Foreign investment and new industries sustain Cote d'Ivoire's industrial sector

Once considered West Africa’s industrial powerhouse, Côte d’Ivoire’s manufacturing sector was badly affected by a decade of political unrest that curtailed further expansion. However, this is gradually being reversed as political stability and consecutive years of economic growth are enhancing the environment for industrial development and helping to diversify the country’s production base. With economic growth reaching an estimated 8.8% in 2015, on the back of equally strong figures of 8.7% in 2013 and 7.9% in 2014, according to data from the African Development Bank, the industrial sector has benefitted considerably.

Plan In Place

This is in part a result of the mostly successful implementation of the government’s 2012-15 National Development Plan (Plan National de Développement, PND), which authorities are hoping to replicate in the 2016-20 PND. The new iteration aims to help Côte d’Ivoire achieve emerging market status by 2020 while ensuring that industry accounts for 40% of the economy, up from 25% currently. The plan hinges greatly on the development of up to 124 public-private partnerships (PPPs) in sectors such as transport, infrastructure, agriculture and energy.

Some of these projects will affect overall industrial performance, such as the establishment of the new 940-ha industrial zone of PK 24, north of Abidjan, that is estimated to cost CFA75bn (€112.5m), or the building of a new CFA237bn (€355.5m) container terminal at the Port of San Pedro. In other cases, development projects target specific industrial subsectors, such as the new railway line set to link the Port of San Pedro to nickel deposits in Biankouma-Touba and iron ore reserves in Mount Klahoyo, in the country’s west, a project that is estimated to cost CFA500bn (€750m), according to figures from the National Committee for the Management of PPPs (Comité Nationale de Pilotage des Partenariats Public-Privé, CNP-PPP).

The authorities created the CNP-PPP, which sits directly under the president’s office, to support the execution of these projects by streamlining implementation of large-scale processes. The passage of several regulatory measures since 2012 has also supported industrial development, among them the new investment codes for the mining and the electricity sectors and the easing of international commerce through the creation of a single-window for exporters and importers to handle documentation procedures. Jean Maurice Ibrahim, CEO of Distribution de Matériel Electrique Industriel et Bâtiments, told OBG, “The single window for trading allows Customs procedures to take 72 hours instead of five days, which is a great improvement to the business environment in Côte d’Ivoire.”

Sector Structure

One of the government’s objectives for the sector is to increase its weight in the national economy up to 40% of GDP by 2020. “This is a feasible goal,” Jean-Louis Menudier, president and managing director of textiles and design firm Uniwax, told OBG. “The necessary conditions are being put in place little by little, but they are not there yet. Industrial profitability is still not significant enough to attract a larger number of foreign investors.”

Although updated figures can be hard to come by, industry represented some 25% of GDP in 2014, and included 5200 companies, according to the Ministry of Industry and Mines (Ministère de l’Industrie et de Mines, MIM). The majority of the sector’s added value was accounted for by manufacturing industries, which made up 64.5% of sector GDP, followed by extractive industries, which accounted for 20%. Building and construction represented 13.3%, and the energy sector contributed 2.2% of sector GDP.

Public Policy

To accelerate industrial development, in 2014 the authorities launched the National Enterprise Restructuring and Upgrading Programme. The four-year initiative is supported by the UN Industrial Development Organisation and has an established objective of attracting 150 industrial companies into the country. The measure is set to channel up to CFA152.6bn (€228.9m) into several subsectors, including agricultural processing and textile production.

Consumer Goods

The sector is benefitting from some of the same factors that are driving the economy’s high headline growth, including political stability and rising consumption, with certain segments, such as fast-moving consumer goods, seeing a significant rise in capital spending from both new and current investors (see analysis). Dutch beer firm Heineken and retailer CFAO have recently joined forces to set up a new CFA100bn (€150m) beverage production unit in the country, which is expected to produce 1.6m hectolitres once it begins operations in early 2017. Other operators have already strengthened their presence in the Ivorian market. French firm Bel opened a new 4200-sq-metre cheese production factory in early 2016. Investment for the new facility amounted to $3m. Unilever also recently inaugurated a new CFA6bn (€9m) mayonnaise factory in Abidjan. New production ventures in sectors such as agro-industrial processing and cement production and are also adding on to the country’s manufacturing capabilities (see analysis).

