African Economic Outlook Southern Africa Western Africa Region 2013 United Nations Economic Commission for africa
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African Economic Outlook Southern Africa Western Africa Region 2013 United Nations Economic Commission for africa

African Economic Outlook Southern Africa Western Africa Region 2013 United Nations Economic Commission for africa

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African Economic Outlook Southern Africa Western Africa Region 2013 United Nations Economic Commission for africa Document Transcript

  • 1. Benin Burkina Faso Cape Verde Côte d’Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Mali Niger Nigeria Senegal Sierra Leone Togo Regional edition Western Africa African Economic Outlook 2013 AFRICAN DEVELOPMENT BANK GROUP
  • 2. Regional Edition African Economic Outlook 2013 Regional Edition Western Africa AFRICAN DEVELOPMENT BANK DEVELOPMENT CENTRE OF THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT UNITED NATIONS DEVELOPMENT PROGRAMME ECONOMIC COMMISSION FOR AFRICA AFRICAN DEVELOPMENT BANK GROUP DEVELOPMENT CENTRE
  • 3. WesternAfrica The opinions expressed and arguments employed in this publication are the sole responsibility of the authors and do not necessarily reflect those of the African Development Bank Group, its Board of Directors, or the countries they represent; the OECD, its Development Centre or the governments of their member countries; the United Nations Development Programme; the Economic Commission for Africa; the European Union; or those of the Secretariat of the African Caribbean and Pacific Group of States or its member states. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Corrigenda to the African Economic Outlook may be found on line at: www.africaneconomicoutlook.org/en © African Development Bank, Organisation for Economic Co-operation and Development, United Nations Development Programme, Economic Commission for Africa (2013). You can copy, download or print the content of this publication for your own use, and you can include excerpts from it in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of AfDB, OECD, UNDP, and UNECA as source and copyright owners is given. All requests for public or commercial use and translation rights should be submitted to rights@oecd.org. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at info@copyright.com or the Centre français d’exploitation du droit de copie (CFC) contact@cfcopies.com. 2 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013
  • 4. 3African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 WesternAfrica This is a complementary edition to the African Economic Outlook 2013 Other regional editions are available for : African members of the CPLP - Community of Portuguese-speaking countries Central Africa Eastern Africa Northern Africa Southern Africa Table of Contents Overview ........................................................................................................ Benin .................................................................................................................. Burkina Faso .............................................................................................. Cape Verde .................................................................................................. Côte d’Ivoire .............................................................................................. Gambia ............................................................................................................ Ghana ................................................................................................................ Guinea .............................................................................................................. Guinea-Bissau .......................................................................................... Liberia ............................................................................................................... Mali ....................................................................................................................... Niger ................................................................................................................... Nigeria .............................................................................................................. Senegal ............................................................................................................ Sierra Leone ............................................................................................... Togo ..................................................................................................................... 4 7 23 37 51 65 81 97 113 125 141 155 169 187 201 217
