Despite threats of unrest in the highly contested election in Ivory Coast, the country’s local stock market has held up well, ending the week following the elections only 0.4% in the red.
Rather than signify that market participants were unfazed by the political deadlock, it was more a case of liquidity drying up almost entirely, with only 49 000 shares trading the entire week and many brokers choosing to stay home.
More worrying, however, is that Ivory Coast faces severe economic consequences if the impasse between election winner Alassane Ouattara and rival Laurent Gbagbo is not resolved. Firstly, The African Development Bank, together with the World Bank and the Agence Francaise de Développement have, through their Highly Indebted Poor Country’s debt relief programme, been writing off its foreign debt. Estimated at in excess of US$12bn, US$3bn of it has been cancelled already, while the full amount is expected to be written off by 2010.
In addition, Ivory Coast has been granted new credit lines for infrastructure projects. Despite the fact that finance minister Charles Koffi Dibby is held in high esteem in Bretton Woods circles, these credit lines will inevitably dry up with immediate effect should Gbagbo cling to power. After ten years of political stalemate, the country can ill afford this, with its infrastructure in dire need of maintenance. Power cuts have become the norm over the last 24 months and roads are in a derelict state.
Secondly, foreign direct investment, which averaged a couple of hundred million US dollars per annum over the last ten years, would also disappear. Multinationals like Groupe Bollore, which operates the port of Abidjan – a key contributor to the economy of the country – would also freeze spending, thereby giving the opportunity to the port of Tema in neighbouring Ghana to gain further market share in the container handling business for the sub-region. Burkina Faso, for example, would redirect its imports/exports through Tema instead of Abidjan. Until the mid 1990s, Ivory Coast was the economic lung of West Africa by a wide margin. That status is being challenged.
Finally, with a third of its economy linked to agriculture, another round of civil war would turn plantations into battlefields, thereby decimating the economy. The demise of the cocoa industry, which is already in bad shape, as well as other soft commodities such as natural rubber, palm oil and coffee, would rob the country of an opportunity to capitalise on current high soft commodity prices and strong demand. The agri-processing sector is up 56% year to date in local currency versus 20% for the market.
Should the deadlock not be resolved peacefully, the country not only risks the prospect of a return to civil war, but could also see the effect of years of pauperisation exacerbated.
Julien Veron is a frontier markets analyst at Investec Asset Management