Cement

The large number of public works projects under way (see Construction & Real Estate chapter) have led to a jump in local demand for cement, prompting a rise in imports to make up for shortages that affected the domestic market in late 2014. Availability of cement has since stabilised as new production units and extensions have come on-line. Current annual demand is estimated to be around 3.4m tonnes, below total production capacity of about 5.2m tonnes, but this is expected to continue to increase over the coming years, and producers have been looking to position themselves for this coming demand accordingly.

Several cement producers are present in the Ivorian market. LafargeHolcim recently upgraded its factory and announced a doubling of production capacity, which is expected to reach 2m tonnes in 2017. French Group Amida – which already owns Société des Ciments d’Abidjan and another production unit in San Pedro, Société des Ciments du Sud-Ouest – in 2016 completed construction of a third cement production unit in the country, set-up in Abidjan, for an investment of CFA40bn (€60m). Also in the market, Ciments de l’Afrique, owned by Morocco’s Addoha Group, has a 1m-tonne capacity cement unit in Abidjan, and is establishing a second 1m-tonne cement factory in San Pedro, which is expected to be operational in 2017.

Tipping Point

“We expect that in the coming years there will be overcapacity in terms of cement, because there are new entrants coming in,” Simon N’Goh, head of distribution and franchise at LafargeHolcim Côte d’Ivoire, told OBG. “Production capacity is expected to go up around 8% per year over the coming years.” Considering the large number of construction projects going on across the country, he expects demand for cement to grow from 3.4m tonnes per annum (tpa) to 6.5m-7m tpa in the coming three to four years.

After local producers lobbied the government to raise cement import taxes to protect domestic production, the minimum price for imported cement in the local market was increased from $90 per tonne to $98 per tonne in April 2016. In addition to existing operations, new cement producers are expected to add to existing capacity. In 2015 Turkish industrial group Limak began construction of a 1m-tonne capacity cement plant in Abidjan. The unit will be part of a bigger manufacturing complex to focus on building materials, which will cost an estimated €150m, according to Limak. In 2015 Ivory Diamond Cement began construction on a new clinker grinding unit, expected to begin production in 2017. In April 2016 Nigerian cement manufacturer Dangote broke ground on a new $200m clinker grinding unit which is expected to have an annual capacity of 2m tpa once it becomes operational in 2018.

Both domestic and foreign producers are looking to export to the regional market, where demand for housing and infrastructure has led to increased cement consumption, but competition is likely to be tight, as production is also being expanded in neighbouring countries, like Ghana. Lamine Sylla, CEO of SOCIM, told OBG, “The cement deficit in 2015 was a wake-up call for the industry, as it proved that cement producers were not keeping up with Côte d’Ivoire’s growth spurt. Since then, new actors have been pouring into the country and existing operators are increasing capacity.”

Mining Growth

With considerable reserves of gold, iron ore, manganese and iron, Ivorian authorities are hoping that an improved economic outlook, political stability and a low level of mineral exploration relative to some of its regional neighbours – along with the passage of a new mining code in 2014 – can make Côte d’Ivoire an attractive destination for new mining developments. Despite the slow global environment for commodity prices, which have been decreasing since 2011, production and revenues are steadily increasing. The Chamber of Mines of Côte d’Ivoire estimates that the sector accounts for 2% of national GDP, with revenues totalling €730m in 2015, a 24% rise on 2014.

Production in gold extraction has risen from 12.4 tonnes in 2011 to reach 23.5 tonnes in 2015, while Ivorian manganese production has risen from 50,000 tonnes in 2011 to 308,401 tonnes in 2014, before settling at 294,094 tonnes in 2015, a reflection of the slower global manganese prices.

The latest available government figures put the overall number of active exploration licences as of December 2015 at 171, with 136 of those focused on gold (see analysis). Among the biggest upstream operators are South African Randgold, Canadian Endeavour Mining, and London-listed Amara and Australian Perseus Mining, which in February 2016 announced they would merge under the name Perseus.

New Code

Besides the legislative clarification that the new mining code has allowed, such as an income tax exemption for the first five years after the start of production and the extension of the exploration period to 12 years, the MIM has also been clamping down on illegal mining operations by mapping out illegal sites and through the closure of some of the most dangerous operations, among other measures.

