Analysis: After Gbagbo, Ivory Coast faces many worries

By Peter Apps, Political Risk Correspondent

LONDON (Reuters) – Laurent Gbagbo may be on his way out in Ivory Coast but Alassane Ouattara will inherit a divided country, an unsolved massacre and potential chaos in Abidjan.

Incumbent leader Gbagbo has not surrendered yet but has suggested he wants to do so and has requested United Nations protection after days of fighting, a U.N. official told Reuters on Tuesday. A U.N. document seen earlier by Reuters said he had already given himself up.

After Gbagbo, cocoa and bond investors hoping for a swift return to normal could well be in for a bumpy ride.

A disputed November presidential election led to outright warfare between the rival presidential claimants, reigniting a civil war that had left the world’s largest cocoa grower mostly partitioned de facto since 2001.

Sanctions imposed after Gbagbo refused to yield to the U.N.-certified winner barred him from deposits at the regional central bank, pushed his government into default on its debt and left cocoa decaying in warehouses. Commercial activity all but ceased and the economy is on the brink of collapse.

Despite questions over the killing of some 800 people in the western town of Duekoue as Ouattara forces advanced last week, the outside world is keen to help secure his rule.

United Nations helicopters and French forces targeted Gbagbo’s heavy weapons in the battle for Abidjan, but analysts say a greater threat comes from pro-Gbagbo urban militia who will retain their weapons if the incumbent president goes.

“In the short term, I think it will be very messy,” said Hannah Koep, Ivory Coast analyst for consultancy Control Risks.

“Even if Gbagbo goes, his supporters are still very heavily armed and they will be very frustrated. The security situation in Abidjan is likely to be very unpredictable for some time to come. Beyond that, the challenges are monumental.”

Exports could resume relatively quickly, analysts say, but only after sanctions are lifted. An EU spokesman said that could happen as soon as power was transferred to Ouattara, a former prime minister and senior IMF official.

“If you look at the way cocoa prices have fallen and the bond has rallied, you can see there is a market expectation things could get back to normal relatively quickly,” said IHS Global Insight analyst Martin Roberts.

“Ouattara has always said his priority will be to put the country back together as quickly as possible… But Gbagbo has probably tried to leave things in as much of a mess as he can.”

SECURITY, NOT BONDHOLDERS, PRIORITY

Ivory Coast defaulted on interest payments on a $2.3 billion bond earlier this year. The bond rose to its highest level since December on Tuesday on investor hopes that a Ouattara victory could pave the way for repayment.

“That’s a bit optimistic,” said Graham Stock, chief strategist at Insparo Asset Management. “The cost of the conflict is going to undermine the fiscal position for the new government. It’s not obvious that debt servicing is going to be a priority.”

Ouattara’s first objective will be securing the main city using his relatively new forces, analysts say — a task that requires him to keep divisions among his fighters to a minimum.

Northern rebels have backed him in the recent battle for control of the country, but strains could emerge once he is ensconced in the presidential palace or whatever remains of it.

The machinery of central government had been gradually returning to rebel areas in recent years, but it is unclear how much the recent conflict has set that process back.

Abidjan — both the commercial and political center — has become a divided city with Gbagbo’s forces effectively kept out of Ouattara areas by sniping and occasional hit-and-run attacks. In the short term, the danger is that that situation is simply reversed, rendering reconstruction almost impossible.

MASSACRE PROBE

International banks pulled out of Abidjan earlier this year and many other foreign firms have effectively ceased operations. Tempting them back will be a major challenge.

In the longer term, much will depend on the outcome of investigations in Duekoue, where the United Nations says it found a mass grave. Analysts say it is too soon to judge what happened in an area long prone to ethnic divisions and the activities of Liberian mercenaries.

“In terms of how much international support Ouattara enjoys, a lot will depend on what the end game itself actually looks like and what happens with the investigation into the massacre,” said Control Risks’ Koep.

“Ouattara has always been careful to try to keep his distance from the northern rebels but if his new Republican Forces are implicated in atrocities it will make things much more difficult.”

In the short term, most investors not already exposed to Ivory Coast are expected to hold back to see how events develop.

But those already based in the country — including mining and telecom firms — may return quicker, anxious to build bridges with Ouattara and those around him.

“It’s going to be a very uncertain situation for quite some time,” said Mandy Kirby, regional analyst at political risk consultancy Maplecroft. “In the next three months or so, I think there will need to be a real focus on building the foundations of the rule of law…. But Ivory Coast is a very attractive investment destination because of its natural resources, and it will still be appealing for the right kind of investor.”

(Additional reporting by Carolyn Cohn; editing by Mark Heinrich)

Analysis: After Gbagbo, Ivory Coast faces many worries