  • 5. WesternAfrica Overview West Africa is expected to continue its rapid growth with rates of 6.7% in 2013 and 7.4% in 2014. It has be- come the fastest growing region of the continent. Growth in the region is not only driven by oil and mineral sectors but also by agriculture and services and on the demand side often by consumption and investment. Nigeria is expected to continue growing by between 6.7 and 7.3% in 2013 and 2014 respectively. In Ghana and Côte d’Ivoire average growth in 2013/14 is likely to exceed 8% and 9% respectively. In most countries of the region growth is expected to pick up in 2013/14, exceeding 5%. But in a few countries, such as Benin, Cape Verde and Guinea-Bissau, growth will remain more subdued. In 2012, Africa’s monetary authorities had to cope with emerging inflationary pressures stemming from high- er food prices and exchange rate depreciation. The depreciation of exchange rates helped to boost exports but added to inflation through higher import prices. At the same time, the deepening of the crisis in Europe increased risks of a new economic downturn in Africa. Monetary policies responded quite differently depend- ing on the balances of these risks. In a number of countries, including Nigeria and Ghana monetary policies were tightened to reduce inflation. Monetary policies of the WAEMU and of the CEMAC continued their prudent stance with priority given to controlling inflation with fixed exchange rates tied to the euro. The countries of the East African Community (EAC, including Burundi, Kenya, Tanzania, Uganda and Rwanda) plan to create a monetary union with a single currency by 2015. Adopting a common currency in this region will have benefits but also entails costs, which need to be considered. As individual countries lose monetary policy as a stabilization tool, fiscal policy and flexibility of the private sector will become even more important for macroeconomic stabilization. Given the risk of another economic downturn due to lower global demand several countries continue to pursue expansionary fiscal policies. But many other countries follow fiscal consolidation strategies to ensure debt sustainability. This is particularly important in countries, which are already at risk of debt distress. Burkina Faso also increased public spending, notably for social support including for refugees from Mali. By contrast, other countries saw little fiscal space or need for an expansionary policy and tightened the fiscal stance. Ghana increased taxes, including corporate tax and mining taxes. In 2012 West Africa remained the region that attracted the largest FDI volumes, estimated at USD 15.1 bil- lion and sustained mostly by resource-seeking money. Nigeria, Guinea, Ghana and Niger’s resource sector attracted an estimated 88% of total FDI to the region. Nigeria’s largest announced greenfield project in 2012 amounted to nearly USD 2 billion to increase oil production. The other large greenfield projects for Nigeria were in manufacturing and information and communications, signalling some diversification. Portfolio inflows to Nigeria picked up in 2012 and surpassed FDI flows, which are on a downward trend. Lower transaction charges in Nigeria’s stock market could have a further beneficial impact on portfolio investment. If this trend continues it might expose Nigeria to the risk of sudden capital flow reversals. Ghana is likely to see further investment in oil exploration and exploitation. The oversubscription of Ghana’s bond issuance in January 2012 signals strong investor confidence in the country. Privatization prospects in Togo are likely to raise investment for the country. Serious risks emanate from instability in the Sahel region and in northern Nigeria. Africa’s economic prospects depend on global and domestic factors, which are highly uncertain. One of the downside risks is continued weakness of the global economy. The main channels of transmission of weaker global growth would be lower commodity export earnings, shrinkages in export volumes of other goods, tourism receipts, official development assistance (ODA), foreign direct investment inflows (FDI) and worker’s remittances. On top of external uncertainties, downside risks also exist within Africa. In Mali, the political situation has im- proved after military intervention by France and regional forces from ECOWAS. However, as long as security is not restored, the economies of the region remain vulnerable. 4 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013