Community development and local content are also key focal points of the new mining code and the new regulations make it easier to spread the local benefits of mining operations. One way is by encouraging smallscale mining through the issuance of licences for artisanal miners and the establishment of buying centres for gold and diamonds. The authorities have estimated the current total number of artisanal gold miners in the country at some 500,000 and are hoping that the formalisation of small-scale mining and the potential for expanded artisanal output leads to increased job creation. This could also facilitate opportunities for cooperation and knowledge transfer between the authorities, small-scale miners and international companies. Jean Jacques Koua, CEO of EPC Côte d’Ivoire, told OBG, “As the mining industry in Côte d’Ivoire is in its infancy, there is a lack of know-how and experience among stakeholders. A possible solution would be for the local authorities, operators and advisers to improve communication in order to help develop best practices.”

Textiles

Competition from Asian manufacturers undercut African producers in the 1990s – a process that accelerated with the end of the Multi-Fibre Arrangement in 2005 – and Côte d’Ivoire’s textile industry, once flourishing, was not immune to that trend. The local industry was also badly affected by loss of competitiveness during the country’s period of political instability. Côte d’Ivoire had been one of West Africa’s most important cotton exporters, with an average annual production of 400,000 tonnes. However, the civil conflict of 2002-03 led to a 50% reduction in annual output. Since the return of political stability, government efforts to relaunch the segment have led to production increases. Total cotton output rose from 174,689 tonnes in the 2010/11 season to 450,146 tonnes in 2014/15, according to figures from the MIM. The authorities want to bring the country’s annual cotton output to 600,000 tonnes by 2020. The industry has also been affected by the loss of cost-competitiveness from local cotton plantations, leading manufacturers to increase their dependence on cotton imports from neighbouring countries, which raises input costs.

However, there is potential for textile production to be galvanised by the re-structuring of some of the industry’s major players. In September 2016 the Ivorian government launched an international tender for the privatisation of Compagnie Ivoirienne pour le Dé veloppement des Textiles (CIMT), one of the sector’s largest players. The goal is to allow for 80% of the firm to be sold to private investors that will invest in relaunching the company. CIMT was badly hit by economic crisis following the civil conflict, with annual output falling from 120,000 tonnes before 2002/03 to 14,000 tonnes by 2008/09, according to a May 2015 Reuters report. By 2015 the firm’s output had rebounded to 34,000, and the authorities announced plans to focus on increasing production output to 100,000 tonnes by 2018. Financing of €35m from the Africa Export-Import Bank has already been channelled to help revive the company, but much of its long-term prospects will depend on a successful privatisation move that allows the business to invest in regaining its former success.

Enhancing its capacity to attract foreign manufacturers with the correct incentives would further support growth of the sector. “We need to establish free trade zones in Côte d’Ivoire, and attract manufacturers from those countries where the competitive level has been somewhat eroded,” Menudier told OBG.

Agro-Industries

One of the industrial sector’s brightest spots is the downstream agricultural segment. With a rich soil and a variety of resources to grow, Côte d’Ivoire has gradually been expanding and diversifying its agro-industrial production and exports. The country is best known for cocoa, of which it is the world’s largest producer, but other goods are being increasingly prominent as well. Rubber processing rose steadily from 220,000 tonnes in 2009 to 340,000 tonnes in 2015, according to figures from the MIM.

Palm oil also saw an increase in production from 1.57m tonnes in 2010 to 1.8m tonnes in 2014, while cotton production expanded from 174,689 tonnes in the 2010/11 season to 450,146 in 2014/15. Meanwhile, processing of cashew nut also rose from 9440 tonnes in 2011 to some 41,012 in 2015.

Cocoa

Still, cocoa remains the sector’s biggest breadwinner, and Ivorian output currently represents about 40% of the total global crop. Côte d’Ivoire remains the number one producer of cocoa worldwide, followed by Ghana and Indonesia, and the commodity accounts for 15% of the country’s GDP, according to World Bank figures. For the 2014/15 cocoa season, Côte d’Ivoire exported up to 1.8m tonnes of cocoa. Although the figures for the 2015/16 season were still not available as of early 2017, in September 2016 Bruno Koné, the minister of communications, announced that the government expected a slight decline to 1.57m tonnes, down from 1.79m tonnes in 2014/15, due to lower precipitation levels during the rainy season. The authorities have also implemented sector reforms to strengthen the production side. Since 2012 guaranteed minimum prices have promoted stability and a gradual increase in farmers’ incomes. This has encouraged local farmers to continue to grow the crop and invest in quality.

