push54, llc: focus on senegal report

PUSH54, LLC: FOCUS ON SENEGAL

AN OVERVIEW OF THE CURRENT

ECONOMIC TRENDS OF SENEGAL

Accelerating

Economic Growth

Through Integrated

Transport

Infrastructure.

PUSH54, LLC: FOCUS ON SENEGAL July 15, 2013

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FOCUS ON SENEGAL: AN OVERVIEW OF THE CURRENT ECONOMIC AND INFRASTURCTURE

TRENDS IN SENEGAL

PUSH54, LLC

Chicago, USA

July 2013

This report is copywrited by Push54, LLC; no part of it may be circulated, quoted or

reproduced for distribution without prior written approval from Push54, LLC


2

Push54, LLC is an Africa focused U.S firm providing business and management consulting services,

African Diaspora executive search, and Africa analytics & research services.

1. Advisory services (Corporate, Institutional, and Government)

Economic Branding

Foreign Currency Exchange Risk Management

International Business Development

International Treasury System Procurement & Implementation

Operational Risk

Organizational Design

Public Private Partnerships

Regulatory Risk

Trade Mission Organization

2. Executive Search

A deep database of African Diaspora senior managers and consultants in corporate America with

a desire to work on the continent on short term(6 months to 2 years) or long term basis(3 years

plus).

Strong focus on Psychometrics in building our database and match making with the role.

3. Africa Analytics

Subscription based service

Daily, Weekly, or Monthly notes.

Heavy focus on private sector and macro-economic data drivers.

Our core target audiences are African Diaspora in the U.S, Academia, Financial Institutions, and

Corporations with an interest in the African markets, and the African continent itself.


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PREFACE

This report is the product of a six month long project by Push54, LLC, working with analysts located both

in the United States as well as Senegal and West Africa. We sought to shed light on what in our view is

the best positioning of Senegal’s economy and status in West Africa.

The release of this report is part of Push54’s launch of our Africa Analytics service aimed at bridging

U.S. investment interests in Africa as well as helping create market-based measures that allow investors

and academia anywhere in the world understand the economic impacts, positive or negative, a country’s

performance has on their internal markets and the effects on other countries nearby.

The goals of the Focus report series and Push54’s Africa Analytics service is to not only provide our

membership with an understanding of what is currently taking place in a particular country or region in

Africa, but also provide a forecast of what decisions leaders will have to make and where those decisions

may land given the geopolitical economic map and the particular country’s demographic trends.

Here at Push54, we are dedicated to the Africa we grew up knowing and the Africa others are starting to

get a glimpse of. Through all the negative portrayals in the media; we see an economic story that is being

executed on wonderfully by today’s young African population and their more and more market oriented

leaders.

Where others see potential, we peer and see actions already being taken by some of the most innovative

business leaders coupled with much better central bankers. These business stories together show an

economic growth trend that has already gotten started and that many market participants outside the

continent are not aware of.

It is our goal to bring these stories to our membership and our ambition to build innovative benchmarks

and indexes that allow members to better follow what is happening in Africa and understand how events

like the recent news in Egypt affect the whole economy of the continent for better or for worst. Such

questions as: Which country in Africa is poised to gain economically from Egypt’s economic headwinds,

why and how can a firm participate in those investment gains?

Before concluding, I would like to emphasize that this work is independent and has not been

commissioned or sponsored in any way by any business, government, or other institution.

Justin Mahwikizi

Managing Principal of Push54, LLC

July 2013


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TABLE OF CONTENTS

PREFACE...................................................................................................................................................... 3

INTRODUCTION ....................................................................................................................................... 5

MACROECONOMIC OVERVIEW ............................................................................................................ 6

Export performance ................................................................................................................................ 6

Senegal’s Producer Price Index (PPI).................................................................................................... 7

Rail Volume indicators ........................................................................................................................... 7

Air transport volume indicators ............................................................................................................ 7

CHALLENGES & OPPORTUNITY ............................................................................................................ 8

Biggest challenge is biggest opportunity .............................................................................................. 8

Mali – Opportunity for better trade with Senegal ...............................................................................11

SOLUTIONS PROPOSED ......................................................................................................................... 13

LONG-TERM BENEFITS ........................................................................................................................... 14

CONCLUSION ........................................................................................................................................... 15

CONTACTS ................................................................................................................................................ 16


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INTRODUCTION

Among other West African countries, Senegal is fast becoming an economic powerhouse; developing

strong institutions and trade-minded policies. Among internal political stability, a positive international

rapport, and a vibrant cultural identity; Senegal also boasts an opportune geographical location, as the

western most position on the continent. Respective to other countries in the region, Senegal has already

begun to assert itself as a trade hub; due largely to its Atlantic port access, fishery industry, and having

established a marine transport presence in West Africa.

