January 4, 2011 / 9:33 AM / in 8 years

FACTBOX-Key political risks to watch in Ivory Coast

ABIDJAN, Jan 4 (Reuters) - Ivory Coast has been in turmoil since a disputed Nov. 28 election that has threatened to rekindle a civil war in the world’s top cocoa grower.

Laurent Gbagbo has refused to give in to broad international pressure to step down after provisional results showed he lost to rival Alassane Ouattara by an eight percentage point margin.

The country’s top court, run by a Gbagbo ally, overturned the results, citing fraud. Political violence that has killed more than 170 people. The U.N. has registered 18,000 refugees fleeing into Liberia.

Here are some of the main risks:

THE STANDOFF

The United States and the European Union have imposed sanctions on Gbagbo and his circle, while the World Bank and the West African central bank have cut off his access to financing.

West African regional bloc ECOWAS, meanwhile, has told Gbagbo it could use force to oust him if he doesn’t leave quietly, and sent three member heads of state back to Abidjan in early January to continue talks with him, but they appeared to make no breakthrough.

Inside the country, rebels still controlling the north after a 2002-03 civil war have said they are on maximum alert and are ready to fight alongside any ECOWAS intervention force. They’ve said they don’t plan to launch a unilateral offensive.

Ouattara supporters, while many, are unlikely to take to the streets again while diplomatic efforts are underway, after a march in mid-December ended in bloodshed.

On Gbagbo’s side, the armed forces remain loyal, he controls the state broadcaster, and has a powerful youth group — the Young Patriots — ready to take to the streets.

What to watch:

- ECOWAS threat of force. Analysts think this is a pressure tactic and unlikely to result in an actual intervention due to the high political cost to member states of messy urban warfare and likely heavy civilian casualties. [ID:nLDE6BS135] Still, ECOWAS is under pressure from Western powers to remedy the situation and risks looking weak if it backs down.

- Diplomacy. Gbagbo has shown no sign of caving to rising international pressure. He is likely concerned that if he steps down, or accepts an offer of exile in an African country, he will be prosecuted for human rights violations. World powers have left room to tighten sanctions, and could offer immunity along with exile as the escape option. However, it appears at the moment that Gbagbo would be willing, if necessary, to run Ivory Coast in isolation as an international pariah.

- Money. If diplomacy fails and ECOWAS proves unwilling to send in the troops, there is the question on money. Without access to central bank accounts or World Bank budget support, how will Gbagbo be able to continue paying public salaries — including those of the army? It is not known how much money Gbagbo has access to or how much is coming in from the cocoa industry. But he could be hard pressed to pay public salaries in January, which could mean the army turns on him.

- Compromise. A compromise is appearing increasingly unlikely as both sides dig their heels in, and world and regional powers have come out so firmly in favour of Ouattara. Ouattara’s camp insists it will not accept any solution in which Gbagbo remains president. Both the African Union and the ECOWAS regional grouping say they would not favour a power-sharing deal such as those seen in Kenya and Zimbabwe.

ECONOMY

Ivory Coast had been nearing the completion point fo2 billions of dollars of debt relief and has issued Africa’s biggest Eurobond CI049648839=, $2.3 billion, swapped for defaulted debt.

Growth was sluggish for years, but picked up as cocoa hit 30-year highs. Analysts had forecast 4.5 percent growth next year, but the political upheaval throws that into question.

What to watch:

— Debt relief. The World Bank had tied relief of $3 billion of Ivory Coast’s external debt, which it estimated at $12.5 billion in 2008, to free and fair elections. That could come through if Ouattara wins out in the standoff, given the World Bank agrees that he is the legitimately elected president.

— Eurobond. The bond is due in 2032 and is listed on the Emerging Markets Bond Index (EMBI). It dropped to a record low as the poll dispute raised worries about coupon payments. Ivory Coast missed a payment of nearly $30 million in interest due Dec. 31, but a month grace perios means it is not yet in default. [ID:nLDE7020PX] [ID:nLDE6BR0VR]

Longer term, there is the possibility of default in a nation with a history of it. Analysts say 50 percent default risk has already been priced in.

— Budget. The government revised its 2010 budget expenditure in October to 2,896 billion CFA francs ($5.95 billion) from 2,481 billion francs previously, driven up partly by costs of the peace process. Most analysts expect a deficit.

COCOA

Despite fears that the crisis would dent supplies, the flow of cocoa from the world’s top grower has largely held up.

Longer term, the lack of investment in supporting farmers and renewing ageing plantations over the past eight years is starting to take its toll. The sector’s administrators were sacked in 2008, leaving an interim body in charge.

What to watch:

— Temporary shutdowns. During the election, cocoa exporters and shippers temporarily shutdown during tense periods, fearing widespread violence. If open conflict returns to Ivory Coast, there is a chance these shutdowns will be more frequent and longer-lasting, impacting exports. Analysts say, however, that Ivorian exports were robust during the 2002-03 civil war and would likely hold up this time around too.

— Volumes. By Dec. 26, Ivorian cocoa arrivals reached 535,250 tonnes — just half a percent below last year, accordIng to official data from the BCC. Exporters say the volumes are actually higher, and that delays to official registrations at port are causing a lag in the BCC numbers. Ivory Coast arrivals totaled 1.24 million tonnes last season. [COC/IC]

— Fears over long-term structural decline have given rise to estimates of future crops as low as 700,000 tonnes.

— Delays in reforms. Both Gbagbo and Ouattara had said they would reform the sector, possibly returning to state price stabilisation. Donors have also suggested lowering taxes on farmers to encourage cultivation. But reforms will only occur after the political crisis is solved.

— Advances such as disease-resistant cocoa or fertiliser subsidies could eventually help stem the decline in production.

INVESTORS

While other countries in West Africa endured years of post-independence turmoil, Ivory Coast, under the watchful eye of France, became the region’s biggest economic success.

However, the so-called ‘Ivorian Miracle’ was built on cocoa, now in decline, and the crisis has scared investors, though some remain, led by hardy Lebanese and French.

The nation hosts West Africa’s franc-zone BRVM bourse .BRVMCI and remains a hub for finance, industry and shipping, though some of that may dwindle if the standoff continues.

What to watch:

— Gold. Randgold Resources (RRS.L) and Newcrest Mining (NCM.AX) have said the crisis in Ivory Coast is impacting their operations. Randgold poured its first gold from its Tongon mine in November but said in December development had been delayed at the mine [ID:nLDE6BM1NI]. Newcrest also said in December it suspended operations at its Bonikro mine [ID:nSDY5NE6L4]. Ivory Coast had been hoping increased gold output would help it diversify away from cocoa. Canada’s Etruscan Resources EET.TO and Australia’s Equigold have mining permits. Some 100 requests were being considered.

— Agriculture. Despite falling cocoa volumes, there remain opportunities not only in cocoa but also rubber and other crops. Coffee and cotton production fell after the war, as they grow in rebel zones. If polls unify the nation, they could take off.

— Oil. Ivory Coast produces 50,000 bpd from three fields operated by Canadian Natural Resources (CNQ.TO) (CNQ.N). Offshore may hold more oil but little exploration is going on, as firms have their hands full with other regional finds.

— The BRVM. The index is worth just over $6 billion, with another $800 million of bonds, but volumes are small. Though it was hit hard during the global crisis as foreign investors withdrew, it is generally isolated from world markets. (Writing by Richard Valdmanis; Editing by Giles Elgood)

For political risks to watch in other countries, please click on [ID:nEMEARISK]

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