  • 6. 5African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 WesternAfrica Real GDP Growth (%) 2004-08 2009 2010 2011 2012(e) 2013(p) 2014(p) Western Africa 6,1 5,5 7,1 6,8 6,6 6,7 7,4 Benin 3,9 2,7 2,6 3,5 3,6 4,1 4,6 Burkina Faso 5,9 3,0 8,4 4,4 8,0 6,7 6,8 Cape Verde 7,2 -1,3 1,5 2,1 2,4 4,3 4,6 Côte d’Ivoire 1,6 3,8 2,4 -4,7 8,6 8,9 9,8 Gambia, The 3,3 6,4 6,5 -4,4 1,0 4,3 5,1 Ghana 6,6 4,0 8,0 14,4 7,1 8,0 8,7 Guinea 2,9 -0,3 1,9 3,9 4,2 4,8 5,6 Guinea-Bissau 3,0 3,4 4,5 5,3 -1,5 4,2 3,5 Liberia 7,7 5,4 6,1 8,2 8,9 7,7 5,4 Mali 4,6 4,5 5,8 2,7 -1,5 5,4 5,1 Niger 5,0 -0,7 8,2 2,1 13,1 5,5 6,5 Nigeria 7,1 7,0 8,0 7,4 6,6 6,7 7,3 Senegal 4,5 2,4 4,3 2,1 3,7 4,3 5,1 Sierra Leone 6,8 3,2 5,3 6,0 16,7 7,2 12,1 Togo 2,4 3,4 4,0 4,9 5,0 5,3 5,5 AFRICA 6,1 3,1 5,0 3,5 6,6 4,8 5,3 Consumer Prices (Inflation)(%) 2004-08 2009 2010 2011 2012(e) 2013(p) 2014(p) Western Africa 10,0 10,1 10,4 9,3 9,8 8,0 7,8 Benin 3,9 0,9 2,2 2,7 6,7 3,1 3,0 Burkina Faso 3,8 2,8 -0,6 2,8 3,6 2,2 2,1 Cape Verde 2,9 1,0 2,1 4,5 2,5 2,4 2,5 Côte d’Ivoire 3,2 4,7 1,7 4,9 2,1 2,2 2,3 Gambia, The 6,2 4,6 5,0 4,8 4,2 5,0 5,1 Ghana 13,4 19,3 10,8 8,7 9,2 8,9 8,5 Guinea 25,0 4,7 15,5 21,4 13,1 10,6 8,5 Guinea-Bissau 4,2 -2,4 2,3 5,0 2,1 3,3 2,5 Liberia 10,1 7,4 7,5 8,3 6,9 5,1 4,9 Mali 3,1 2,2 1,4 3,0 5,3 2,9 3,3 Niger 4,0 1,1 0,9 2,9 3,9 1,8 1,4 Nigeria 11,7 12,0 13,6 10,9 12,0 9,7 9,5 Senegal 3,2 -2,2 1,2 3,4 2,5 1,6 1,8 Sierra Leone 11,7 9,2 17,8 18,5 11,6 7,1 6,9 Togo 3,8 1,9 1,4 3,6 2,3 2,4 2,7 AFRICA 7,4 10,0 7,2 8,5 9,1 7,4 7,2 Overall Fiscal Balance, Including Grants (Percent of GDP) 2004-08 2009 2010 2011 2012(e) 2013(p) 2014(p) Western Africa 1,8 -7,4 -4,6 -1,3 1,3 2,0 3,1 Benin -1,1 -4,3 -1,6 -1,8 -1,5 -2,3 -2,3 Burkina Faso -5,0 -4,8 -2,9 -1,4 -0,5 -1,5 -2,3 Cape Verde -1,7 -5,9 -10,6 -10,2 -13,8 -14,5 -16,2 Côte d’Ivoire -0,2 2,0 -0,5 -1,8 -3,5 -4,0 -3,1 Gambia, The -3,4 -3,0 -3,9 -4,6 -6,0 -5,2 -4,0 Ghana -3,8 -5,8 -7,4 -3,9 -4,9 -3,5 -3,0 Guinea -1,5 -7,9 -14,0 -0,3 -1,4 -0,6 -0,3 Guinea-Bissau -3,5 4,3 1,3 0,7 -2,3 -0,8 -1,0 Liberia 1,5 -0,4 -0,1 -2,0 -4,7 -6,4 -6,6 Mali 2,8 -4,2 -2,1 -3,3 -6,4 -5,8 -4,0 Niger 7,1 -5,3 -2,4 -6,8 -2,8 -2,0 -2,5 Nigeria 3,8 -9,8 -4,8 -0,1 3,7 4,4 5,7 Senegal -4,1 -5,2 -5,4 -6,6 -7,0 -7,9 -7,4 Sierra Leone 3,9 -2,0 -4,8 -4,5 -1,8 -2,3 -2,0 Togo -0,8 -0,6 0,3 -1,2 -3,1 -3,6 -3,9 AFRICA 2,0 -5,2 -3,0 -3,1 -2,5 -2,4 -1,9 Source: Authors’ calculations e: estimates; p: projections
  • 7. WesternAfrica External Current Account, including grants (Percent of GDP) 2004-08 2009 2010 2011 2012(e) 2013(p) 2014(p) Western Africa 17,3 17,1 -1,1 -0,7 4,0 5,0 7,1 Benin -7,7 -8,9 -7,3 -10,0 -9,5 -10,4 -10,6 Burkina Faso -10,3 -4,6 -2,0 -1,2 -3,5 -5,0 -4,4 Cape Verde -10,5 -14,6 -12,9 -15,4 -15,5 -14,8 -15,9 Côte d’Ivoire 1,2 7,0 1,1 6,7 -3,3 -3,8 -1,9 Gambia, The -9,3 -10,7 -17,1 -14,8 -11,3 -13,0 -12,9 Ghana -6,8 -6,6 -8,6 -9,6 -11,2 -14,4 -14,9 Guinea -8,3 -9,1 -6,8 -24,2 -25,4 -25,0 -28,7 Guinea-Bissau -2,7 -5,7 -8,3 -1,6 -6,3 -4,7 -4,3 Liberia -23,7 -29,2 -32,7 -34,0 -52,4 -65,6 -72,0 Mali -9,7 -7,3 -12,6 -10,0 -0,8 -6,8 -9,9 Niger -9,4 -20,1 -20,0 -22,7 -22,7 -21,5 -17,8 Nigeria 30,5 30,4 1,8 3,2 10,4 11,8 14,6 Senegal -9,8 -6,7 -4,5 -7,7 -8,6 -9,3 -10,0 Sierra Leone -5,5 -6,5 -19,3 -52,3 -44,0 -11,6 -12,0 Togo -12,7 -5,6 -6,3 -6,4 -6,2 -3,9 -4,7 AFRICA 6,4 0,3 -0,6 -1,1 -0,4 0,0 0,7 Trade Balance (Percent of GDP) 2004-08 2009 2010 2011 2012(e) 2013(p) 2014(p) Western Africa 11,3 7,5 7,0 6,3 10,2 11,3 12,6 Benin -11,8 -11,3 -9,5 -12,2 -12,1 -12,3 -12,7 Burkina Faso -9,5 -5,8 -1,6 0,2 -0,9 -1,4 -0,2 Cape Verde -41,0 -39,5 -41,0 -45,8 -48,5 -49,3 -50,5 Côte d’Ivoire 15,2 18,4 14,5 20,4 10,4 10,2 10,4 Gambia, The -20,8 -22,3 -22,6 -23,9 -23,5 -23,2 -22,5 Ghana -14,8 -8,6 -9,2 -8,3 -9,7 -12,6 -13,7 Guinea 1,5 -0,2 1,4 -14,0 -17,1 -16,2 -17,3 Guinea-Bissau -6,0 -9,8 -8,2 -1,2 -4,2 -4,1 -3,1 Liberia -30,5 -36,5 -35,5 -40,7 -49,5 -53,5 -52,0 Mali -3,0 -2,4 -7,2 -3,6 6,4 1,8 -1,2 Niger -6,9 -14,9 -14,3 -14,9 -13,7 -13,4 -11,7 Nigeria 21,1 14,4 13,2 12,5 18,0 19,2 20,9 Senegal -18,4 -15,9 -14,9 -17,0 -18,1 -18,2 -18,4 Sierra Leone -6,6 -7,8 -14,6 -43,2 -35,5 -4,0 -2,6 Togo -17,6 -13,0 -14,3 -13,4 -12,6 -11,0 -11,5 AFRICA 6,6 -0,1 2,9 2,7 4,1 4,3 4,5 Source: Authors’ calculations e: estimates; p: projections 6 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013
  • 8. Benin 2013 www.africaneconomicoutlook.org El Hadji Fall / el.hadji.fall@undp.org Daniel Ndoye / d.ndoye@afdb.org