The foundation of Senegal’s continued, and accelerated, economic growth will heavily depend on its

commitment to improving and building on these advantages. Though the potential is high for further

export activity, there exist several barriers to taking full advantage of export possibilities; a major

challenge being the lack of reliable, robust, and long-lasting freight forwarding transportation

mechanisms. Instead, West Africa as a whole relies on outdated, poorly maintained, and sometimes

dangerous means of transporting goods within the continent. This is the problem at hand that several

people and organizations are focusing on solving as it is the underlying intrinsic challenge to unlocking

untold amounts of economic growth in Senegal and West Africa.

A robust, integrated transportation network designed to take full advantage of Senegal’s favorable

location, would not only serve as a beacon of economic foresight and innovation; but its workforce would

enjoy an abundance of employment opportunities in new industries and commercial enterprises. The

recommendation to which PUSH54 adheres is that Senegal would generate these opportunities through an

investment in construction reinforcement and maintenance planning in the following sectors: port, rail,

short haul trailer truckloads, and air freight logistics. The Senegalese people, with their entrepreneurial

skills already demonstrated at home and among its Diaspora, have demonstrated a willing capacity to

adapt quickly and take actionable steps toward economic gains.

As Senegal's population grows, it will present a great opportunity to continue to grow domestic markets.

This same workforce, given the right entrepreneurial environment and support from local policies, will be

able to contribute to exports through their manufacturing capacity.

In the following sections, we look at the current macroeconomic indicators, the challenges being faced,

what opportunities exist, and finally what solutions we propose and what the long term benefits would be

for Senegal and the Senegalese private sector.

In this inaugural “Focus” series, PUSH54 aims to look at the West African nation of Senegal through an

investment lens, which will allow readers to focus in on key economic perspectives and opportunities

related to freight forwarding and transportation. Based on our analysis, PUSH54 will share its own

recommendations on how Senegal will be able to position itself for long-term dominance as both a

domestic economic powerhouse, and as an international trade hub; with a key role in geopolitical and

economic relations during Africa’s rebranding and continued economic growth in this century.


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MACROECONOMIC OVERVIEW

In telling the Senegal story, we focus on three main indicators: Export statistics, the Producer

Price Index, Senegal’s rail volumes, and air transport indicators.

Export performance

Senegalese exports increased by 21% in February, 2013, as compared to February, 2012.

According to Senegal’s equivalent of the U.S. Bureau of Labor Statistics, the ANSD (Agence Nationale de

Statistique et Démographie) The chart above shows that, as of February 2013, India had assumed a lead

in its economic relationship with Senegal; Mali was a close second, maintaining a stable appetite for

Senegalese exports.

The key change in Senegal’s exports, however, was with Switzerland. Switzerland showed a major decline

in imports from Senegal between December 2012 and January 2013; or about 16% of market share. The

relationship has leveled off at around 13% of market share as of February, 2013.


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Senegal’s Producer Price Index (PPI)

We have observed a

0.3% appreciation in

prices in Senegalese

industrial production

for March, 2013; with

increases located in

industries such as:

chemical, mechanical,

paper, energy, and

food.

We have also registered lower prices in the construction industry; however, production prices in the

extractive, textile, and other manufacturing industries have remained stable. Compared to March, 2013,

industry production prices are decreasing 4.2% per year. Average prices over the course of the first three

months of 2013 have been 3.0% lower, when compared to the same period in 2012.

A PPI is a direct indicator of the near-term level of a consumer price index. This is because changes in

prices at the retail level (finished goods) are directly transferred to consumers at the point of sale. Since a

consumer price index is the primary indicator used to measure inflation in an economy, the PPI is a

preview of changes in the rate of inflation.

From the chart above, the PPI shows a modest increase but we see a trend of Senegal’s economy looking

to contain input prices of producers. Continued improvement in PPI helps with managing inflation

resulting from producers passing on increased input prices to the next buyer in the distribution chain. A

large part of these costs of input looms on transportation costs associated with a lack of an integrated

distribution channel across Senegal. Addressing this issue will help manage the PPI as well as inflation

long term.

Rail Volume indicators As of February 2013, per Senegal’s statistics bureau ANSD and Senegal’s TransRail, railway

transportation has seen year over year (February 2012 versus February 2013) growth in transport of

population and international merchandise to the amounts of 9.2% and 4.1% respectively. This shows an

existing demand that could increase as capacity grows and prices fall.

Air transport volume indicators Air transport statistics show that year over year between February 2012 and February 2013; Air transport

of people and cargo increased in the interior locations (6.3%) and African locations (19.1%) but was

lower for airline routes towards Europe (-3.1%). This demonstrates a continued interest for intra-African

trade and tourism, which a continued investment in integrated transportation networks can only help grow

in the future.


