Côte d'Ivoire's unexploited natural resources attract global attention

 

Consecutive years of growth have helped to rebuild Côte d’Ivoire’s industrial base, after years of civil unrest and insufficient investment. Although the country has some way to go to reclaim its former position as West Africa’s manufacturing centre, a combination of prudent government policies and foreign direct investment (FDI) across productive segments is helping to raise the sector’s profile in the Ivorian economy.

Accelerated expansion of GDP over the past five years has allowed a number of industries to not only develop a domestic and regional customer base, but to increase their interaction with global markets.

Figures

Industry accounted for 25% of the Ivorian economy in December 2016, according to figures from the African Development Bank (AfDB) in its “African Economic Outlook” report. In the same report, the AfDB stated that industrial production remained stable across 2016, with growth of 0.5%. This is the result of differing performances across the country’s assortment of industrial subsectors.

Overall, industrial activity has maintained a positive trend over the past five years. Manufacturing expanded from 14.5% to 16.6% of GDP between 2011 and 2016; extractive activities moved from 7.9% of GDP to 8.1% of GDP over the same period; and although oil and gas continue to form the bulk of the country’s extractive sector, a burgeoning mining sector is becoming increasingly important. Agro-industrial production has equally become an important element of industrial development, attracting both foreign and domestic investors into greenfield manufacturing projects to service West African markets.

Agro-industrial goods now account for 31% of the industrial sector’s added-value. Côte d’Ivoire’s availability of exportable agricultural crops and valuable natural resources have allowed it to maintain a positive trade balance, expected to have reached 5.9% of GDP in 2017, according to the AfDB. However, in order to ensure that more of the added value of the country’s resources impacts economic growth, an efficient and expansive manufacturing sector will be critical. “Operational costs and administrative hurdles have put strains on the competitiveness of local industrial companies,” Frederic Tailheuret, CEO of Société Ivoirienne de Câbles, an Ivorian cable manufacturer, told OBG. “Given the increase in electricity prices and the congestion at the port, there is still much to be done to improve the competitiveness of our local industrial capacity.”

Steps Forward

Processing activities have gained an important footing, but a number of key agricultural segments still have a way to go before they develop into full-blown industrial activities. Only 30% of Ivorian cocoa is processed in-country before being exported, despite the fact that the country is responsible for 40% of global cocoa output. Similarly, the emerging cashew sector, which has seen an accelerated consumption in large markets such as the US and the EU, is held back by low levels of domestic processing. Although Côte d’Ivoire has become the world’s largest cashew producer after it surpassed India in 2016, only 6.2% of its cashew output that year was processed by Ivorian firms before being shipped abroad to processors in countries like India and Vietnam, where processing activities are more competitive. For cotton, the government is targeting processing 25% of the country’s output by 2020. Overall, Côte d’Ivoire’s industrial sector faces the paradoxical challenge of having access to a host of high-quality primary resources, but being limited by excessively high input costs in everything from energy, logistics and human resources.

Government Policy

Changing the current dynamic remains one of the country’s most complex challenges. A need to accelerate economic growth after the end of the civil conflict in 2011 led to the enactment of the government’s 2012-15 National Development Plan (Plan National de Développement, PND). This targeted plan has helped to expand several sectors, allowing the Ivorian economy to gather some momentum. GDP expanded by an average of 9% between 2012 and 2015, and the level of investment moved from 9% of GDP in 2011 to as much as 20% of GDP by 2015, according to government figures. In its stead and building on previous achievements, Ivorian authorities are implementing the 2016-2020 PND, which aims to rebuild the country’s industrial base and ensure the sector accounts for 40% of the Ivorian economy by 2020. Among the five key pillars on which the 2016-20 PND focuses is an emphasis on industrialisation efforts. These will be supported by measures to improve production and marketing value chains; develop technological innovation strategies; revamp industrial zones across the country; and an enhance energy production capacity to help fuel industrial development.

Initiatives aimed at improving conditions for industrial development, coupled with rising average incomes, have led several international firms to set up production in Côte d’Ivoire. Opting to establish operations in one of the industrial zones in and around Abidjan, the country’s economic centre, multinational firms in the fast-moving consumer goods sector (FMCG) such as Unilever, Nestlé, Heineken, La Bel and Cemoi have increased their production and distribution operations in Côte d’Ivoire with an eye on the broader West African market. Government statistics claim that during 2016, 70 new industrial companies benefited from the Investment Code. Total FDI within the industrial sector was expected to reach CFA490.6bn (€735.9m) compared to CFA260.7bn (€391.1m) two years earlier.

