The conflict in Côte d’Ivoire has unsettled some investors, but not deterred those keen to capitalise on West Africa’s trading potential, writes Rebecca Spong.


Laurent Gbagbo’s refusal to accept defeat in Côte d’Ivoire’s elections last November led to months of bloody conflict which left 3,000 dead and traumatised a generation of Ivorians.

Thanks to the unprecedented wave of regional and international support from the UN, the European Union and the Economic Community of West African States, the victor at the ballot box Alassane Ouattara secured his presidency in April and Gbagbo was arrested.

But long-term stability is far from guaranteed, and Ouattara has an uphill battle to bring about reconciliation to the warring factions in the north and south of the country, and reboot the country’s economy.

People recognise there has been a successful transition of leadership there.”

Presently the country is riding on a wave of global goodwill, which Ouattara will no doubt hope to capitalise on. During the annual African Development Bank (AfDB) meeting in Lisbon in early June, the AfDB pledged Cote d’Ivoire US$200mn in support of the recovery process.

The World Bank is set to grant US$245mn to Cote d’Ivoire and the IMF is planning a US$130mn loan deal.

International cocoa traders such as Armajaro, Barry Callebaut and Cargill have also restarted their operations in the country, following the lifting of a ban on exports which was imposed during the conflict, leading to some of the cocoa being smuggled over the border to Ghana.

Many market observers have seen the election standoff as more of a one-off event, rather than a sign that it is time to pull out of the region. The wealth of commodities in both Côte d’Ivoire and the surrounding countries of Ghana and Nigeria will continue to appeal to those with adequate risk appetite.

Elizabeth Stephens, head of credit & political risk analysis at the political risk insurer JLT, notes that since the conflict, “there was not a marked depreciation in the enquiries we are getting. People recognise there has been a successful transition of leadership there.”

Although she adds that the conflict was “a warning of how quickly a situation can deteriorate in Africa”.

From the banking perspective, trade finance banks also retain some appetite for West African deals, although usually when backed by a multilateral.

The government has “a monumental task ahead of them”.

Jorim Schraven, manager, financial institutions Africa, at the Dutch development bank FMO, tells GTR: “Besides providing products ranging from senior loans to equity, we have also cooperated with international confirming banks to expand our trade finance programme from Nigeria into Ghana.

“Their appetite for West African risk, particularly in Ghana, is clearly growing, despite the events in Cote d’Ivoire, which is a good sign for Africa.”

Hannah Koep, Côte d’Ivoire analyst at consultancy firm Control Risks, reports that her firm is in the process of consulting with companies that are looking to return to the country.

“Cocoa exports have resumed and port operations are picking up in pace. A lot of investors are coming back into the country. The government is keen to give the right message and create an environment where investors are really interested in coming back.”

But, she cautions that the government has “a monumental task ahead of them”.

Security problems

Security issues and the country’s economy are the biggest difficulties facing the new government.

Ouattara will have to convince his people and the international community that he can successfully integrate rebel elements of the former national army into the armed forces. He will also need to stabilise inter-ethnic divisions between the Muslim north and the Christian south of the country. He owes a lot of favours to rebel forces who helped secure his presidency and will have to carefully judge how best to reward those who helped him.

On the economic front, as Paul-Harry Aithnard, head of research at Ecobank comments: ”There is a need for the population to feel that their country is back on track and doing better, and that salaries are paid without any problems.”

Economic growth could act as an effective unifying force for the country, after its population has endured years of stagnation and deteriorating physical infrastructure.

Koep at Control Risks notes: “Those people who voted for Gbagbo and supported him in the armed struggle need to see the economic and tangible impact of a new government in order to fall in line. If not, it will be very difficult to overcome the deep divisions.”
Debt repayments
However, the new president faces the dilemma of who he needs to appease first.

As well as the demands of the country’s population, he has to face up to demands from the international investor community.

The country missed a coupon payment on its US$2.4bn Eurobond back in January at the height of the conflict. The second payment of US$30mn was due in June, but as GTR goes to press it seems unlikely that the payment would be made.

