As a stable democracy with relatively advanced infrastructure and ambitious plans for expanding private investment, Senegal offers growing trade and investment opportunities for American firms and an attractive location for companies looking to serve the West African regional market. Senegal is the second-most advanced country in French-speaking West Africa after Côte d’Ivoire. Its GDP has increased significantly since 1988. In 1988, Senegal’s GDP was $6.17 billion. In 2023, its GDP reached $31.22 billion and it is expected to increase to $43.39 billion in 2028. Why is the United States particularly interested in investing in its manufacturing sector?
Senegal's Foreign Direct Investments Data
Source: World Bank
A U.S.-Senegal Bilateral Investment Treaty has been in effect since 1990. According to UNCTAD data, Senegal’s stock of foreign investment increased from $3.4 billion in 2015 to $6.4 billion in 2019. France is historically Senegal’s largest source of foreign direct investment, but the Senegalese government wanted more diversity in its sources of investment. Thus, U.S. investments in Senegal have expanded since 2014, including investments in power generation, industry, and the offshore oil and gas sector. The World Bank data show that Senegal’s FDI as a percentage of GDP skyrocketed between 2017 and 2021 from 2.1% to 8.1%. In 2019, the United States was estimated at $114 million.
The manufacturing sector in Senegal is one of the sectors that need continuous yet significant improvements. Despite the observed improvements already made to increase industrial production, the Senegalese manufacturing sector is still concentrated in chemical industries, construction materials, and agro-food industries, with relatively weak improvement in productivity. Indeed, industrial policy in Senegal, as the set of measures aiming to promote the transformation of primary products inside the country, has been marked, first of all, by a strong desire of the state to counter divestment pressures associated with the shrinking domestic market following accession to national sovereignty. However, throughout its economic evolution, the manufacturing sector did not pick up as much as the other sectors for a few reasons. One of the fundamental reasons is the tariff-protection policy. Senegal has had a strong tariff-protection system for its industrial policy, which negatively impacted the sector’s productivity. The tariff-protection policies on its industrial sector raised the price of goods and services in Senegal due to increased taxes. Senegal’s tariff policies disincentivized foreign investments. Although Senegal has loosened its tariff policies for its industrial sector, its industrial sector has accumulated a lot of delay in its development and its capacity to produce as much as the other economic sectors. As a result, the Senegalese manufacturing is still lagging.
U.S. investments in Senegal’s manufacturing will bring tremendous added value to its overall economy and to its manufacturing sector in particular though the bilateral partnership. Senegal’s Investment Code provides for investment incentives, including temporary exemption from customs duties and income taxes, for investment projects. It is undeniable that U.S. investments could accelerate the industrialization process and exploiting new mines should also contribute to that end. Under its Emerging Senegal Plan, the Government of Senegal aims to boost sustained and inclusive growth through economic reforms and private sector-driven investment projects. The particularity of this project is that it is private sector-based, which encourages foreign private investments to play a critical role in the industrialization of Senegal, especially in its manufacturing sector. Thus, with U.S. investments to increase the valuation of the Senegalese manufacturing sector, Senegal hopes to structurally transform its economy, improve its already strong macroeconomic performance, and achieve emerging market status by 2035.