Cement

Although cement production remains a critical component of meeting development goals, which will involve the upgrading of transport and logistics infrastructure, Côte d’Ivoire faced periodic cement shortages in 2014 and 2015, which pushed existing cement producers to increase their production capacity. New companies, such as Turkey-based Limak Cement and Inci beton, have begun investments in new cement facilities, while existing market players have also been raising production capacity to meet expected rises in demand over the coming years. Ciments de L’Afrique, owned by Morocco-based Addoha Group, and CIM Ivoire are set to increase capacity by 2018. Other investors, such as Nigeria-based Dangote Cement, made claims that it would invest into a new clinker grinding facility, although work had not yet begun as of early 2018.

Another producer expanding its production capacity in the country is Lafarge Holcim, which in mid-2017 began operating a new $24.5m crusher, allowing the firm to double its cement production capacity to 2m tonnes per year. According to the Association of Cement Producers of Côte d’Ivoire, the country’s annual cement demand is around 3.6m tonnes, while production capacity reached 4.2m tones in 2017.

Nevertheless, shortages and price hikes remained an issue in March and April 2017, which prompted Côte d’Ivoire to import 150,000 tonnes of cement. The shortfalls in the availability of cement can be attributed to a number of different challenges. For example, construction projects usually experience a boom during the dry season, which coincides with the cocoa and cashew export season, resulting in transporters selling their services to the highest bidders. Additionally, development projects at the port resulted in longer delays for the import of clinker into the country, preventing factories from operating at full capacity. However, it is likely that in the medium term the rising domestic production capacity will lead to increased price competition between cement manufacturers.

EXPANSION: Besides the large amount of exportable agricultural commodities, Côte d’Ivoire is accelerating the exploitation of its considerable mineral resources. Reserves of gold, bauxite, manganese and nickel have attracted international mining investors. According to government figures, the country also has 4bn tonnes of iron reserves, 60m tonnes of copper nickel and 260m tonnes of reserves of laterite nickel.

Despite the recent slowdown caused by a decrease in the price of several mineral commodities over recent years, which affected many of the country’s significant base metals mining projects, the sector is seen as a growing source of economic diversification. In 2016 mining operations had global revenues of CFA480bn (€720m), according to the Professional Miners Association of Côte d’Ivoire (Groupement Professionnel des Miniers de Côte d’Ivoire, GPMCI).

Although the surface of the country remains relatively unexplored in comparison to other countries in West Africa, survey and development efforts have continued to expand known potential, with a total of 177 active exploration licences operational as of September 2017, according to government figures. The approval of a new mining code in 2014, which, among other things, expanded the duration of exploration licences, has been seen as an additional encouragement to attract financing and capabilities in what remains an emerging sector. Despite this, additional clarification is expected by market players following the approval of the new regulation’s overall structure. Gold mining in particular has been a source of several new mining ventures, with gold output expanding from 13.2 tonnes in 2012 to 25 tonnes by 2016, according to figures from the Ministry of Industry and Mines (Ministère de l’Industrie et des Mines, MIM).

There are four operational gold mines in the country, but development projects currently under way are expected to add three more mines by 2021, when sector authorities predict the country’s yearly gold output to rise to 40 tonnes. The country’s biggest gold mine, in Tongon, began operating in 2010 under Randgold Resources, and saw its production expand from 7.8 tonnes to 10.8 tonnes from 2012 to 2016.

Canadian Endeavour Mining runs the Agbaou mine, which began production in 2014 and increased output from 5 tonnes to 6.3 tonnes in 2016. Australia-based Perseus Mining has nearly completed work on its Yaouré mining project, and is set to become one of Africa’s largest gold mines after it merged with London-listed Amara Mining in 2016. Yaouré is expected to produce 325,000 ounces of gold per year once operational.

Slated to become a smaller but important contributor to Ivorian mining output, diamond production has also been mounting, increasing from 9200 carats to 16,300 carats between 2015 and 2016.

Overall, mining operations in the country contributed CFA37bn ($55.5m) in direct taxes for the country during 2016, according to the GPMCI, and the mining sector accounted for 2% of GDP. Besides improving conditions for investment in the mining sector, operators and other stakeholders are also expecting the new regulation to adequately deal with illegal mining. Sector authorities believe that as much as 20 tonnes of illegally mined gold is lost through informal channels every year. Besides the loss of a valuable resource as well as state taxes, illegal mining has also accelerated the destruction of several other resources. A government programme to formalise small-scale mining is expected to help combat the negative consequences of illegal mining activity as well as create formalised employment in some of Côte d’Ivoire’s more isolated areas (see analysis).