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CHALLENGES & OPPORTUNITY

With its geographically ideal location; Senegal has developed well established industries such as fisheries,

Dakar to Bamako rail line, interior bus companies as well as a trucking sector to name a few. The trouble

the country has to deal with is a limited continued growth potential for the current industries given the

state of the infrastructure network.

Biggest challenge is biggest opportunity

The Dakar to Bamako line should be the main focus of an economic renaissance in Senegal and the

nucleus of a renewed integrated infrastructure focus in Senegal. The rail line could handle more cargo,

and an increase in capacity would drive more outreach to Mali and other neighboring countries such as

Ivory Coast to increase local demand of imported items from the West and international demand for the

commodities being mined in Senegal and Mali such as Iron ore. A recent feasibility study executed by

Harsco Rail Zeta Tech for the UEMOA and financed by the USTDA argues this same point.

The Senegal – Mali – Northern Ivory Coast Rail Map

Green Line is the existing Dakar to Bamako rail line.

Yellow represents the proposed new southern Mali rail link


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Increased Railway capacity and volumes would make a great business case. In the just completed

feasibility study, a pro forma statement was published on what the increase in volume for the Dakar

Bamako rail line coupled with upgrading to a standard Gauge rail distance that is able to handle double

stack train cars could do to help yield a profitable rail line.

ZETA-TECH calculated possible 5 to 8 Year initial rail freight growth as a Business Case and used

this to project financial Pro Forma results for the Dakar-Bamako Corridor.

These are the highlights of the high volume case study.

1) A Market Cargo Assessment of up to 10,000,000 tons of captured rail freight is possible.

2) This annual freight train volume was then converted into trains operated, loaded train kilometers and

empty train kilometers, fuel costs, crew costs and equipment train sets requirements.

3) Annual revenues for the Bamako to Dakar railway organization were then calculated using a best fit

“low cost rate for shippers” that would attract business away from trucks.

4) Zeta Tech used internal and proprietary models to estimate the annual costs of running trains, paying

train crews, purchasing and using train diesel fuel, paying for operating leases of wagons and

locomotives, and then maintaining the locomotives and wagons.

5) Zeta Tech included as continuing steady state maintenance the expenses of maintaining track, bridges,

culverts, signals, and similar “infrastructure” assets required to run the railway trains. This maintenance is

calculated using a steady state maintenance business model.

6) Track Rehabilitations (Modernization & Repairs) capital costs were also estimated by using Zeta Tech

data files from the field inspections in May of 2011. The revenue rates were adjusted to make sure that

these costs could also be captured in the Income Statement as a continuing financial requirement for the

enterprise.

7) Locomotive and Wagon train set capital costs were included in the Income Statement as if they were

annualized financial equipment leases (expenses).

The completed financial projections that are shown in the following page use the Zeta Tech Team

proposed practical business VOLUME and REVENUE projection for the Dakar to Bamako railway

freight corridor.


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With the country’s access to the Atlantic Ocean; Senegal can position itself with an integrated logistics

infrastructure model that is designed to allow the country to significantly up-scale economic activity.

With this capacity, Senegal would become the major product distribution center for West Africa,

amplifying import-export capacity for the region, even more so than today. There exists a latent but

realistic market demand for import cargo; mainly consisting of high-value goods in bulk, as well as fuels

and chemicals, destined for the growing consumer sector and inland industries.

These high-value commodities would provide the Dakar to Bamako rail lines with additional prospects

for becoming self-sufficient. There are expected increases in commodity export demand reported from the

Faleme iron ore deposit, being operated by ArcelorMittal Ltd; as well as the Massawa gold mine,

currently under construction by Randgold resources.

Mali – Opportunity for better trade with Senegal Given Senegal’s close proximity to Mali; Mali’s coal, manganese, and petroleum-based commodities also

have a high demand for export through Senegal to reach the Ocean,

Discussions with port planners would be encouraged to ensure full integration of the distribution of goods

in and out of Senegal; whether it be inland toward the East or outbound to the Atlantic Ocean.

Pro-formas based upon a plan that integrates rail, and ocean freight projects can show the profitability that

can be realistically attained. Put simply, both a meter gauge rail upgrade and a standard gauge rail

upgrade can become highly profitable rail companies.

Railways, if built correctly and durably, can be significantly profitable. U.S. railway operating ratios, for

example are typically in the 70% range; which has been targeted for the West African modernization in

the recent feasibility study by UEMOA. By Railways, we mean Freight transportation. This level of

export activity will require the integration with rail, and port according to the same study.

