Market Focus : Ivory Coast Tries a Radical Formula for Fiscal Recovery : Alassane Ouattara had to start from zero when he took hold of his country’s economic reins eight months ago. Now, international bankers say his policies may have implications for the rest of Africa.

The bittersweet scent of raw cocoa awaiting shipment overseas still permeates the huge lagoon-side port district here, a reminder that this is the commodity that created Africa’s most stunning economic success story.

But a few miles away in the business district known as “The Plateau,” the windows of a top-floor office are sealed shut and the air conditioning is on full blast, the better to obliterate the chocolaty smell that symbolizes how reliance on a single major crop also came close to destroying the country.

“We can’t continue to be a cocoa economy,” says Alassane D. Ouattara, 48, now in his eighth month as economic czar of the Ivory Coast.

In that time Ouattara, a native Ivorian with international banking credentials, has turned Ivory Coast into a closely watched laboratory of Western economic prescriptions for struggling African countries.

In a virtual blitzkrieg against the country’s old, hidebound economy, Ouattara has laid off excess government workers and cut bureaucratic costs with a determination that would shame, say, the U.S. Congress.

Most recently, he negotiated to turn over Ivory Coast’s huge state-owned electrical utility to a subsidiary of the French industrial giant Bouygues, the first decisive step in what is likely to be the largest program in Africa to privatize a state-dominated economy.

“By African standards, he’s moving by absolute lightning speed--even by world standards,” says one leading international banker in admiration.

Handed presidential carte blanche to restructure a nation whose bureaucratic bloat and nonchalantly pervasive corruption resemble that of a boom town just past its prime, Ouattara may have one of the hardest jobs in Africa.

Ivory Coast was a forgotten backwater of the French empire when it received its independence in 1960, seemingly doomed to living in the shadow of rich neighbors like Ghana, which was then the economic and political heavyweight of the region.

But its president, Felix Houphouet-Boigny, abjured the pan-Africanist and quasi-socialist policies of Ghana’s Kwame Nkrumah. He invited foreign talent to live and work in his country and ordered a single-minded buildup of cocoa- and coffee-producing capacity. Within a few years Ivory Coast was rich, the world’s leading cocoa producer.

But the “Ivorian miracle” did not last. When cocoa prices slumped to 15-year lows in the 1980s, the economy followed them into the trough.

By the beginning of 1990, after two years of overpaying farmers for their crops and trying to drive the world price back up by stockpiling cocoa, the country was more or less bankrupt.

A plan to tighten belts by slashing public workers’ salaries and imposing an equivalent tax on private workers sent thousands of demonstrators into the streets of Abidjan last spring and sparked violent confrontations with police elsewhere. Houphouet-Boigny’s 30-year-old reign was tottering.

The president’s answer was to put Ouattara in full charge. An urbane product of Ivorian, French and American schooling, his official title was to be president of the Interministerial Coordination Committee of the Stabilization and Economic Recovery Program; in essence, the president told him to do whatever was necessary to rescue the economy, as fast as he knew how.

Ouattara says he took one look at the government’s half-hearted recovery plans, “scrapped everything and started from zero.”

He canceled outright the pay cuts and new taxes. He moved to trim the public payroll by firing excess workers, cutting expenses and improving lax customs and tax collections.

He closed 12 Ivorian embassies, including seven in Africa, and laid off 7,000 of the country’s 100,000 “temporary” public workers. The fleet of official government cars was slashed by a third, allowing Ouattara to put 4,000 Mercedes-Benz and other vehicles on the block and producing great savings on auto insurance, maintenance and gasoline.

In all, Ouattara claims to have been able to cut government spending by about $2.8 billion and to raise $120 million in new revenues. Ivory Coast’s fiscal deficit has dropped from 18% of gross domestic product to 8%, and he expects to show a surplus in three years.

In a way, Ivory Coast may be better equipped for a new economic surge than most of its West African neighbors: Its boom years financed construction of the region’s best roads and telephone system, along with European-grade water supplies and electrical utilities.

But cocoa also nurtured a culture of official corruption and favoritism on a scale that became widely visible only when the economy suddenly shrank, the way a receding tide exposes old shipwrecks to view.