Cocoa

Cocoa, as one of the country’s most important commodities, has allowed a large number of Ivorian growers to support themselves as exports have risen. The country has maintained its position as the world’s top cocoa producer, with about 40% of the global cocoa crop. Following a 2012 sector reform, in which authorities secured a minimum price for cocoa growers, the cocoa industry has become an increasingly effective way to improve the livelihoods of a large section of the Ivorian population. After producing a record 1.7m tonnes of cocoa in the 2013/2014 season, early indications put the total production of the 2016/2017 cocoa season at over 2m tonnes, according to a government statement issued in September 2017.

The negative side of Côte d’Ivoire’s increase in cocoa production volumes is that it has contributed to the global excess in cocoa, which has led to a marked decrease in prices. As a result, the government was compelled to reduce guaranteed prices for cocoa farmers, and the International Cocoa and Coffee Organisation announced that the combined global cocoa surplus was expected to reach 371,000 tonnes in 2017. Over the first six months of 2017 the international price of cocoa fell from $3000 per tonne to $1900 per tonne, according to the AfDB, and prices have remained at this level into 2018. The 40% price reduction led to an estimated loss of $4bn for Côte d’Ivoire, prompting the government to cut expenditure in its 2018 budget.

Processing Drive

Although the cocoa glut is expected to continue over the coming years, the industry’s long-term development rests on the ability of Côte d’Ivoire to further increase processing activities. Currently, only about a third of the country’s cocoa production is processed locally.

Access to the abundant high-quality crop has attracted international agricultural processors such as Singapore-based Olam, which inaugurated a $75m cocoa processing plant in San Pedro in 2015, taking the firm’s annual cocoa processing capacity in Côte d’Ivoire to 156,000 tonnes. Another international cocoa processor, French group CEMOI, established the first chocolate factory in Côte d’Ivoire in mid-2015, a €6m investment that will allow the group to process 10,000 tonnes annually in the Youpogon industrial area, in Abidjan. The government has set the target of increasing total locally processed cocoa from 31% of production in 2016 to as much as 50% by 2020.

Côte d’Ivoire and neighbouring Ghana, which is the world’s second-biggest cocoa producer, have agreed to increase cooperation and reduce their exposure to international cocoa price volatility. The AfDB has recently announced it will create a Cocoa Industrialisation Fund. Set to reach $1.2bn for both Côte d’Ivoire and Ghana, the fund will be used to increase processing activities, combat disease affecting cocoa plantations in both countries and improve logistics by setting up new storage infrastructure.

Cashew

Another commodity that is fast becoming an essential revenue earner for the country is cashew nut. Production has been rising for several years, going from 450,000 tonnes in 2012 to an expected 725, 000-750,000 tonnes for 2017, according to figures by the Ivorian Association of Cashew Exporters (Association des Exportateurs de Cajou de Côte d’Ivoire, AEC-CI). Total installed cashew processing capacity is over 100,000 tonnes annually, though the utilised capacity ranged 60,000-65,000 tonnes in 2017. Despite the existing capacity, cashew processing faces many obstacles, particularly in managing the supply chain. With consumption patterns pushing international cashew prices up, many local entrepreneurs saw an opportunity. However, being based in one of the world’s largest-producing countries for cashew has not necessarily translated into access to raw cashew nuts for local many operators. “It costs money, and smaller processors do not have the financial muscle to secure it. Because of the pressure of international prices, a lot of the cashew nuts end up going to foreign processors” Joachim Lezou, project support officer at Agence Française de Dé veloppement in Abidjan told OBG.

Other elements make cashew processing operations difficult. Factors such as electricity, land and the availability of trained manpower remain costly relative to other countries with established cashew processing capabilities, such as India and Vietnam. Local cashew manufactures have echoed this sentiment.

“In Ivory Coast it costs $565 to $600 to process a tonne of raw cashew, while the equivalent quantity costs $350 to process in India, $290 in Vietnam and $475 in Benin,” Suraj Rao, the second vice-president of AEC-CI, told OBG. The speed of technological change also impacts cashew processing, according to Rao, with the country unable to keep with Vietnam, which changes machinery every six months. Because authorities cannot currently reduce the existing conversion costs, the Ivorian government has instead established export incentives for locally processed cashew.