  • 9. Benin Benin Sections Benin’s economy is slowly recovering after experiencing a difficult period in 2009 and 2010; growth is estimated to have reached 3.6% in 2012 and is projected to consolidate in 2013 and 2014. To reach its growth targets, the country will have to step up reforms of the port of Cotonou as well as its efforts in the management of public finances, modernisation of the administration and improvement of the business climate to nurture development of the private sector. Benin will also have to remove constraints weighing on the exploitation of its agricultural and mining natural resources and on its geographical location; the main target here is the country's deficiencies in the infrastructure and services needed for exploiting these resources. Overview Benin’s economic activity seems to have begun to recover since 2011, after having come under severe pressure in 2009 and 2010 from the combined effects of the global economic crisis and the floods that hit the country. The growth rate of the real economy increased from 2.6% in 2010 to 3.5% in 2011, then to 3.6% in 2012. The recovery in growth has been the result of combined efforts to revive agriculture and repair the infrastructure after the floods of 2010. The country has also benefited from good rainfall. These elements of positive growth were partially offset by the impact of a sharp increase in January 2012 in the price of adulterated petrol called “kpayo”. The economic outlook for 2013 and 2014 is positive and should confirm growth recovery, supported by good results from the 2012/13 cotton season and recovery in port activities. An important growth factor will, nonetheless, be the maintenance of macroeconomic stability by sustaining progress in the country’s reform of public finances and in its administrative modernisation in 2013 and 2014. Benin is facing here a threefold objective: to further mobilise its domestic resources; to make public spending consistent with its poverty-reduction strategy; and to improve the country’s business climate in order to help develop the private sector. The government, which has stated its determination to put an end to illegal trading in petroleum products, is expected take corrective measures to offset the impact of the short-term rise in prices likely to result from this action, in particular on the most vulnerable sections of the population. On the social front, the government needs to maintain its efforts through its 2011-15 growth and poverty-reduction strategy (GPRS), as the country is suffering from persistent poverty and serious backlogs in reaching the Millennium Development Goals (MDGs) by 2015. More than 36% of the Beninese population are still living below the poverty line. Benin has strong agricultural potential, an opening to the sea and a small amount of raw materials (limestone, sand, granite and timber). Its limited exploitation of these assets has, however, prevented the country from initiating needed structural changes in its economy. To achieve better management of its natural resources Benin still needs to overcome several structural constraints, namely poor water management, inadequate agricultural modernisation, and antiquated infrastructure and services associated with the exploitation of these resources. For structural transformation and continued growth, Benin faces two main challenges: first, to implement its strategic plan for the revival of the agricultural sector (PSRSA), which is expected to further diversify the economy and increase processing of agricultural products; second, to transform Benin from being a transit country to becoming a logistics and export hub, in particular thanks to an integrated and efficient infrastructure and transport services system. Benin Sections Benin’s economy is slowly recovering after experiencing a difficult period in 2009 and 2010; growth is estimated to have reached 3.6% in 2012 and is projected to consolidate in 2013 and 2014. To reach its growth targets, the country will have to step up reforms of the port of Cotonou as well as its efforts in the management of public finances, modernisation of the administration and improvement of the business climate to nurture development of the private sector. Benin will also have to remove constraints weighing on the exploitation of its agricultural and mining natural resources and on its geographical location; the main target here is the country's deficiencies in the infrastructure and services needed for exploiting these resources. Overview Benin’s economic activity seems to have begun to recover since 2011, after