Boosting Processing

However, Côte d’Ivoire only processes about a third of its cocoa output domestically, at facilities owned by multinationals including US-based Cargill, Swiss Barry Callebaut and Singapore’s Olam, with the rest of the production exported raw. The government has thus sought to scale up local processing. To increase the value-added potential of the industry, authorities have set a goal of processing as much as 50% of local cocoa production in-country by 2020. The government has been establishing regulatory incentives to encourage an increase in local processing activities. In the cocoa sector this is being implemented through differential taxes, mainly by reducing those on processed cocoa versus raw product exports. Although industry players expected these to be enforced earlier, authorities announced that the differential tax rates would begin to take effect from January 2017.

Private sector moves towards greater in-country processing are also making a substantial impact. In March 2015 Singapore-based Olam opened a $75m cocoa processing plant in San Pedro. The facility will have an annual processing capacity of 75,000 tonnes. This move came after Olam’s December 2014 acquisition of US-based ADM’s cocoa operations for $1.3bn. The purchase gave Olam access to the firm’s cocoa processing operation in Abidjan, taking Olam’s processing capacity in Côte d’Ivoire up to 156,000 tonnes. Cocoa processing received an additional boost from the opening of the country’s first chocolate factory in May 2015. This €6m unit was set-up by French group CEMOI in Yopougon’s industrial area and will have an annual production capacity of 10,000 tonnes.

Cashew

Another important economic earner is cashew nut, of which Côte d’Ivoire produces 25% of the global crop. Annual production has risen steadily, from 400,000 tonnes in 2011 to 702,510 tonnes in 2015, according to figures from the MIM. The strong increases in production have allowed the country to reach the top position as the world’s largest raw cashew exporter, with total production expected to reach as much as 800,000 tonnes in 2016, according to a January 2016 report from Jeune Afrique. Total revenues for the cashew sector rose 68.5% between 2013 and 2015 to reach some CFA337bn (€505.5m).

Part of this improving performance can be traced back to a governmental focus on developing cashew production and processing efforts that were implemented in 2013. Besides creating a body to oversee the sector, the Regulatory Authority for Cashew and Cotton, which falls under the Ministry of Agriculture, a series of measures were also executed to increase and improve production, such as allocating credit guarantees to support processors to upgrade equipment. As with cocoa, only a small amount of the country’s production is processed locally, something authorities are keen to change, having set the goal of processing 100% of the national cashew production in-country by 2020.

In Practice

One key project in this regard will be the establishment of a 5000-tonne experimental cashew processing facility at Yamoussoukro, built in conjunction with Vietnamese group Viet Mold Machine. The country is also partnering with Israeli industrial group Mitrelli to establish a dozen similar processing facilities, each with an annual capacity ranging between 5000 and 15000 tonnes. A technological centre for the development of the cashew industry is also set to be established at Yamoussoukro. In a further move to support the sector, the authorities have announced a monetary incentive to be given out for each tonne of processed cashew kernel exported through a payback to processors as a function of the number of tonnes exported. The measure was expected to be applicable to the 2016 crop year. However, detailed documentation regarding the benefits was still awaiting publication as of early 2017.

Further clarification regarding cashew processing incentives might nonetheless be needed to establish solid long-term processing capacity. Besides the specific details and structure of the incentives, as of early 2017 market operators were also waiting to understand how long the government is planning to maintain any new incentives. The government has stated that the incentives would be reviewed on a yearly basis. However, this might not be a stable enough approach to help processors secure long-term financing for expansion of processing capabilities. Industry players have asked the government to set up these incentives with a minimum of a 10-year commitment. “The cashew processing industry is still at its early stages of development, so every couple of years a processor will need to upgrade its technology just to be as efficient as its counterparts in India or Vietnam. The government will have to take that into account and provide four of five years just to allow processors to stay on par with their counterparts and stabilise their operations. A long-term incentive programme will make Côte d’Ivoire a more attractive investment destination for cashew processing rather than just establishing parity,” Partheeban Theodore, country manager at Olam Côte d’Ivoire, told OBG.

