"Rice has become a luxury for many Senegalese families now...They're having
to get used to couscous, and they're not happy about it."
In Senegal, structural reform has meant two things: (A) that lots of people
will be unhappy because they can no longer afford rice, and (B) les mangeurs
du riz are going to have a harder time convincing the state to give them
money. Long held were the ideas that protectionism, kick-backs, rentierism,
high import tariffs, and rice subsidies could serve as a means of social
cooperation. Economically detrimental, they had to go. Beginning in 1979 and
continuing on and off into the next two decades, the Senegalese government
would cooperate with international money-lending organizations in attempts
to restructure the economy. For the beneficiaries of economic cronyism,
things have fallen apart. This paper seeks to explore some of the issues
resulting from the Nouvelles Politiques (NP), aiming primarily to understand
current banking reform, and how elites have had to readjust their strategies
in negotiating with the state.
In looking at banking reform, a broader picture must first be painted, one
of the past. Senegalese post-colonial history can be divided into four
distinct yet interrelated time-frames: 1960 - 1968, 1968 - 1980, 1980 -
1994, and 1994 to present. Each period is marked by political and economic
activity which is characteristic of that period, further shaping the
evolution of patron-client relationships. Having given a cursory glance at
the political economy of a given period, the banking system will be explored
and understood in relation not only to societal factors, but also with
larger structural constraints such as the Union Monétaire de l'Ouest
Africain (UMOA) and the Banque Central des États d'Afrique Occidental
(BCEAO).
This paper begins by a brief look at the franc CFA.
UMOA and BCEAO = Franc CFA.
There are fourteen members of the Communauté Financière d'Afrique (CFA),
all of which share a common currency, the franc CFA (FCFA). The FCFA is a
continuation of a currency created during the colonial era. It is pegged to
the French franc (100 FCFA = 1 FF) and is freely convertible. The states
represented by the CFA, with the exceptions of Djibouti, Madagascar, and
Guinea Bissau, are France's former African imperial possessions. The CFA is
divided into three autonomous zones, but this paper will only explore
Senegal's zone, the UMOA.
The UMOA is the forum in which member-states conduct policy, but it is the
BCEAO which controls the banks. This regional central bank has a
representative in each member-state monitoring and auditing banks of that
state. In this aspect, it is very similar to France's Banque de France in
keeping an eye on the public and private banks within its territory. The
contemporary BCEAO has five essential provisions: (1) Member states share
the FCFA at a fixed exchange rate whose convertibility is supported by an
overdraft facility through an operators account at the French Treasury. In
return, member-states must deposit 65% of their foreign exchange holding in
that operations account. (2) A uniform interest rate structure has been set
throughout the zone. (3) A uniform ceiling on lending margins has been fixed
to the common interest rate structure. (4) Government borrowing from the
BCEAO cannot exceed 20% of the previous year's fiscal revenues. (5) A
zone-wide inter-state money market is established to recycle excess
liquidity of deposit-money banks within the zone and to curb capital
outflow.
Having given a cursory look at how the UMOA and the BCEAO affect
member-states, one can begin to get a clear picture of how these
institutions lay the groundwork for a larger banking system. The above
descriptions of the UMOA and BCEAO reflect these institutions at later
stages of development. The UMOA and BCEAO affected the banking system in
different ways in the past, depending on the role they played during that
period. A full understanding of the current banking system dilemma is only
attainable by looking at the banking structure's evolution in the past as a
function of political economy.
1960 - 1968: The Constraints of Economic Continuity
On 20 August 1960, Senegal became an independent state. Léopold Sédar
Senghor, intellectual and leader of the Union Progressiste Sénégalaise (UPS)
was soon elected President. Key to his political and economic policy was the
maintenance of France's "chasse-gardée" - the continuation of French
economic dominance in the manufacturing and import/export sectors. Rural
religious leaders/land owners, called Marabouts, transferred allegiance from
the colonial rulers to the new regime under the tacit agreement that their
role in the ground-nut trade would not be changed. This economic "business
as usual" approach did very little for Senegal's "petit commerçants," who
found it just as difficult to find in-roads into the post-colonial economy
as they had in the colonial period.