having come under severe pressure in 2009 and 2010 from the combined effects of the global economic crisis and the floods that hit the country. The growth rate of the real economy increased from 2.6% in 2010 to 3.5% in 2011, then to 3.6% in 2012. The recovery in growth has been the result of combined efforts to revive agriculture and repair the infrastructure after the floods of 2010. The country has also benefited from good rainfall. These elements of positive growth were partially offset by the impact of a sharp increase in January 2012 in the price of adulterated petrol called “kpayo”. The economic outlook for 2013 and 2014 is positive and should confirm growth recovery, supported by good results from the 2012/13 cotton season and recovery in port activities. An important growth factor will, nonetheless, be the maintenance of macroeconomic stability by sustaining progress in the country’s reform of public finances and in its administrative modernisation in 2013 and 2014. Benin is facing here a threefold objective: to further mobilise its domestic resources; to make public spending consistent with its poverty-reduction strategy; and to improve the country’s business climate in order to help develop the private sector. The government, which has stated its determination to put an end to illegal trading in petroleum products, is expected take corrective measures to offset the impact of the short-term rise in prices likely to result from this action, in particular on the most vulnerable sections of the population. On the social front, the government needs to maintain its efforts through its 2011-15 growth and poverty-reduction strategy (GPRS), as the country is suffering from persistent poverty and serious backlogs in reaching the Millennium Development Goals (MDGs) by 2015. More than 36% of the Beninese population are still living below the poverty line. Benin has strong agricultural potential, an opening to the sea and a small amount of raw materials (limestone, sand, granite and timber). Its limited exploitation of these assets has, however, prevented the country from initiating needed structural changes in its economy. To achieve better management of its natural resources Benin still needs to overcome several structural constraints, namely poor water management, inadequate agricultural modernisation, and antiquated infrastructure and services associated with the exploitation of these resources. For structural transformation and continued growth, Benin faces two main challenges: first, to implement its strategic plan for the revival of the agricultural sector (PSRSA), which is expected to further diversify the economy and increase processing of agricultural products; second, to transform Benin from being a transit country to becoming a logistics and export hub, in particular thanks to an integrated and efficient infrastructure and transport services system. 8 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013
  • 10. 9African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Benin http://dx.doi.org/10.1787/888932804966 http://dx.doi.org/10.1787/888932807949 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 3.5 3.6 4.1 4.6 Real GDP per capita growth 1 1.1 1.6 2.1 CPI inflation 2.7 6.7 3.1 3 Budget balance % GDP -1.8 -1.5 -2.3 -2.3 Current account % GDP -10 -9.5 -10.4 -10.6 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2% 4% 6% 8% 10% RealGDPGrowth(%)
  • 11. http://dx.doi.org/10.1787/888932808937 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 34.9 36 Construction 4.6 4.9 Electricity, gas and water 1.2 1.2 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 2.1 2 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 8.4 8.4 Mining 0.3 0.3 Other services 8.4 8.4 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 11.9 11 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 9.4 9.4 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 18.9 18.5 Wholesale, retail trade and real estate ownership - - Economic growth began to recover in 2011 and 2012 after a very difficult situation in 2009 and in 2010 linked to the global economic crisis and the floods. The growth rate of the real economy increased from 2.6% in 2010 to 3.5% in 2011, then to 3.6% in 2012. Improvement in 2011 was mainly the result of efforts made to revive agriculture and rehabilitate infrastructure after the floods of 2010. In 2012, the pace of economic recovery was maintained thanks to good crops and the recovery of port activities. According to initial estimates and thanks to good rainfall and to an increase in sown acreage, production