Summary
The reformation of the CFA allows for Cote d’Ivoire an opportunity to test its monetary strength and it should succeed.
Education is on the rise as is population, a well-trained and educated workforce will be available on the West Coast of Africa.
The society is getting wealthier, meaning a larger middle class and better opportunities.
No direct exposure available as of yet due to frontier market status, but investors should look for product launches that include Cote d’Ivoire.
Côte d’Ivoire has recently been in the news thanks to its President launching a reformation of its currency union, the CFA Franc, with French President Emmanuel Macron over the winter holidays. The reform was to remove the last vestiges of French colonial rule over the currency union. Côte d’Ivoire is also known for its recent civil wars, albeit now experiencing a moment of political stability, peace and economic growth under President Ouattara. Having exposure to Côte d’Ivoire in one’s portfolio is a risky bet with large upside due to its economic reforms and growth. It is becoming an ever wealthier society, education is improving amongst boys and girls, growing at a respectable pace and increasing investments into the country. This would be a frontier market ideal for the investor who is looking for rapid growth with large upside. There are risks involved as with any frontier market, ranging from political to economic, but with recent developments these seem to be disappearing.
Moving on to the analysis specific to Côte d’Ivoire, we will begin with looking at its decreasing growth (see below). The GDP growth rate will gradually decrease from 7.4% to ~6.4%. This decreasing growth is still a respectable pace for a frontier market and rivals to an extent Indian and Chinese growth. The growth rate also demonstrates the economy’s continual transformation and potential burgeoning sectoral growth away from pure commodities such as cocoa beans to service the growing economy.
Source: IMF, Graph in RStudio
Associated with this growth is the GDP per capita, which is rising (see below). This demonstrates that even with the lowering GDP growth rate, the average wealth of the society is still growing in an almost perfectly linear form. This bodes well, and could indicate a growing middle class, and a shrinking of extreme poverty within the society. This would demonstrate larger opportunities for businesses and for the economy to continue to develop. This would also show the growing need for services and consumer opportunities within Côte d’Ivoire.
Source: IMF, Graph in RStudio
The above graphs on GDP growth and GDP per capita are even more astounding with the knowledge that the population of Côte d’Ivoire will continue to grow in a linear fashion. This shows that the economy is growing wealthier even with more strains due to population growth. This growth will also contribute to future faster growth if taken advantage of, which will be discussed later on in this analysis. The rising population will also put strains upon the fragile government institutions, but can also be utilised to create competitive, labour-intensive industries within Côte d’Ivoire for the West African region.
Source: IMF, Graph in RStudio
The population growth is being taken advantage of by the government which has been successful in combating one of the largest challenges for any emerging and frontier market, which is to ensure proper education and skills are given. Côte d’Ivoire has nearly reached 100% primary school education enrolment amongst its population, which is amazing when viewed in the long run (see below). This growth in primary school enrolment has only truly begun jumping in the last ten years, which places it firmly after the second civil war, and shows the government’s desire to rebuild and ability to do so. This also bodes well for the general education and skill set of its labour force; with more education, the labour force would not only become more innovative but desirable for foreign firms to use.
Source: World Bank, Graph in RStudio
Alongside these leaps and bounds in education, there is also growing total investment in the Cote d’Ivoire economy. This represents a growing investment base which growth and opportunity will come from. This investment could be going into new physical infrastructure, social infrastructure and more, further developing and maturing the regional economy. This investment will also most likely continue to cement Cote d’Ivoire’s lead as the largest francophone economy in West Africa, and the largest contributor to its currency union in terms of % of GDP. This is a good sign for investors.
Source: IMF, Graph in RStudio
The aforementioned investment is coming through sustainably and well-thought out as is seen in the government debt statistics. For an exporting nation, Côte d’Ivoire is handling its debt situation in an even-footed and sustainable way with debt being held around the 52% mark with some minor pay-downs and fresh loans being called in. It is not an overly indebted nation, and appears to be able to utilise the loans for productive measures and rebuilding and retooling its economy and society.
Source: IMF, Graph in RStudio
With the CFA Franc zone being reformed to remove the vestiges of French control and influence, and being remodeled to being an exclusively African currency zone, albeit with a peg to the euro, this will allow time for the region to demonstrate its monetary strength. There are many supporters of the peg and the currency union as it has and will continue to impose a sort of stability upon the region that finds itself situated in. This reform, however, does not appear to have any potential downside as inflation is forecasted to be kept under control at a central banker ideal of 2%. The reform will also demonstrate to international capital markets the trust-worthy credentials of the region, its politicians and technocrats.
Source: IMF, Graph in RStudio
Côte d’Ivoire appears to be standing at the edge of the beginning of a new economic transformation in the beginning of this new decade. It can take advantage of some of the megatrends facing the African continent, and has proven it’s able to move past the pain and trauma of the 2000s and 2010s to unify and grow forward. It is maturing, and developing the green shoots needed for its economy and people. When there are more direct investment opportunities to follow the market, it is a good investment for long-term investors who are looking for strong upside potential.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