The measure, launched in 2016, is expected to last for period of five years, with a potential for an extension of incentives to be revised every two years. However, since the export incentives are given to processors the year following their exports, the new system was set to be tested by the market after the 2017 season.“The government’s thought process is correct, they are giving these incentives to encourage local processing. However, the risk factor is high, because a lot of things can change by the time the first batch of incentives is disbursed. Once the first batch is paid, then processors can project towards the future years and see if the processing operation is sustainable”, Rao told OBG.

Poultry Potential

The establishment of a peaceful environment and the implementation of the government’s poverty-fighting measures have underlined the role that several agro-industrial segments can have on the country’s capacity to produce food. Segments like poultry production have shown increased potential. The sector produces 35m chickens per year, and has been increasing as economic conditions gradually improve. Domestic consumption is currently at 2 kg per person per year, up from 1 kg per person per year in 2011.

However, further expansion of the poultry industry remains constrained by several logistics challenges. The lack of competitiveness of port operations is a big problem for all industries, including agro-industry. Boats often wait a long time to dock, which makes the imports of inputs difficult and more costly. The cost of energy is also negatively impacting the expansion of poultry processing capacity. For example, because of energy and other costs, a chicken farm in Morocco is 50% cheaper to build and operate than the same kind of farm would in Côte d’Ivoire.

With rising domestic demand for agro-industrial goods strengthening the case for increased domestic food production, ensuring that local producers are not weighed down by prohibitively high operational costs will determine the long-term future of several industries with strong local demand, such as that of poultry.

Textiles

Like most regional textile producers, Côte d’Ivoire has been negatively impacted by competition from Asia-based textile manufacturers. Furthermore, domestic textile production was also made erratic by the instability of the country’s civil conflict in the early 2000s. Varying output over the years and lower competitiveness levels of domestic cotton producers have at times led local domestic textile producers to depend on cotton imports from other West African countries. In the 2015/16 season production dropped to 310,177 tonnes of cotton seeds, down from 450,146 tonnes the previous season, on the back of unfavourable weather patterns. Sector authorities, however, are targeting 600,000 tonnes per year in cotton production by 2020, and have been developing a new zoning programme that reduces transport costs in the sector by organising production areas closer to cotton processing units.

As a means to accelerate the sector’s relaunch, the government decided to promote an international tender for the control of one of the sector’s more important actors, the state-owned Ivorian Company for the Development of Textiles Compagnie (Ivoirienne pour le Développement des Textiles, CIDT), launched in September 2016. In February 2017 the government announced that La Compagnie Ivoirienne de Coton (Ivorian Cotton Company, COICI) had tendered the winning bid, acquiring the company for CFA13bn (€20m). The CIDT’s new owner, Koné Daouda Soupkafolo, has vowed to restructure the company.

Industrial Zones

Although the Ivorian government has long promoted the development of a comprehensive network of well-equipped industrial zones to help accelerate economic activity in the country, the transportation and infrastructure conditions in some of them have deteriorated over time.

The negative impact of overcrowding, coupled with underinvestment in most of the country’s industrial areas, has encouraged the government to improve industrial zoning and sector infrastructure across the country via revamping efforts and the establishment of new zones. These moves align with government’s broader goal to almost double the weight of the industrial sector in the economy in the coming years. “Existing industrial complexes are also investing in their production capacity, but do not have access to the greenfield investment incentives included in the new investment code,” Ramzi Omais, CEO of Société de Transformation Industrielle en Côte d’Ivoire, a local PVC pipe manufacturer, told OBG. “Efforts to promote investment should also benefit those who expand their operations, and not only new arrivals.”

In terms of regulation, two steps were taken to establish the legal framework for the renovation of industrial zones. A decree in May 2013 created the Agency for the Management and Development of Industrial Infrastructure (Agence de Gestion et de Développement des Infrastructures Industrielles, AGEDI). Working under the MIM, AGEDI is charged with the management of existing industrial zones, the conception of new industrial areas through the allocation and development of land, and the management of the zones’ occupancy. “The government’s industrial zones policy is clear and concise. However, it does not include a environmental component to cover recycling, water treatment and waste disposal. As industrial zones become widely used, treatment or recycling facilities should be required to mitigate their impact on the local environment,” César Aka-Khie, CEO of ENVIPUR, a company operating in the field of eco-logistics and engineering, told OBG.

Securing Financing

An equally important step was implemented in 2014, with the creation of the Fund for the Development of Industrial Infrastructure (Fonds de Développement des Infrastructures Industrielles, FODI) which was set up in order to mobilise funding for the management and expansion of industrial zoning.

