How Instability in The Ivory Coast Endangers Its Economy

December 9, 2010  |  

by Alexander Cain

While many foreign investors see Africa as the next emerging economy filled with opportunity, the political unrest and turmoil plaguing many African nations has slowed down the continent’s growth as a world power. Although the Ivory Coast stands as an example of an emerging African country with the necessary raw materials to produce growth within the country’s economy, due to the political clash between two presidential candidates, the nation’s economy is deteriorating as many foreign companies suspend or even relocate facilities in fear of the situation becoming worse.

The Ivory Coast has been experiencing political turmoil since 2002 when a civil war broke out between the Rebel-held north and the government controlled south. In September 2002, rebel forces launched a full-scale rebellion, angry because of the discrimination Northern Muslims felt in Ivory Coast politics. It wasn’t until 2007, when a peace agreement instituted multiparty elections, that the nation began to settle down and the nation’s economy started experiencing growth.

Most recently, two major political figures, incumbent Laurent Gbagbo and opposition candidate Alassane Ouattara, have declared victory in the country’s recent multiparty elections.  Neither “president” is willing to concede. This political uncertainty is certainly hurting the emerging market.

The Ivory Coast is the world’s largest cocoa producer and a growing gold exporter.  Since the 2007 peace treaty, the Ivory Coast has experienced significant growth improving around 4% last year compared to 1.7% in 2007 according to a Wall Street Journal report. In part due to the political treaty and the economic growth, the World Bank forgave $4 billion in debt for the Ivory Coast.  Because of the recent controversy, there is a global slowdown in cocoa exports and its having several ripple effects. Neighboring Ghana is smartly capitalizing on the disruption as its own cocoa producers seek to meet the world demand which is not being met by the Ivory Coast.

In the Ivory Coast,  foreign investors are scaling back their investment in the country and cocoa production/exports are on the decline. As Mohamed Moussa, a truck driver who transports cocoa beans in rural Ivory Coast described in a recent WSJ report, “I’ve got nothing in the house. I’m desperate for them to send us back into the bush. We haven’t been buying cocoa for two weeks now.”

Many foreign owned mining and cocoa production businesses are also suspending production or reducing staff as a safety measure. For example, Australia-based Newcrest Mining suspended operations at its northern Bokiro mine on Sunday as a precaution according to a company statement issued Monday. Bonikro produces roughly 120,000 ounces of gold per year, according to the company.

The biggest impact is in the commodities market as cocoa experiences new highs due to decreased production. Volatility in the price of cocoa is expected until the Ivory Coast government reaches a conclusion. The weaker production has driven the price of cocoa up to $3,140 a metric, the highest level since Aug. 6, after surging 5 percent last week, the most since the week endeding July 16 according to Bloomberg. While the surge in price isn’t expected to be seen in consumer goods just yet, the likelihood increases with each day of political impasse.

While both candidates remain adamant about their presidency, the Ivory Coast is at a standstill anxiously waiting to recognize their next president. Foreign investors are also remaining cautious.  Because of the uncertainty, cocoa prices will remain volatile as everyone seeks an immediate end to this political situation.

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