Sector players expect incentives for cashew operators to not only attract new investors to processing, but also allow existing players to restart idle capacity. “Estimates range from 80,000-100,000 tonnes of annual processing capacity that exists for cashew in the country, of which less than 50% is currently being used. Some of this idle capacity may not be readily usable, as they might still need to invest more to upgrade their equipment,” Theodore told OBG.

Power Puzzle

Difficulties in sourcing inputs for the country’s gas-fuelled power plants and low rainfall for hydro dams has led to inconsistent generating output (see Energy chapter), which has affected energy-intensive consumers such as manufacturing firms, but prices have also been rising. In June 2015 the government had announced plans to increase electricity prices by 16% over the following three years, the first of which, at 5%, was scheduled to become effective by January 2016. However, the move prompted discontent, as the actual increase reached up to 30-50% for some customers, leading the government to cancel part of the price hike. “Energy is really expensive, and this makes our exports less competitive,” Moustapha Skaf, general manager of Société Africaine de Transformation de la Ouate de Cellulose Industrielle, told OBG.

A government plan to liberalise the electricity and water markets should help reduce electricity prices, as supply expands and competition in the generating and distribution segments increases. Michel Sodjiedo Mian, chairman and CEO of local mining firm TD Continental, told OBG, “New energy projects developed with the help of the state are required to keep their prices under CFA70 [€0.11] per KW, which is not encouraging to private investors. For renewable energy projects to be more attractive, incentive measures need a boost.” The authorities hope to attract up to €16bn of mostly private capital into the electricity sector until 2030, with the country facing an annual 10% rise in energy demand, according to government figures. “Utility-type services such as waste management have traditionally been concentrated in Abidjan, but we expect demand to rise in cities like San Pedro as they develop further,” César Aka-Khie, CEO and chairman of Envipur, told OBG.

Transport infrastructure has also been problematic in the years following the civil unrest, but the outlook there is also improving. Port infrastructure in particular has become a focal point of government efforts, with ongoing expansion projects at the ports of both Abidjan and San Pedro expected to positively affect handling capacity and ease the flow of goods in and out of the country. “We need to have better port operations, the Abidjan port is somewhat congested, so transport conditions need to be improved,” Paul Uzan, managing director at cocoa exporter COEX CI, told OBG. Ongoing improvements of the country’s road network and port expansions in both Abidjan and San Pedro are set to galvanise the industrial sector by easing operational costs.

Industrial Zoning

Industrial productivity will benefit from plans to create new industrial zones and revamp existing areas. Despite the availability of industrial areas, especially around the economic capital Abidjan, unplanned growth and years of underinvestment have left some of them in a poor state and serviced by inadequate infrastructure. To address this, the authorities have launched a CFA20bn (€30m) plan to restructure the 645-ha Yopougon industrial area. Additionally, a 940-ha industrial area is under construction. The PK 24 industrial area is budgeted to cost €90m and is set to be completed in 2017. As these zones draw foreign investors, this should help to advance the sector as a whole, by, for example, improving standards. Kwabena Barning, francophone West Africa regional managing director of inspection, verification, testing and certification company SGS-CI, told OBG, “The arrival of more multinational firms is opening up opportunities for certification companies, since they actively seek more quality accreditations for processes and exports to a greater extent than smaller local companies.”

Outlook

Much of the Ivorian economy has been built on exporting its natural resources, at times with insufficient local processing. But the expansion of the country’s industrial base represents a critical opportunity to increase the gains that can be obtained from important agricultural commodities such as cocoa, cashew and palm oil. Putting the right fiscal and legislative incentives in place will be vital for the authorities as they look to increase local processing. Key within this will be to ensure the timeline of any incentive structure focuses on long-term development to encourage investments with sufficient future viability. Besides strengthening traditionally strategic industries, the attention to new sectors, such as mining, are set to help to diversify the economy, create employment and, in the case of mining specifically, channel new development money into communities. But for these and other industrial ventures to be successful and have a quantifiable impact on both employment and exports, it will be necessary for the authorities to bring the prices for key inputs such as electricity down. The coming years are set to bring more industrial development into Côte d’Ivoire, and to sustain its growth in the long run, the industrial sector will need improved local conditions to operate.

 

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The Report: Côte d'Ivoire 2017

Industry & Mining chapter from The Report: Côte d'Ivoire 2017