Macroeconomic risks include geopolitical tensions in the subregion and in other parts of the world. The political situation in Mali and the resulting ECOWAS trade embargo sharply curtailed transshipments via Senegal to Mali until the embargo was lifted in July 2022. The 5 month embargo affected particularly the cement sector. Russia’s unprovoked war on Ukraine also curtailed the availability of wheat and refined oil products. Russia is Senegal’s leading supplier of wheat (51 percent) and refined oil products (14 percent), putting upward pressure on consumer prices, which the government has blunted with energy subsidies and food price stabilization measures. The depreciation of the West African Franc (XOF) against the U.S. dollar adds further strain to government finances while raising the price of imported commodities and good priced in USD.
Senegal’s state information agency, SENUM, has an ambitious plan to increase access to Wi-Fi and digitize more government services into a national hub. The GOS made progress in operationalizing the new Commercial Court, prioritizing the resolution of business disputes. Although companies continue to report problems with corruption and opacity, Senegal compares favorably with many countries in the region on corruption indicators. The $550 million Millennium Challenge Corporation (MCC) Senegal Power Compact, with a supplemental $50 million from the Government of Senegal for a total $600 million program, entered into force on September 9, 2021. The compact investment is designed to strengthen the power sector, by increasing reliability and access to electricity and aims to help the government establish a modern and efficient foundation upon which the nation’s power system can grow. Compact procurement opportunities and bidding documents are available on the Millennium Challenge Account Senegal website.
Despite these improvements, business climate challenges remain. Because the informal sector dominates Senegal’s economy, legitimate companies bear a heavy tax burden, although Senegal is making progress in broadening the tax base. For example, in 2021, the GOS set a goal of increasing tax revenue from the current 17 percent of GDP to 20 percent within 3 years such as expanding the corporate tax base from 87,000 to 300,000. Some U.S. companies complain about delays and uncertainty in the project development process. High costs for real estate and energy undermine Senegal’s competitiveness. Senegal’s bureaucracy remains slow and difficult to navigate for projects requiring government approval. A slow legal system and challenges in resolving commercial disputes are impediments to investment despite the recent creation of the commercial court. Senegal has a procurement regulatory agency (ARMP) and standardized procurement practices. However, application of these rules has been inconsistent.