GDP growth: robust growth assured
Standard Bank has been flagging Côte d’Ivoire’s strong economic growth trajectory over the last couple of years, driven by public investment as private sector investment has lagged. On evidence from 2017, we are more optimistic about the country’s ability to attract private investment, which should boost economic growth and development. As the economy probably grew by 7.0% y/y in 2017, we now see it growing by 7.0% y/y in 2018.
Developments in the agro-processing sector have been positive. Concessioning for the construction and operation of the metro rail system around Abidjan have moved ahead, which will serve as a catalyst for the region’s growth. Authorities recently announced securing a XOF68bn financing deal from the China Eximbank to fund various road constructions and have further announced Ethiopian Airlines as the carrier to operate the much-awaited direct flight to the US.
The IMF appears content with progress made so far under both the ECF and EFF program, disbursing USD136.5m after its second review of the program in December 2017.
Balance of payments: supported by investment
After widening from USD0.3bn (1.1% of GDP) in 2016 to an estimated USD1.5bn (4.1% of GDP) in 2017 due to downward pressure on cocoa prices, we expect the C/A deficit to shrink moderately in 2018, despite expectation for flat cocoa prices this year. We expect an uptick in capital project related imports, which should narrow the trade surplus. However, such a rise in import demand should be funded by healthy capital inflows from both private investors and from concessional sources. In the medium term, possible production of crude oil off the coast would be BOP-positive. Disbursements from the IMF’s ECF and EFF programs should serve as buffer.
We expect FX reserves to rise to USD5.6bn by year-end, with a potentially more robust rise limited by import demand growth consuming FX.
FX outlook: managing EUR/USD exposure
With the EUR/XAF-XAF peg likely to remain in place, both the XAF and XAF are likely to appreciate against the USD, pulled along by the EUR. The risks of a devaluation of the XAF and XOF appear to be diminishing, especially given that the region’s external metrics appear to be improving.
Monetary policy: still no change
As expected, the BCEAO left the Marginal Lending Rate at 4.5% after raising it by 100 bps earlier in 2017. We do not expect the regional central bank to change the policy stance in 2018.
Ivorian inflation (38.0% of the WAEMU CPI basket) rose to 1.6% y/y in August 2017, from 0.6% y/y in 2016, and probably averaged 1.2% y/y for the full year (2016: 0.8% y/y). The uptick in headline inflation was mainly a result of rising food prices.