Besides an allocation of financing from the state budget, FODI will also recoup additional income arising from the renting out of industrial space and channel it to finance new industrial areas.

FODI has also contracted banking financing for the development of its activities. In 2015 the fund signed an agreement with Ivorian banks Société Ivorienne de Banque and Banque Atlantique de Côte d’Ivoire for a CFA21bn (€32m) loan. The financing was allocated to two of Côte d’Ivoire’s most important industrial zones: the Yopougon industrial area, which has been receiving revamp work, and the new PK 24 industrial zone, which is currently under construction and will likely become a critical addition to the country’s industrial real estate pool. Both are located on the outskirts of Abidjan.

Set up in the Yopougon commune to the north of Abidjan, the Yopougon industrial area houses several manufacturing firms across a number of different sectors and extends over 645 ha. Improving operating conditions for the businesses located at the Yopougon industrial area is imperative for the performance of the Ivorian economy. As of 2016, according to figures from the government, Yopougon was home to an estimated 80% of the country’s industrial capacity. A detailed renovation project began in February 2015, financed by the FODI at a total cost of CFA20bn (€30m).

In parallel to the work being done in Yopougon, authorities have also launched the construction of the new PK 24 industrial area. The newly established zone will be located just to the north of Abidjan and serve to alleviate the pressure on Yopougon and other areas around the country’s economic capital where industrial activity has been constrained by lack of adequate space. Work on the new industrial area began in April 2015, under the management of Chinese contractor China Harbour Engineering Company (CHEC).

Once completed, the new industrial area will cover a total 940 ha, with the initial phase of the development being 200 ha. The area will likely house several important Chinese industrial players, with CHEC having committed some CFA60bn (€90m) to the zone.

At the project launch the government announced it would commit CFA12bn (€18m) to help make 62 ha of industrial real estate at PK 24 available as soon as possible. Besides the new areas near Abidjan, AGEDI also launched new industrial zoning in other parts of the country, including Bonoua, San Pedro, Bouaké and Yamoussoukro. The first notable company to start operations in the new industrial area is Brassivoire, a joint venture between CFAO and Heineken (see Retail chapter). Despite still being powered by an independent power generator, the company has announced it is fast-tracking its investment in order to reach its total planned capacity of bottling 1.6m litres an hour by end-2017. “Despite the strong demand for new industrial areas, we must not overlook existing ones. Our investments are thus split, between rehabilitation works and new developments,” Youssouf Ouattara, director-general of AGEDI, told OBG.

Logistical Challenges

A challenge common to West African countries, high transport costs also serve as a barrier to increasing Ivorian industrial exports across the region, despite the fact that the country is well positioned to access a 350m-people market.

“The costs related to the transport of merchandise from Abidjan to any of the countries in the region remain high, while shipments coming from countries like China can often end up costing less,” Adham El Khalil, CEO of Eurofind Participation, an Ivorian manufacturing conglomerate, told OBG.

Another problem is inefficient port operations. This has a double negative effect on industrial operations, making it difficult for Ivorian exporters to take their products to international markets while blocking access to the necessary manufacturing inputs that need to be brought into the country. The Port of Abidjan suffers from congestion, leading to extended waiting periods for boats wanting to dock. The World Bank’s “Doing Business 2018” report ranked Côte d’Ivoire 155th out of 190 countries for its ease to trade across borders.

The port is currently undergoing expansion work to allow it to handle bigger ships. The project, which began in 2015 and is set to be finalised by mid-2019, involves the deepening and widening of the Vridi canal that allows cargo ships to access the main port facility, as well as a second container terminal.

Outlook

Industry has quickly become a critical component of the Ivorian economy. This is due, in large part, to the fact that the country has access to a number of highly sought-after natural resources.

However, efforts to transform these resources into value-added products continue to face major obstacles. One key competitive weakness that affects Ivorian industrial production is the high cost of energy. Although recent years have seen power distribution become more stable and reliable, the government’s option to raise electricity costs for industrial users and protect general consumers has created an artificial situation in which the costs of energy production are not reflected in their price. Despite this, several projects to increase energy production capacity are likely to help stabilise electricity prices over the medium term.

Efforts to strengthen local processing capacity of agricultural output will be key for the industrial sector’s medium-term development. These incentives, in hand with continued FDI, are likely to see the sector maintain an upwards growth trend for the coming years.

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The Report: Côte d'Ivoire 2018

Industry & Mining chapter from The Report: Côte d'Ivoire 2018

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