of cotton, the country’s leading export product, more than doubled, reaching more than 400 000 tonnes for the first time in eight years. Although the cotton season was disrupted because the framework agreement between the government and the inter-branch cotton association (Association interprofessionnelle du coton) governing the management of the sector was abrogated, the sharp increase in cotton production was made possible by various government measures that were taken to allow the 2012/13 cotton season to perform well. These measures included: setting up an inter-ministerial commission to manage the transition of the sub- Benin 10 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013
  • 12. 11African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 sector; involving state and local structures; and raising the purchase price paid to farmers for seed cotton. On the other hand, food crops are estimated to have declined by nearly 3% in 2012 due to insufficient inputs in a number of places and, to a lesser extent, to the year’s floods, which swept away part of the rice crop. Activity in the tertiary sector, which generates more than 40% of gross domestic product (GDP), is estimated to have increased in 2012 thanks to recovery in port operations, supported by several measures taken by the government after traffic at the Port of Cotonou had declined by more than 2% in 2011 against a backdrop of disturbances generated by reforms. These measures helped to decongest the port and restore its competitiveness and included authorising unloading inside the Port of Cotonou and in the adjacent dry docks, removing the monopoly situation in transit to and from Niger, and establishing a one-stop shop at the Port of Cotonou. In 2012, economic growth did, however, suffer from the effects of the increase in the price of black-market petrol, which accounts for nearly 70% of the domestic market of oil products. The increase in its price was the consequence of the Nigerian government’s decision, in January 2012, to remove subsidies to petroleum products in Nigeria, before re-establishing them, but only partially. This measure immediately resulted in a more than doubling of the price of petrol in Benin, before moving back to a 30% increase. The impact of this measure on the Beninese economy is estimated to have entailed the loss of 0.4 points in overall growth. This episode reflects Benin’s significant vulnerability to Nigeria’s economic environment due to the country’s strong dependence on cross-border trade, which is mainly informal and mainly with its Nigerian neighbour. On the demand side, growth in 2012 was mainly fuelled by final consumption, accounting for about 90% of GDP, with its contribution estimated at 2.2 percentage points. The weight of final consumption in growth was mainly due to an increase in household income resulting from higher farm incomes and an increase in the wage bill. The volume of investments increased by 5%, thanks in particular to the rehabilitation of the infrastructure damaged by the floods of 2010. The economic outlook for 2013 and 2014 is favourable and should bolster growth recovery. Projections put the growth rate at 4.1% in 2013 and at 4.6% in 2014 despite a slowdown in economic activity seen in the short term and the increase in the price of petrol expected from measures to curb trade in kpayo adulterated petrol. The primary sector is expected to remain an important driver of growth in Benin thanks to the continuation of the government’s sector-based policy, intended to modernise and diversify agriculture and to promote agricultural-product processing. To this end, two main lines of policy implementation are under way: the 2011-15 PSRSA strategy for the revival of the agricultural sector (Plan stratégique pour la relance du secteur agricole) and the PNIA-Benin national agricultural-investment programme (Programme national d’investissement agricole du Bénin). The framework policy for cotton producers, coupled with incentives to grow cotton, will be continued and this should also support growth of activity in the sector. For the next few years, the government’s major challenges will be to make the PSRSA operational and to examine, with all the stakeholders in the cotton sector, the implementation of a new management framework by the private sector, while also drawing lessons from the past. Efficient implementation of reforms in the agricultural sector should have a strong ripple effect on the secondary sector, with in particular the expected entry into production in 2013 of six new plants to