The net result is a government that hands out important business franchises to political favorites and remains deeply involved, to the country’s detriment, in the economy. Today the state owns 140 separate enterprises, ranging from the phone company to a distributor of French wine, most of which are sloppily run by political favorites. These enterprises register losses every year in rough relation to the actual ratio of state ownership.

Between 1982 and 1988, Ouattara said, wholly state-owned enterprises showed a combined net loss of $340 million. Those in which the state owned at least 51% lost $40 million. But those in which the state was a minority owner made combined profits of $576 million.

“This disparity indicates above all an insufficient grasp of financial and administrative management,” Ouattara said, adding that his next move will be to arrange the sell-off of virtually all those state enterprises.

The sale of the electrical utility to Bouygues--actually a management contract that will eventually be transformed into an outright sale of assets--will be followed by the sale of the state telephone system, potentially a major moneymaker, and the state’s palm oil distribution company. Government stakes in local subsidiaries of Royal Dutch Shell and other oil companies are also for sale.

The top-down approach of offering the most alluring properties for sale first is designed to signal Ouattara’s genuine determination to change the Ivorian system. It’s in contrast to the standard African privatization program, which involves trying gingerly to sell off the most marginal companies first, producing a glut of unmarketable, broken-down railroads and steel mills.

“Of course, if you put all the dogs and turkeys on the table first, no one will buy them,” remarks a prominent West African economist.

That Ivory Coast’s alternatives have drawn rare raves from the World Bank and the International Monetary Fund is not entirely surprising, given that in his program Ouattara is not only preaching to the choir: He is a former member of the choir.

Until recently, Ouattara was the IMF’s top officer for Africa, a job in which he had to persuade leaders of countries around the continent to take many of the steps he has taken now.

Subsequently he became governor of the French-financed Central Bank of West African States, a job that made him the central banker of seven former French colonies and put his signature on their jointly issued currency. (Ivory Coast accounts for about 60% of the seven combined economies.)

In fact, Ouattara is keeping his job at the Central Bank and taking no pay from the Ivorian government. He handles both jobs from his top-floor office at the bank’s grandiose new office building in Abidjan and flies from country to country in a private jet.

He ignores many of the quick-fix economic strategies that waft across the African landscape. He rejected restrictions on moving capital out of the country, for example, recognizing that the difficulty of moving profits and capital abroad is a major constraint on outside investment in Africa.

“Those people who got their money out were being good economists,” he said. “It means our policy wasn’t right.” Capital would stay in Ivory Coast if people thought they could make an adequate profit, he reasoned.

He was similarly concise when his plan to privatize the electricity and telephone services in Ivory Coast was criticized as the sale to foreigners of “strategic” state assets.

“The notion of a “strategic’ sector is a false concept,” he snapped back.

With the president’s strong backing and the financial support of the international community, Ouattara knows he has a window of opportunity to push his policies through before political opposition has a chance to jell.

Still, there is much reason to question how far Ouattara will be able to go before the entrenched interests in the Ivorian economy begin to fight back in earnest. For one thing, what he sees as fraud, corruption and patronage have been key elements in the governing style of his own patron, President Houphouet-Boigny.

It is Houphouet-Boigny who appointed the managers of most of the under-performing state enterprises, and Houphouet-Boigny who has handed out the franchises and licenses that give political favorites the right to collect export fees and customs duties without doing a dime’s worth of work.

“Ouattara’s credible right now because he’s not part of the regime, of the gang, and he’s getting results,” says an international economist here. “But a lot of people are increasingly saying, ‘He’s touching on my interest.’ There’s no question that many who have lost because of him are going to try to put banana peels under his feet.”

Balancing The Books

Alassane D. Ouattara’s belt-tightening program for Ivory Coast includes these steps: Selling the electrical utility, telephone system and palm oil distribution companies to private firms. Closing 12 Ivorian embassies. Laying off 7,000 public workers. Cutting the fleet of government vehicles by a third, in the process putting 4,000 Mercedes-Benz and other vehicles on the block.

Using these steps, Ouattara claims to have cut government spending by $2.8 billion and raised $120 million in new revenues. The country’s fiscal deficit has dropped from 18% of the gross domestic product to 8%.