PRICE HIKES CHALLENGE SENEGAL'S SOCIAL STABILITY

UNCLAS SECTION 01 OF 02 DAKAR 000424

SIPDIS

SIPDIS

STATE FOR AF/W, AF/EPS, EB/ESC/IEC
USDOC FOR 4510/IEP/ANESA/OA/PMICHELINI
USDA FOR FAS/OCRA/SDIABY, FAS/OCBD/PSIMMONS

E.O. 12958: N/A
TAGS: ECON ETRD EFIN PGOV SG
SUBJECT: PRICE HIKES CHALLENGE SENEGAL'S SOCIAL STABILITY

REF: DAKAR 386

DAKAR 00000424 001.2 OF 002



1. SUMMARY: Senegalese, especially urban dwellers, are somewhat
bewildered by the recurrence and scope of price hikes in local
markets, supermarkets, and from specialty vendors. Price increases
in gasoline, cooking fuel, vegetable oil, rice, sugar, cement, and
transportation services have created widespread personal and
household financial concerns, intense criticism of government
actions (or lack thereof),and at least one public demonstration
that turned violent (Reftel). The Government's announced measures
to counter popular anger over rising food prices have yet to produce
relief or allay economic fears. We anticipate additional public
demonstrations and unrest, with both opposition parties and unions
threatening to keep up the pressure in the coming weeks. END
SUMMARY.

PRICES SOARING TO RECORD LEVELS
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2. Publicly, Senegalese officials blame high world oil prices and
transportation costs for the significant increase in prices for
"daily life" commodities since December 2007. The inflationary
impact of rising world food prices is complicating Senegal's efforts
to control local price increases and several financial observers
believe that the government's projection of 4 percent inflation in
2008 may double to 8 percent or higher.


3. The government has stated it wants to keep prices for broken
rice (a daily staple) stable, but from December 2007 to March 2008,
the price has jumped to record levels from CFA 250/kg to CFA 350/kg
(approximately USD 0.83). This rice is typically sold in 50kg bags,
which have increased in price from CFA 12,000 to CFA 15,000 in Dakar
and up to CFA 17,000 in other locations, such as Ziguinchor and
Tambacounda.


4. Because of rising global prices for rice, traders and merchants
complain that their margin is now only one percent or less, which
may be encouraging some hoarding of stocks. Even though the
government fixes prices for rice and other commodities, it does not
have any means or power to control and end speculation on price
hikes. Traders hope to negotiate a higher sales price with the
government, as the international price of rice is currently above
the official price ceiling. Regardless of the "official" price, it
is likely that consumers in Senegal will face even higher rice
prices by late May when current available stocks will be depleted.



5. During the same period, basic milk powder has increased from CFA
1,500 per kg to CFA 3,000/kg (USD 7.15). Millet and sorghum prices
in some markets have doubled since January, suggesting an increase
in demand for substitutes. The price of cooking oil rose from CFA
900 in January 2008 to CFA 1,050 per liter (USD 2.50) in March, an
increase of 17 percent. During that period, sugar, which is a
government-controlled commodity, increased nine percent from CFA 575
to CFA 625/kilo (USD 1.50). Wheat flour increased from CFA 750 to
CFA 850, an increase of 14 percent. Household soap jumped from CFA
250 to CFA 325. Cooking gas, vegetable oil, meat, and fish have
also witnessed steady price increases.


6. Despite the price hikes, Senegalese have yet to change their
consumption patterns, largely due to a lack of culturally acceptable
locally produced goods to replace imported staples such as rice and
wheat.


7. Senegal's booming construction industry has been hit by rising
cement prices. Since December 2007 the per ton price has soared
from CFA 55,000 CFA to CFA 75,000 (USD 180). This increase is due
to a strong demand and alleged hoarding and profiteering by
suppliers. The range of underlying price increases has created
upward pressures on prices for a wide range of services and goods,
including rent, water, and electricity.

SOCIAL TURMOIL
--------------

8. In addition to the March 30 protests organized by the Senegalese
consumers association (ASCOSEN) (Reftel),Union leaders from the
"General Federation of Workers" (FGTS) have announced plans to stage
strikes and marches over the price hikes in the coming days.
Opposition leaders from the "Front Siggil Senegal" criticized the
government's lack of sound measures to solve the crisis and also
threatened to organize a march against price hikes later this month.


GOS'S MEASURES DO NOT IMPRESS
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9. In a press conference held on March 26, then-Minister of

DAKAR 00000424 002 OF 002


Commerce, Abdourahim Agne blamed the price increases on world oil
price and commodities, and noted that the government has "limited
tools to address the price hikes since we don't have any control on
the world oil prices." Agne also cited government plans to open
"reference stores" with prices fixed by the government "to protect
consumers from greedy vendors." The government has already
temporarily suspended the country's 10 pct surtaxes on rice, sugar,
oil, and wheat imports to lower tax pressures on importers and
encourage traders to lower price on commodities. [Note: Finance
Ministry Officials fear the suspension of surtaxes could result in a
serious reduction if import revenues, and are reportedly opposing
the idea of suspending the country's 18 percent VAT on these items
given the current budget deficit. End note.] GOS officials have
also been highlighting President Wade's much-publicized goal of
making Senegal rice self-sufficient by 2015.


10. On March 27, the Wade administration promised CFA 10 billion
(USD 24 million) to help rural populations purchase food,
specifically rice. Opposition leaders quickly criticized the
government's measures as insufficient, noting that they will not
decrease the price of commodities or the suffering of rural
populations. They point out that the CFA 10 billion in assistance
would offer only 3.7 kg per person for the 7.7 million people living
in the rural areas.

COMMENT
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11. The GOS is finding itself squeezed from many sides with lower
than average harvests and concerns about food scarcity exacerbating
the problem of rising prices. The government's ability to respond
is limited by serious budget constraints, making the option of
significant reductions in import duties or VAT for basic items
problematic. When asked about their living conditions, many
Senegalese respond, "We're hungry, hungry and struggling for
survival in a Senegalese way," which historically has meant with
patience and peaceful forbearance. However, even though they
understand that the higher cost of living is not unique to Senegal,
the political opposition, consumer groups, and perhaps even
communities will likely continue to organize protests, partly in
reaction to President Wade's recent budget commitments for
monumental infrastructure programs and high-profile gatherings.

SMITH