process agricultural products (tomatoes, pineapples, cashew nuts, citrus fruits, mangos). The tertiary sector should benefit from the dynamism of the commercial activity driven by the increase in agricultural production, the continuation of port reforms and the commissioning of two new docks at the autonomous Port of Cotonou. Following the suspension of the contract with the service provider in charge of implementing the import-verification programme, the government should issue an invitation to tender and select a new provider. This latter’s task will be to support customs services in modernisation efforts, ensure customs-revenue security and increase the competitiveness of the port. Nonetheless, a possible decline in cotton prices, tensions that could result from the 2013 municipal elections, trade liberalisation in Nigeria and the institution of a customs union in the Economic Community of West Africa States (ECOWAS) zone could change the growth projections for 2013 and 2014. In addition, while the government measures to fight against black- market petrol are beneficial and should raise tax revenues, in the short run they could also have negative effects on inflation and consumption, hence on growth. The government will therefore need to accompany this policy with supportive measures for the most vulnerable. Benin
  • 13. Macroeconomic Policy Fiscal Policy The budget policy implemented in 2011 and 2012 was overall in line with the targets adopted as part of the Extended Credit Facility (ECF) programme finalised with the International Monetary Fund (IMF) on 14 June 2010. In 2011 revenues increased only slightly in respect of the targets, as they were affected by difficulties in implementing port and customs reforms. Regulation of expenditure, however, which is aligned with available resources, made it possible to contain the primary balance and the overall deficit within the limits imposed by the economic and financial programme. The government's measures in 2012 to decongest the port, added to the assignment of a licence for third-generation mobile telephones amounting to XOF 44 billion (CFA Franc BCEAO), made it possible to increase government revenues. Non-grant government revenues thus went from 17.6% of GDP in 2011 to an estimated 18.5% in 2012. Tax revenues are nonetheless estimated to have been stable at 15.4% of GDP in 2012, below the 17% target set by West African Economic and Monetary Union (WAEMU). Public expenditure was stabilised at 21.9% of GDP between 2011 and 2012. Significant improvement was noted in the execution of priority social expenditure, with an execution rate higher than 100% in 2012, as against 75% in 2011, thanks to stronger measures taken by the ministry of finance to track public expenditure. The wage bill, however, remained high compared to the threshold of 35% of tax revenues set by the WAEMU, even though the country stopped recruitment into the public service and improved its monitoring of the workforce through a census of public sector employees. The overall budget deficit was slightly reduced and amounted to 1.5% of GDP in 2012, as compared to 1.8% in 2011. It was financed by domestic debt and external support of a primarily concessionary nature. The base budget balance became positive again in 2012, thus allowing the country to comply with the main budgetary criterion of the WAEMU Convergence, Stability, Growth and Solidarity Pact. The fiscal policy proposed for 2013 is in line with the economic guidelines laid down for 2012-16, which are focused on the development of entrepreneurship and private initiative. Five priority areas are to be covered: i) building human capital; ii) developing infrastructure to support production; iii) agricultural modernisation; iv) promoting the agro-food sector; and v) strengthening local development. Despite the generalisation of single tax account numbers and the reinstatement of a reformed import-control programme, PVI (Programme de vérification des importations), total revenues are projected to decline in 2013 to 19.6% of GDP after the exceptional 2012 revenues from the sale of the mobile-telephone licence. Public expenditure should stabilise at 21.8% of GDP, used largely, for nearly 70% of it, for current expenditure, in which the wage bill should remain equal to more than 45% of tax revenues. 12 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Benin
