2009 Index of Economic Freedom

Quick Facts

Population:

• 12.1 million

GDP (PPP):

• $19.1 billion
• 2.1% growth
• 4.1% 5-year compound annual growth
• $1586 per capita

Unemployment:

• 48.0%

Inflation (CPI):

• 5.9%

FDI Inflow:

• $58.0 million

Senegal's economic freedom score is 56.3, making its economy the 110th freest in the 2009 Index. Its score decreased 2 points from last year despite improvements in business freedom and freedom from corruption. Senegal is ranked 14th out of 46 countries in the Sub-Saharan Africa region, and its economic freedom score is slightly below the world average.

Senegal scores well in trade freedom, government size, monetary freedom, and property rights. Business freedom is relatively strong as well, scoring about 1 point above the world average. Economic freedom in other areas is significantly below the world average.

Inflation is moderate, but the government sets some prices and influences others. Fiscal freedom, investment freedom, labor freedom, and freedom from corruption are weak. Senegal's top income tax rate is high, though the corporate tax is moderate. The law does not discriminate against foreign investment, but the regulatory environment can be burdensome for any investor. Private companies have benefited from Senegal's growing microfinance sector, but a highly regulated labor market leaves little room for employment opportunity and overall growth. The judicial system does not have enough qualified magistrates or independence from the executive branch and is subject to corruption, as is much of the rest of Senegal's bureaucracy.

Background Back to the top

Senegal serves as a regional gateway and business center. It has limited natural resources and a semi-arid climate, and agriculture and fishing occupy a majority of the population. Senegal became independent in 1960 and is one of the few African countries never to have experienced a coup. President Abdoulaye Wade, the first non-Socialist to rule the country, was elected in 2000 and re-elected in 2007. Peace in the southern Casamance region has progressed fitfully since a 2004 peace accord between the government and rebel leaders, but sporadic fighting continues.

Business Freedom 65.0 Back to the top

The overall freedom to conduct a business remains somewhat limited by Senegal's regulatory environment. Starting a business takes eight days, compared to the world average of 38 days. The entry cost of launching a business is high. Obtaining a business license takes about the world average of 18 procedures and 225 days. Bankruptcy proceedings can be lengthy.

Trade Freedom 71.2 Back to the top

Senegal's weighted average tariff rate was 9.4 percent in 2006. Import taxes and fees, non-transparent government procurement, inconsistent customs implementation, state import monopolies, and corruption add to the cost of trade. Ten points were deducted from Senegal's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 65.1 Back to the top

Senegal has high income tax rates but moderate corporate tax rates. The top income tax rate is 50 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 19.2 percent.

Government Size 77.0 Back to the top

Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 27.7 percent of GDP. The government has fully or partially privatized large, strategic state-owned enterprises.

Monetary Freedom76.5 Back to the top

Inflation is somewhat high, averaging 4.6 percent between 2005 and 2007. Many prices are freely determined, but the government controls the prices of pharmaceuticals and medical services and influences prices across the economy through state-owned enterprises and utilities. Ten points were deducted from Senegal's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom40.0 Back to the top

There is no legal discrimination against foreign investors, and 100 percent foreign ownership of businesses is permitted except in electricity, telecommunications, mining, and water. Investment-related laws and regulations can be burdensome, and bureaucracy is cumbersome, non-transparent, and prone to corruption. Contract enforcement and dispute resolution can be arbitrary and non-transparent. Residents and non-residents must receive official approval to hold foreign exchange accounts. Foreign exchange transactions and capital transfers may be subject to restrictions, controls, and authorization, depending on the transaction.

Financial Freedom40.0 Back to the top

Senegal is a member of the West African Economic and Monetary Union, and the Central Bank of West African States governs Senegal's financial institutions. The banking sector has undergone restructuring and consolidation. Government ownership of banks has declined, and banking supervision has been strengthened. However, high financing costs and limited access to credit still pose barriers for businesses. The foreign presence in the banking sector is substantial, and branches and subsidiaries of foreign or regional banks play a relatively important role in Senegal's financial intermediation. The largest banks are predominantly French-owned. Banking remains highly concentrated, with three banks holding two-thirds of deposits. The government owns over 25 percent of the shares in seven banks, including a majority share in the agricultural bank. Most lending is carried out with only a few borrowers, and most services are concentrated in the capital. The number of microfinance institutions, which provide financial services to small and medium-size companies, has grown in recent years. Although Senegal's financial sector is relatively diversified, its capital markets remain poorly developed.

Property Rights50.0 Back to the top

The administration of property title and land registration procedures is uneven outside of urban areas. The housing finance market is underdeveloped, and few long-term mortgage financing vehicles exist. Senegal lacks commercial courts staffed with trained judges, so decisions can be arbitrary and inconsistent. Despite an adequate legal and regulatory framework, enforcement of intellectual property rights is weak to nonexistent.

Freedom From Corruption36.0 Back to the top

Corruption is perceived as significant. Senegal ranks 71st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is a significant obstacle to economic development and competitiveness. There are credible allegations of corruption in government procurement, dispute settlement, and regulatory and enforcement agencies.

Labor Freedom42.5 Back to the top

Senegal's restrictive labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee can be burdensome. Regulations related to the number of work hours are rigid.