Economic Analysis - Weak Cocoa Prices And Capital Imports Will See Deficit Widen - JULY 2017


BMI View: Cote d ' Ivoire ' s current account deficit will widen in the coming two years. Weak cocoa prices will weigh on export revenue in the short term, while robust investment into the country ' s infrastructure will be a key driver of import spending.

Weak cocoa prices and robust infrastructure spending will see Cote d'Ivoire's current account deficit widen in the coming years. Oversupply of cocoa after a number of West African producers enjoyed a strong harvest and demand in developed markets declined has exerted downward pressure on global prices, which will squeeze proceeds from the crops this year. Meanwhile, import spending will strengthen owing to progress in infrastructure investment and consumer product demand. We are forecasting the current account deficit to widen to 3.9% and 3.7% of GDP in 2017 and 2018 respectively, up from an estimated 3.0% in 2016.

Deterioration Of Trade Surplus Will Drive Deficit
Cote d'Ivoire - Current Account Balance And Components
e/f = BMI estimate/forecast. Source: BMI, AfDB

Cocoa Trouble Will Squeeze Exports

While Cote d'Ivoire will continue to run a trade surplus, weak cocoa prices will constrain export growth in 2017. Reduced demand in developed markets led to a steep fall in cocoa prices in H216, which will weigh on export revenues this year. Local producers have been hurt by oversupply and order cancellations (see 'Local Exporter Buyer's Remorse Sparks Medium-Term Risks', February 15). Looking further ahead to next year, we expect that this will subsequently lead to the deterioration of stocks, which will ultimately limit the supply. As a result, our Agribusiness team expect that tighter supply in the country will contribute to some rebalancing in the global market in late 2017, with Cote d'Ivoire set to gain back some of its losses through increased revenues in 2018 despite a decline in volumes.

While cocoa has traditionally been Cote d'Ivoire's primary export, in 2017 we anticipate that oil exports will ramp up in the coming years as the short-term outlook for the sector is relatively bright. Our Oil & gas team forecast a 7.7% rise in oil production in 2017 due to a number of new fields coming online. Though these gains are to be pared back in 2018 due to natural decline rates and a lack of new projects, there is moderate upside risk owing to further development phases at operating fields.

Exports Vulnerable To World Cocoa Prices
Cote d'Ivoire - Selected Exports, % Of Total Export Value
Source: Trademap

Investment And Consumer Demand To Boost Imports

Investment in power and infrastructure will keep imports elevated in the coming years. Significant volumes of capital imports such as cement and machinery will be required in order to progress with construction of major projects. Construction of a second container terminal at the Port of Abidjan, which began in 2015, will cost an estimated USD962mn and will likely be completed in 2020. Furthermore, two power plants, Soubre and Songon - costing USD654mn and USD558mn respectively - will be under construction in 2017, and will likely take a number of years. In addition to imports related to capital projects, we note that growth in consumer demand is also likely to remain robust. Our Autos team forecast car sales growth of 10.5% in 2017, and given that Cote d'Ivoire's domestic car manufacturing is very weak, we expect this demand will bolster imports.