The port of Dakar, Senegal

Economic situation Strong role of small-scale enterprises

Senegal is currently one of the strongest growing countries in Africa. The country joined the G20 Compact with Africa initiative promoting private investment and has implemented a number of economic reforms in recent years.

The capital, Dakar, is a hub for trade in West Africa. Experts believe that Senegal will further enhance this role through the African Continental Free Trade Area (AfCFTA) and the expansion of its sea ports and road and rail networks.

The impacts of COVID-19

Senegal's economy has been hit hard by the COVID-19 pandemic. From 2014 to 2018, the country achieved economic growth of more than six per cent per annum, one of the highest rates in Africa. Because of the impact of the pandemic, growth slowed significantly in 2020 (1.3 per cent) with services such as tourism and transport and exports most severely affected.

The government responded with a comprehensive economic stimulus package which was supported by the BMZ with 100 million euros. Funding was provided, in particular, for measures benefiting small and medium-sized businesses. In 2021, gross domestic product (GDP) increased by 6.1 per cent.

The country's economy is dominated by micro and small enterprises, of which 90 per cent are estimated to belong to the informal sector. An important goal of the German-Senegalese development partnership is to improve the general framework (labour law, land law, support for business development, vocational training) so as to achieve greater formalisation of the economy – and thus encourage private entrepreneurs to invest more and create new jobs.

The majority of the population works in agriculture or fisheries. However, agricultural productivity is low. The farming sector only accounts for about 15 per cent of gross domestic product. The main causes of this are poor soil quality and irregular rainfall along with overgrazing and deforestation, all of which are leading to increasing desertification.

Consequences of climate change

Senegal's climate limits the options for agriculture – two-thirds of the country is in the Sahel zone. Although the mean annual rainfall would be sufficient to sustain productive agriculture, it does not rain regularly enough, meaning that there are recurrent periods of drought as well as incidents of severe rainfall with devastating floods.

According to scientific forecasts, Senegal must expect an increase in such extreme weather events in the future as a result of global climate change. That is why Senegal became one the first countries in Africa to take out climate risk insurance in order to better cope with the effects of natural events of this kind.

As at: 22/06/2023