Because the economic strategy maintained colonial practices, the regime
lacked the "traditional" strategies of post-colonial legitimization
(nationalization and land-reform). It had to rely on other forms of state
consolidation. One way was to co-opt or ban opposition parties, another was
to create an extensive network of patronage for party supporters. A large
portion of the redistribution spoils were derived from the Office National
de Coopération et d'Assistance pour le Développement (ONCAD). Created in
1966, this agency oversaw the collection and export of ground-nuts. This
appropriation of collection and transportation of ground-nuts placed more
pressure on smaller businessmen who had found this niche one of the few
remaining areas of the economy not controlled by the state. For its part,
however, the state gained a lucrative source of redistribution which would
materialize in the form of transportation, export, and trade licenses. The
initial years of independence (1960-1968) marked the rise of the "hommes
d'affaires sénégalais," who eagerly supported the state all the while
filling their overseas checking accounts.
During this period, the banking sector limited loans to foreign investments
in the urban manufacturing sector and import-export trade and to government
sponsored import-substitution strategies. These loans had low interest rates
and were given to those fortunate to have government connections. Medium to
small level businesses found it difficult to borrow capital, and this was in
part due to the relatively conservative credit regulations imposed on
Senegalese banks by the BCEAO. During this same period, French leader
Charles De Gaulle reissued the French franc, making one new franc worth one
hundred old francs. The FCFA, however, did not change with the franc, so
what had been worth 0.5 francs became 0.05 francs.
1968 - 1984: The Decay of the Neocolonial Economy
Following urban student and trade-union riots in 1968 and 1969, a newly
formed economic association, Union des Groupements Économiques du Sénégal
(UNIGES), protested the effects government economic policy had on small
business. This grouping of businessmen, who were threatened or had been
pushed out of their trades by the state's centralizing tendencies, called
for an end to neo-colonial economic strategies, decried the regime's
abandonment of small business owners, and demanded that the government begin
to promote local participation in the industrial sector.
The regime's response to this "crise" was two-fold. On the one hand, it
played its political card, instigating the formation of a larger, pro-UPS
business group, the Confédération des Groupements Économiques du Sénégal
(COFEGES). COFEGES, which included Senegal's largest companies and
wealthiest traders, then merged with UNIGES upon Senghor's 1970 request. The
new group, Groupements Économiques Sénégalais (GES), was dominated by the
more powerful interests of the COFEGES faction, and thus took a decisively
pro-state stance on further development.
On the other hand, it symbolically catered to the UNIGES faction, creating
two new lending facilities, the Société Nationale de Guarantie (SONAGA) and
the Société Nationale des Études et de Promotion Industrielle (SONEPI). The
former aimed to provide loans to "licensed" Senegalese businessmen, while
the latter was to support small and medium scale industry. In reality, of
course, both institutions loaned quasi-exclusively to the regime's political
allies. Business licenses were issued on a political basis, and there were
no provisions defining a "small" from a "large business."
BCEAO credit regulations were liberalized in 1974, resulting in a
proliferation of state-owned lending institutions. The Société Financière
Sénégalaise pour le Développment de l'Industrie et le Tourisme (SOFISEDIT)
and the Banque National du Développement du Sénégal (BNDS) were the
flag-ship institutions of this state-banking era. Like SONAGA and SONEPI,
the new institutions were the regime's overt attempts to incorporate
restless elements of Senegal's small capitalist class all the while
maintaining support of the traditional group of "hommes d'affaires
sénégalais." The new lending regulations allowed the regime to provide loans
to private parties via the newly incorporated state banks. These loans
furthered the reach of Senegal's clientelist networks.
As one author puts it, by 1974, the regime had consolidated its economic
and "social base in an ad hoc way as the political machine grew." With
stability ensured, Senghor moved to change the constitution, allowing a
gradual return to multi-party democracy. The President himself created the
first two opposition parties, the liberal Parti Démocratique Sénégalais
(PDS) and the Marxist Parti Africain de l'Indépendence (PAI). The UPS
changed its name to the Parti Socialiste (PS) and the era's first
multi-party elections were held in February 1978. To nobody's surprise, the
PS won 83 of the 100 legislative seats with the rest going to the PDS.
The success of these elections can be largely attributed to the ways in
which state power was "trickled down" from Senghor to the ruling elites of
the PS, to the powerful party locals, to smaller officials, and down through
the bureaucracy. Ministries became semi-autonomous units, struggling amongst
themselves for autonomy and capital. Those with access to the bureaucracy
profited greatly during this period. The "coherence of the state as an
administrative and bureaucratic organization, predicated on a hierarchical
power structure and manifest in the coordinated action of subunits,
diminished."