The local African shippers will benefit from lower rail rates and service performance versus what they

receive today. For example, it cost about $5,000 to ship a car from Dakar to Bamako. An integrated

infrastructure management would lower that shipping cost via rail to around $500 resulting in a 90% cost

saving for the shippers and point of sale client.

Please see below a map of the U.S. west coast where California serves the same role that Senegal has the

best chance of serving for West Africa. Notice how California links to the rest of the nation and is where

most Asian products including cars pass through to enter the U.S. market. Railways serve a very

important and cost saving role in California’s economy.


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SOLUTIONS PROPOSED

Based on the aforementioned state of the economy and current challenges and opportunities;

Push54, LLC recommends a 4 pronged integrated infrastructure model that assures that

merchandise and the population are able to move about Senegal at the most minima cost per unit

to encourage higher volumes.

To this end, several infrastructure investments are needed however most of these investments are

in assets that are set to be productive for at least 30 years. The following compose the integration

of the transportation infrastructure:

A new bulk cargo deep-water port able to handle very large shipments into and out of

Senegal

A streamlined Air Cargo Distribution network for faster product and population transport

in and outside of Senegal

A Standard Gauge Railway upgrade for the Dakar-Bamako line

A focus on better road management including tolls and encouraging the car maintenance

industry to develop better stocks of new tires, and car part for Trucks, Buses and normal

commuter cars that are important in short distance distribution of people and

merchandize.

New Senegal

Bulk Cargo

Port Facility

Standard Gauge Railway

(including Double

Stacking): Dakar – Bamako

Trucking, Car, Buses

for Short Distance

Distribution

Airline Cargo Distribution


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LONG-TERM BENEFITS

A keen focus on the above mentioned 4 interrelated topics will yield several benefits for Senegal

for many decades to come. A space for private sector participation should also be given in such

projects; the more the better.

The following key benefits will be gained:

Increase in jobs in Senegal

o Talent will be needed during the construction and upgrades of the current assets

o With a requirement to create an ecosystem of knowledge transfer in Senegal,

education in math, science, and engineering will be supported throughout the

country to make sure the next generation of maintenance engineers are trained

properly

o For example, it is estimated that for every 1 railroad job in the U.S.; 4 additional

jobs are created in the U.S. private sector. Such ration should be a worthy goal for

Senegal to aim for.

Increased economic activity through volume and revenue will yield increased tax receipts

to the Senegalese government which will in turn help fund services to Senegal’s citizen

and servicing of existing debt.

The local African shippers will benefit from lower rail rates and service performance versus what

they receive today. This will be the impetus for Senegalese manufacturing innovation. For

example, it cost about $5,000 to ship a car from Dakar to Bamako. An integrated infrastructure

management would lower that shipping cost via rail to around $500 resulting in a 90% cost

saving for the shippers and point of sale client.

An increase in security budgets will be funded partially by some of the tax revenues from the

assets to help make them secure for the traveling population as well as for the people that live by

these structures.

An integrated infrastructure system will allow Senegal to become THE transportation hub of

West Africa, thereby winning a lot more business from smaller neighboring countries.


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CONCLUSION

Senegal is at a critical juncture in its economic development. The right focus on the foundation of any

successful economy lies in its integrated infrastructure system adapted for bulk cargo freight

transportation. This initiative can spawn many interwoven industries and companies, and further spur

economic growth in Senegal by lowering the cost of transporting products; and eventually lowering the

price of the end product or export.

Senegal finds itself at the pinnacle of economic opportunity, only to declare its place as the Gateway to

Africa; in such a way that California exists for the United States. Senegal has a vast potential that far

exceeds the limits of its current industries, such as tourism and fisheries, and agriculture.

Push54, LLC is happy to provide more detailed information to anyone who would be interested in

learning more about this report. We look forward to producing monthly reports on specific countries and

sectors that have the highest probability of yielding the best long- term results; financially, and socially.

The time for Senegal has arrived and transportation investors throughout the world have been speaking

about the country. We look forward to hear more about what Senegal, UEMOA and other political bodies

say about the infrastructure strategy and we hope they come to the same conclusion as our analysis. An

integrated infrastructure strategy is the best bet to yield better profits that do not require donors to finance

it. We hope to see more investors engaged in such projects in the future and we will monitor and let our

members know of any future development in Senegal.


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CONTACTS

PUSH54, LLC

Justin Mahwikizi

Managing Principal

[email protected]

General inquiries

Push54, LLC

One South Dearborn

Suite 2100

Chicago, IL 60603

(800) 267-7167

[email protected]

In line with Push54, LLC’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Push54, LLC cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. The opinions of third parties set out in this publication are not necessarily the opinions of the global Push54, LLC organization. Moreover, they should be viewed in the context of the time they were expressed.

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