Agency. n.d. Web. 13 June 2013.