Ecobank’s Aithnard notes that although the new government of Côte d’Ivoire enjoys the backing of the international community, investors have not yet seen “clear indicaction” from Ouattara indicating whether he would fulfil the country’s commitment to paying the June Eurobond coupon.

It is a tough decision for Ouattara. Paying the coupon payment would send a positive signal to the international community, but it would be a move that would be hard to justify to a suffering population.

OB Sisay, head of Africa research at FM Capital Partners, comments to GTR: “Most investors had hoped Côte d’Ivoire would resume coupon payments once the political stalemate was settled, so there has been some disappointment that the Ouattara government has decided to miss a second tranche.

“Talk at the African Development Bank meetings in Lisbon suggested they may miss even more payments (due in December 2011 and June 2012).”

Edward George, commodities specialist at Ecobank Capital, questions whether investors might be sympathetic to Côte D’Ivoire’s dilemma, and be prepared to give Ouattara some flexibility.

“I wonder if it would do any more damage to the country by missing another coupon payment. One already recognises that Côte d’Ivoire is in default because of the conflict over the election – not because of gross mismanagement of a country at peace.”

Cocoa sector promise

One sector that international investors will be watching carefully is the cocoa industry.

If you are looking for a safe bet in Côte d’Ivoire, then the cocoa sector is the one.”

Côte d’Ivoire is the world’s largest producer of cocoa, producing 40% of the global supply. Although the industry was subject to an export ban during the conflict, exports are now booming again.

“While the movement of cocoa was disrupted, Ivorian production itself has not been significantly damaged. In fact Côte d’Ivoire expects to produce around 1.3 million tonnes in the 2010-11 season – nearly 5% higher than last season’s output,” notes Sisay at FM Capital Partners.

The new season will start in approximately October and export earnings on cocoa should increase the government’s ability to make the December payment of the Eurobond.

However, the cocoa sector is in acute need of reform, particularly if compared to the highly efficient cocoa industry in neighbouring Ghana. Its centralised cocoa board, Cocobod, is likely to raise US$2bn from regional and international banks in its annual pre-export syndicated facility.

Côte d’Ivoire’s conflict only further hampered reform.

“The political uncertainty led to delays in the implementation of much-needed cocoa reforms, and also held up some US$3bn in debt relief from the IMF and World Bank. The IMF was also put off agreeing to a third credit facility loan last year, resulting from a perceived unsustainable government wage bill and corruption within the legal sphere,” notes business intelligence consultancy firm Songhai Advisory in a research note sent to GTR.

Investment in replanting cocoa plants is urgently required, as is the establishment of a centralised cocoa marketing body such as Ghana’s Cocobod.
A few decades ago, Côte d’Ivoire did have one cocoa organisation, known as Caistab, but this was broken up into a fragmented system of six marketing boards. There is now a temporary committee in place.

Despite these obstacles, it is thought that the country could have the potential to equal Ghana’s achievements. Aithnard at Ecobank thinks it is feasible that in a few years time the market could see a pre-export facility similar to those raised in Ghana closed in Côte d’Ivoire.

He believes that it shouldn’t be hard to attract banks and financial institutions to back cocoa, once reform has been implemented.

“The investor appetite will come – once the sector is fixed,” he notes. George at Ecobank echoes such sentiments. “The outlook for cocoa is
so positive. Global demand is set to be strong for the foreseeable future.

“If you are looking for a safe bet in Côte d’Ivoire, then the cocoa sector is the one.”

Mining sector

The mining sector in Côte d’Ivoire and the rest of West Africa also offers many opportunities to support infrastructure projects and exports of minerals such as iron ore or bauxite.

“With global demand for iron ore creeping back up from its 2008 lows, we are seeing a re-awakening of an interest by West African governments in iron ore reserves,” notes Songhai Advisory.

Notwithstanding problems with fluctuating global price movements and political vulnerabilities, the advisory firm notes to GTR: “West Africa could become a leading producer of a diverse range of minerals almost overnight. For example, from zero at present, Sierra Leone is projected to become a top 10 producer of iron on the back of African Minerals’ Tonkolili discovery alone.”