The consolidation of the regime, however, led to the unraveling of economic
coherence. Unbridled rent seeking hindered the development of a robust
capitalist class, which reacted by pulling out of the increasingly parasitic
formal sector. Between 1970 and 1975, Gross Domestic Investment (GDI)
increased by 91.8%, whereas from 1975 to 1980, GDI slowed to an increase of
34.8%, and from 1980 to 1981, actually decreased by 18.3%. This decline can
be linked to factors such as economic recession and regional drought, but it
is significant that during this same period, the Senegalese government
estimated that 70% of all textile goods on the market were from the parallel
economy. At the same time, terms of trade worsened. Foreign investors, for
the large part, pulled up their stakes, and moved towards friendlier and
more profitable markets. The state acted on this, buying up companies and
adding them to the list of state monopolies. This further entrenched the
regime's patron-client relationships by increasing the total amount of
kickbacks which could be distributed.
This pervasive clientelism eventually blurred the distinction between
public and private capital and nearly collapsed the Senegalese banking
system. By the late 1970s, the majority of loans made by SONEPI, SONAGA,
SOFISEDIT, and BNDS were non-performing or had been defaulted upon. By the
early 1980s, the Senegalese banking system had accrued more than FCFA 144
billion in bad debts, of which 20% were government guaranteed. When it was
realized that the government could not honor these guarantees, the banking s
ystem was thrown into a financial crisis.
1980 to 1994: Renewal or Reform?
By the late 1970s, Senegalese economic performance was at an all time low.
annually, the lowest growth for any stable regime in sub-Saharan Africa.
Fiscal and current account deficits were at 12.5% and 25.8% respectively,
savings were negative, and inflation was at 12%. Total debt represented
67.4% of GDP and the scheduled debt service was 18.5% of total exports of
goods and nonfactor services.
In an effort to mitigate a looming crisis, Senegal began negotiations with
the World Bank and IMF in 1979, agreeing to implement a four year Structural
Adjustment Program (SAP). Worried that changes in the economy would affect
social order, the regime approached reform half-heartedly. Between 1980 and
1983, the budget deficit remained at 7 to 12% of GDP, inflation was around
11%, and real Gross National Product growth was negative. The regime showed
better faith in 1984, creating with the World Bank the Nouvelle Politique
Industrielle (NPI) and the Nouvelle Politique Agricole (NPA). These programs
were funded by four structural adjustment loans (1980, 1986, 1987, and
1990), two sectoral loans (finance in 1989 and transport in 1991), and by a
number of IMF arrangements which account for an estimated two-thirds of
official development assistance to Senegal, or 4.3% of the total amount
received by sub-Saharan Africa. To a small degree, macroeconomic policy
adjustment was a success in the 1980s. From 1984 to 1988, real GDP rose 4.2%
per annum. The ration of publicly guaranteed debt to GDP fell from 91% in
1983 to 77% in 1988.
Despite the small, yet significant gains, Senegal's economic performance
remained hindered by the lack of foreign investment needed to "kick-start"
the economy. This was due, in large part, to a rotten banking system. By the
mid 1980s, this system was in a severe financial crisis. This is mostly due
to the BCEAO's 1974 "Africanization" reforms, which gave individual states
more control over their central banks, maintaining all the while, French
participation. The liberalization of banking regulation allowed the state
to set up its own banks which would then loan capital to domestic allies.
This money was guaranteed by the state, and set up an efficient party
machine based on finance. SONEPI, SONAGA, SOFISEDIT, and the BNDS all made
bad loans to political insiders, some of which were never recorded,
serviced, or reimbursed. In the 1980s, private banks proliferated into the
picture, operating in ways similar yet distinct from the larger state banks.
These banks pooled capital from investors, loaning it back to business
connections and political allies. When these banks could no longer operate
due capital shortage, they simply closed shop and disappeared.
The BCEAO and national authorities were neither thorough nor consistent in
their methods of regulation and corrective measures. Poor management
translated into inadequate lending risk assessment and financing of loss
making public enterprises. Using BCEAO rediscounting and market
mechanisms, weak banks were able to buff their balance sheets. Further, the
BCEAO's money market mechanism was arranged so that stronger banks had
restrictive credit ceilings with excess liquid deposits automatically lent
to weaker banks.
