As Senegal stands on the cusp of an energy boom with its recent discovery of substantial oil and natural gas reserves, the nation faces a pivotal crossroads between economic prosperity and the risk of descending into autocracy. The energy boom's significance extends beyond Africa toward Europe’s ongoing struggle with Russian aggression, holding promise to help European nations reduce Russian oil and natural gas influence with a new supplier. This juncture also comes at a time when governments with strong Western ties across Africa are falling following a series of coups, amplifying concern for Senegal, a former French colony with strong Western ties dealing with its own growing instability. With the government’s ongoing enforcement of crackdowns and imprisonment of opposition members ahead of next year’s election, Senegal’s political institutions are in jeopardy.
This raises a pressing concern that the forthcoming export revenues will be used to aggressively consolidate power, leading to further autocratic behavior, and endangering the opposition. Our review of the fund structure recently put forth by the government to manage the expected billions finds a concerning lack of guardrails for how the export revenues will be managed. Countering these challenges, we propose a pragmatic financial solution by structuring the management of Senegal’s forthcoming export revenues. We advocate for the implementation of a sovereign wealth fund inspired by Norway’s transparent and successful model. Such a fund would serve as a safeguard against misuse for political gain and help stem a deteriorating political environment before a critical tipping point.
With Senegal and neighboring Mauritania sitting on 100 trillion cubic feet of natural gas, their abundant natural resource wealth has not gone unnoticed on the world stage. European leaders and senior American officials, including German Chancellor Olaf Scholz, Polish President Andrzej Duda, and U.S. Treasury Secretary Janet Yellen, have each visited Senegal with a keen interest in diversifying European energy sources away from Russian exports. Senegal's initial gas field coming online, with enough to supply gas-dependent Germany for several years, further solidifies its position on the global energy map. Moreover, Chinese President Xi Jinping’s recent commitment to investing in Senegalese infrastructure projects and expanding agricultural exports to China underscores China's growing strategic interest in the nation. The increasing focus from Washington to Beijing raises the stakes for the country’s future stability.
Despite its rising international profile, Senegal is grappling with significant domestic political turmoil. The current regime has shown serious authoritarian tendencies amidst a deteriorating political environment ahead of next year’s election. The President, Macky Sall, considered running for a third term, while constitutionally limited to two terms. Ousmane Sonko, the main opposition leader, was recently sentenced to two years in prison on charges of “corrupting the youth,” leading to violent protests and the imprisonment of hundreds of opposition party members. The main opposition party was also dissolved with its leader detained for “fomenting insurrection,” leaving Senegal’s political institutions highly vulnerable.
The upcoming natural resource exports present a timely opportunity for the current regime. Such resource wealth can be detrimental to countries without strong democratic foundations, where leaders often use the windfall to consolidate power and enrich insiders and loyalists within the ruling party, the police, and religious organizations. Nations like oil-rich Norway, with strong political institutions pre-resource discovery, resist due to leaders’ constrained ability to misuse funds and consolidate power. The combination of the ongoing authoritarian shift, institutional weaknesses, and the impending export revenues raises legitimate worries about the catalyst for autocracy.
To safeguard Senegal’s democratic institutions and prevent further erosion of hard-won political gains, Senegal should institute a sovereign wealth fund akin to the transparent and successful Norwegian model for its energy exports. Such a fund would serve as a bulwark against the potential misallocation of resources for political gain. By following the Norwegian example, Senegal can also protect its resource wealth for future generations, considering that these natural resources will eventually deplete. However, our review of the current regime’s fund structure found concerns with the management structure of the expected billions. The fund structure lacks public transparency in its investments, a “90% maximum” allocation of export revenues to the budget creates troubling political incentives and discloses vague investment strategies for the revenues. If the structure is not corrected, it will provide an opportunity for the current regime to use the forthcoming windfall to consolidate power and further erode the country’s institutions.
To ensure the fund’s success, Senegal must replicate critical aspects of the Norwegian model. Firstly, the fund must have full public transparency in all investments to avoid secretive dealmaking with export revenues. Secondly, it should follow a diversified portfolio approach by investment professionals with oversight bodies. Investments in Senegal or in Senegalese entities should be excluded to avoid undue perverse influence on investment decisions. Lastly, the fund should distribute only its returns, safeguarding the capital for future use and deterring politicians from wish-list spending. Establishing a fund mirroring the Norwegian model before the expected billions would serve as a crucial institution to thwart political misuse.
The interactions between the opposition and the current government now leading up to the next election will have long-lasting implications for Senegal’s governance and its people. This concern is particularly relevant given the continued crackdowns and imprisonment of opposition members, and the lack of independent and viable alternatives to President Sall within the ruling party. The concern is further amplified by how Senegal’s natural resources will play a role in reducing Russian energy influence and the increasing instability across the region. As Senegal now stands at this critical juncture of energy wealth and political stability with the backdrop of an ongoing geopolitical struggle, the responsibility extends beyond Senegal to the international community, compelling action before a critical tipping point creates a tense power vacuum. Given Senegal’s role in countering Russian energy influence against Europe, it becomes prudent to support the establishment of a transparent and accountable sovereign wealth fund, mirroring Norway’s model. By doing so, we can help safeguard Senegal’s resource wealth from the clutches of autocracy and forge a brighter and democratic future for its people.
Abdoulaye Ndiaye is currently an Assistant Professor of Economics at New York University, Leonard N. Stern School of Business, and a Research Affiliate at the Centre for Economic Policy Research.
Jonathan Grady is Founding Principal of The Canary Group and a recent MBA graduate at the NYU Stern Business School.