The Tonkolili project is the result of African Minerals’ exploration drilling programme in 2009, the largest of its kind in that year.

In Côte d’Ivoire, the exploitation of iron ore reserves in the west of the country in the Nimba mountain range is a priority for the government.
Gabon is also looking to invest in mining, in order to diversify its economy away from oil production – which is in decline.

There is even talk that West African producers and exporters of iron ore could rival the strength of the Australian and Brazilian producers.

African Minerals is set to be one of the first West African producers of iron ore, and is scheduled to make its first shipment in the fourth quarter of 2011.
When asked about the region’s potential, Anne-Marie Woolley, head of structured trade and commodity finance, Africa, at Standard Bank, told GTR: “We are in active dialogue across the continent, including West Africa, on financing projects and production.”

Intraregional trade prospects

Given the potential for increased exports from Côte d’Ivoire, the population may hope to see a return to the days before the mid-1980s when the country was the powerhouse of West Africa as well as a success story for the creation of a prosperous post-colonial African country.

Key to reviving this image is to improve interregional trade ties between both Côte d’Ivoire and other West African nations.

There is growing sentiment in the market that the Economic Community of West African States (Ecowas) needs to push for a regional common market, similar to what has been developed in the East African Community (EAC).

Tony Uzoebo, head of business development at Zenith Bank (UK), tells GTR: “Ecowas needs to develop a better programme to encourage trade within the region. There needs to be a greater flow of goods between the Anglophone and Francophone countries in the region.”

The proportion of trade conducted between the Ecowas countries and other regional African trading blocs is very low compared to its trade with the rest of the world. For instance, Ecowas-SADC [Southern African Development Community] trade only accounts for 4.8% of total African trade. Similarly, Ecowas-ECCAS [Economic Community of Central African States] only accounts for 1.6% of African trade, according to statistics provided by Ecobank to GTR.

In 2009, Côte d’Ivoire exported more than US$10bn-worth of exports to the world, and only just more than US$2.5bn to Sub-Saharan Africa.
There are signs that the balance in trade is beginning to change in West Africa.

The cement industry provides a good example of this transition. The Dangote Group is the largest cement production company in Africa. It is based in Lagos, Nigeria, and has a diverse range of interests including cement, sugar, flour and fertiliser.

It is aiming to turn Nigeria from being one of the leading importers of cement into a net exporter of cement, exporting to African nations and potentially to the EU.

In April this year the firm announced it would invest US$3.9bn in the construction of additional cement lines within and outside Nigeria in the coming months. The news followed the signing of a contract between Dangote and the Chinese firm Sinoma International Engineering Company, which will be supporting the construction of these projects.

The new lines will have the capacity to produce 1.5 million metric tonnes a year, and will be built in Ethiopia, Tanzania, Republic of Congo and Gabon. The investment is part of a much-publicised drive by the company to make the entire African continent self-sufficient in cement production, rather than expensively importing it from China or Pakistan.

West African appeal

Another company already experienced in supporting intra-regional trade in East Africa has also spied opportunities in West Africa.

The African Trade Insurance Agency (ATI) opened an office in Ghana in May, and is looking to open up in Côte d’Ivoire in 2012.

Chief executive officer of ATI, George Otieno, tells GTR the company will begin writing business in Ghana by the beginning of the fourth quarter of 2011. “We are quite bullish about it. Ghana is quite a strong trade destination in West Africa. We are close to a billion transactions in the pipeline – that’s the reason we are excited.”

Even political turmoil in Côte d’Ivoire doesn’t seem to have deterred Otieno, who believes the country will become a member of ATI. “The process of them becoming a member was just delayed because of the recent crisis. In the long-term, after what has happened and with the government supported by the international community working to make sure there is peace in the country, I think the country should remain peaceful.”
“I believe the worst is over,” he adds, a sentiment no doubt optimistically shared by the whole West African region and its potential investors.