As could be expected, economic change went hand in hand with political
change. Senghor, Senegal's "philosopher-king," passed the presidential
mantel in 1980 to his self-appointed successor, Abdou Diouf. Diouf
immediately set about legitimizing his regime by furthering the political
liberalization process begun in 1974. In 1981, Article 3 of the constitution
was amended, permitting an unrestricted number of political parties to
contest the system. Increasing the number of seats in the national assembly
in 1983 from 100 to 120 furthered this political opening. Second, third and
fourth rounds of presidential and legislative elections were held in 1983,
1988, and 1993. The PS won 111 seats in the legislature in 1983, 103 in
1988, and 84 in 1993. In the same sequence, Diouf was reelected President by
83.5, 73.2, and 58.4% of the vote.
While economic hardship and disenchantment with the independence party
partly account for the sharp decline in PS popularity, a strong claim could
be made that increased external pressure limited the regime's extractive and
redistributive capacity by restructuring industry, privatization, and
increasing transparency. Fourty-three per cent of Senegal's public sector
enterprises were affected by some degree of divesture, 23 of which were
privatized, with another 19 liquidated between 1980 and 1991. Of these
enterprises, ONCAD, which had long been the government's chou-chou, was the
most politically significant.
More important to the reconfiguration of Senegal's political economy was
the ambitious 1989 restructuring of the banking sector, which spelled more
embedded autonomy for the bankers, more supervision and punitive capacity
from the BCEAO, and less access allowed to political leaders and the
notorious "hommes d'affaires sénégalais." Restructuring was so effective
that by 1992, only nine of the sixteen commercial banks existing in 1989
remained in operation. Together, the World Bank, the BCEAO and the
Senegalese government worked to avoid a massive banking crisis. The new
banking program called for an independent, efficient, and well-managed
banking system, which could foster a credible business environment, while
supporting the monetary authority's policies. It set a 25% limit of
government share in equity. Further aims were to rehabilitate,
recapitalize, restructure, privatize and close troubled banks all the while
consolidating and refinancing non-performing and illiquid loans. The reform
took place in two stages, from 1989 to 1990, and from 1990 to 1991.
In the first stage, banks were placed into three groups, those to undergo
structural or financial rehabilitation, those to be closed, and new banks to
be opened. In the first group, the Banque Internationale pour le Commerce et
l'Industrie du Sénégal (BICIS), Banque Sénégalo-Kowéitienne (BSK), and the
Massraf Fayçal Al-Islami du Sénégal (MFIS) were earmarked to be
rehabilitated. The BICIS was reliquified and restructured to reduce
operations costs. Further, government equity was reduced to 25%. BSK and
MFIS restructuring was contingent on financial assistance from their
shareholders. This was never received and both had their licenses suspended.
The Union Sénégalaise de Banque (USB) was closed and replaced by Crédit
Lyonnais Sénégal (CLS). Three other banks were eventually closed and parts
of their performing loans were assumed by another new bank, the Crédit
National du Sénégal (CNS). The second stage of banking reform aimed largely
at consolidating non-performing loans and loan recovery. The Société
Nationale de Recouvrement (SNR) was created in 1991, empowered with
exceptional legal rights to recover capital.
The BCEAO, which restructured itself in 1989, played a central role in the
rehabilitation of Senegalese banks. New BCEAO policies aimed to bring unruly
state banks under fiscal guidance. It trimmed its interest rate structure
and eliminated the preferential rediscount rate. Further, the BCEAO created
a supranational banking supervision commission whose goals were to conduct
frequent and free-of-hindrance audits throughout the franc Zone. The
previous system of loan operations was dismantled, replaced by a
creditworthiness rating system to which all banks had to adhere. Under the
new system, loans exceeding FCFA 200 million were to be reported posteriori
to the BCEAO which then had a 60 day period to approve or disapprove. The
last step was to enact a more prudential capital reserves system.
The banking sector has been the most successful of Senegal's restructuring
programs. The banking sector went from a net debtor in 1989 to a net
creditor in 1992. Restructuring and refinancing was easy. The government has
run into trouble, however, pursuing large debtors, most of whom are
politically connected in some way or another.
Changing its industrial, agricultural, and banking structures still did not
give Senegal the boost it needed to get on its feet. Terms of trade had
declined by 45% since 1985 , and between 1980 and 1994 foreign investment
had decreased by 91.2% What were the reasons for this capital flight? The
answer is at once a blessing and a curse for Senegal. While the BCEAO's new
macroeconomic austerity measures created low inflation rates in UMOA
member-states, the FCFA was overvalued. Since independence, the French franc
had increased in value, making the FCFA more and more expensive. This
artificially set UMOA member-state wages and prices at an uncompetitive
level translating into a big loss of competitiveness.
Realizing that this problem was not going to solve itself, and noting that
certain member-states were hinting at acting unilaterally (which would have
spelled the end of the UMOA and BCEAO), member-states convened in January
1994 to discuss devaluation. The states agreed that a one-time devaluation
was needed to increase competitiveness and better coordinate member-state
policy. Under the new conditions, it now took 100 instead of 50 FCFA to
constitute a franc. Overnight the current value of fourteen African states
was halved.
1994 to Present: Stabilization, Partial Adjustment, and Stagnation
Oddly, the stability of Senegalese political life has been relatively
untouched by the SAPs of the 1980s, the restructuring of the financial
sector in the late 1980s/early 1990s, and the 1994 devaluation. This seems
to go against the predictions of most political analysts. Indeed, it seems
almost counterintuitive that the restructuring of a state's economy has only
limited political repercussions. Opposition parties have had a perfect
opportunity to attack the regime. These attacks have been less vociferous
than expected. The opposition has slowly rapproached the regime and in
several cases, these parties have actually entered the government. The PDS
is a good example of this. In 1991, it participated in the government. It
withdrew in 1992 and its leadership experienced a brief crisis where Wade
and several of his party's high-ranking members were accused of
assassination. Most thought this marked the end of any possible PDS-PS
collusion, but in 1995, the PDS reentered the government.
Election trends showed a decline in PS popularity up to the 1993
presidential elections, which was largely attributed to discontent in urban
areas which by then had grown to 40% of the population. PS popularity,
however, climbed in the 1996 regional elections. A 1996 decentralization
plan devolved regional budget authority to Senegal's 10 Régions. Further,
the capital, long a bastion of the PDS, was administratively divided into 19
Arrondissements. On 24 November 1996, election results gave the PS control
of 300 in 320 rural communities, 56 of 60 mayor races, and the legislative
bodies of all 10 Régions. The PS emerged from these elections maintaining
its role as the "parti des campagnes" all the while making strong advances
into urban areas. In particular, the PS had a spectacular result in the
urban community of Dakar, winning 38 of 43 total Arrondissements.
This "nomadisme politique" prominently displayed the degree to which
Senegalese voters felt the PS and PDS had become one and the same. This
feeling was made all the more potent by a comment made by Wade (both leader
of the opposition PDS and member of government during the elections)
immediately after the elections. Instead of the fiery anti-regime rhetoric
known as his trademark, Wade proclaimed:
«Nous bâtissons des relations pour le future. Ce qui s'est passé pendant la
campagne électoral s'est passé et nous le répérerons chaque fois qu'il sera
nécessaire. Il n'empêche qu'aujourd'hui nous avons démarré un travail de
gouvernment et nous y sommes en plein...Il faut que les Ségégalais
comprennent ce qu'est la démocratie, qu'on leur enseigne que la coalition
est un élément important de la démocratie...»
What has happened to the opposition?.
Conclusion
We have seen the evolution of the Senegalese banking system in conjunction
with economic and political developments. Further, we have seen that while
domestic, economic, and political events weigh into the effectiveness of the
banking system, international factors have ultimately set the limits of the
playing field. Change has occured, but in ways not expected. The public
finance deficit has been brought to 2.5% of GDP, and inflation brought down
to 3%. Economic growth, negative until 1994, has become positive with 2% in
1994, 4.8% in 1995, and 5% in 1996. Still, economic growth appears to be
more a result of high commodity prices than restructuring and devaluation.
Given the historical development of Senegalese clientelism, how has
restructuring of the banking system affected the "hommes d'affaires
sénégalais," and to a larger degree, the political system? My argument is
that it has forced a more overt collusion between business and political
elites on the one hand, and politicians from opposition and ruling party on
the other. Recent trends in government coalition seem to indicate that as
the relationship between politicians and banks becomes more and more
elongated, the more local politicians will work together to share the
limited spoils of a more transparent system.
Given the large degree of restructuring in the contemporary political
arena, where are the spoils coming from? Despite privatization, many
companies and sectors have yet to be divested and will continue to serve the
financial need of political actors. In particular, the sugar and rice
monopolies remain untouched by government reform. The former continues to
generate valuable rent, whereas the latter is hostage to the culinary
preferences of a volatile urban poor.
In concluding, politics remain business as usual while the economy faces
continued restructuring. Is this a distinctly Senegalese scenario, or is it
the same in Côte d'Ivoire, which has encountered similar banking and
economic restructuring? In comparing this case study in a larger paper with
Côte d'Ivoire, it is hoped that general trends in banking liberalization,
the CFA Zone and politics will become more clear.