  • 14. 13African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932809925 Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 21.7 20 20.1 20.5 19.6 19.4 Tax revenue 16.1 16.2 15.5 15.4 15.4 15.3 Oil revenue - - - - - - Grants 3.2 1.5 2.5 2 2.1 2.1 Total expenditure and net lending (a) 26 21.6 21.9 21.9 21.8 21.7 Current expenditure 15.9 15.5 15 15.3 15.2 15.1 Excluding interest 15.4 15 14.5 14.7 14.6 14.5 Wages and salaries 7.3 7.3 7.4 7.3 7.2 7.1 Interest 0.5 0.5 0.4 0.6 0.6 0.6 Primary balance -3.8 -1 -1.4 -0.9 -1.7 -1.7 Overall balance -4.3 -1.6 -1.8 -1.5 -2.3 -2.3 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy As member of the WAEMU, Benin applies the monetary policy decided by the Central Bank of West African States (CBWAS), aimed explicitly at price stability in order to foster sustainable economic growth in the union. This goal was reaffirmed in the institutional reform of the CBWAS, which came into force in 2010. In 2012, the CBWAS lowered its key interest rates to help economies facing various economic shocks in their financing. Thus, the minimum bid rate of open-market operations and the marginal lending rate were lowered in June 2012 by 25 basis points to 3.0% and 4.0%, respectively. The inflation rate is estimated to have increased in 2012 as a result on the one hand, of Nigeria’s having reduced its subsidy to fuel in January, and on the other, of the campaign against the sale of black-market petrol begun in November. Inflation was thus estimated at 6.7% in 2012, up from 2.7% in 2011, exceeding for the first time since 2008 the 3% ceiling set by the WAEMU. Despite the accommodating monetary policy conducted regionally, growth in the money supply was sufficiently contained in Benin for it not to become an additional source of inflation. The money supply is estimated to have grown in 2012 by 2.3%, compared with an 8.1% rise in 2011. This slowdown in the growth of the money supply is due to a decline in credit to the government. For 2013 and 2014, projections show a sharp decline in inflation to about 3%. Price increases might, however, be observed in the first few months of 2013 as a result of government measures to combat the illicit trade in petroleum products. The government and the CBWAS should therefore keep a close watch on the evolution of prices in order to take the necessary corrective measures to soften the impact of this increase, particularly on the most vulnerable. Economic Cooperation, Regional Integration & Trade Benin's foreign trade suffers from a structural deficit and little diversification of its exports, reflecting the poor level of agricultural and industrial development. Exports are mainly of cotton and its derivatives to Europe and Asia, re-exports of petroleum products to the landlocked countries of the sub-region, and rice, meat, edible offal and worn clothing to Nigeria. The foreign-trade situation improved in 2012, and the current-account deficit declined accordingly, from 10.0% of GDP in 2011 to 9.5% in 2012, thanks to an increase in cotton exports, which benefited from good crop yields Benin
  • 15. http://dx.doi.org/10.1787/888932810913 in 2011/12. The increase in current transfers, including budgetary support, also helped to reduce the external current-account deficit. The current-account deficit was financed by net inflows of public and private capital for about 40% and 60%, respectively, in 2010 and 2012. Foreign direct investment (FDI), which is mainly from Europe, is still relatively low, accounting for less than 3% of GDP, compared to an average of 4% across the continent. It has been concentrated on port infrastructure, trade and telecommunications. The current-account deficit should increase in 2013 and 2014 to 10.4% and 10.6% of GDP, respectively. Foreign trade should benefit from a continued rise in exports thanks to sustained efforts in support to the cotton sector and to diversification of the agricultural sector through the PSRSA strategy. In terms of regional integration, Benin plays an important role in sub-regional trade. Thanks in particular to the Port of Cotonou, Benin is a transit country for the transport of goods to and from Niger, Burkina Faso, Mali, Chad and Nigeria. In 2011, 51% of the goods received at the Port of Cotonou were thus intended for transit, and more than half of those to Niger. As a member of WAEMU and ECOWAS, the country applies the WAEMU Common External Tariff (CET), which has four bands between 0% and 20%. Discussions are continuing at ECOWAS for the establishment of a CET expanded to five bands. Entry into force of the CET at the ECOWAS level, however, could considerably slow down re-export trading from Benin to Nigeria, which accounts for nearly half of Benin’s external sales. In this regard, the government needs to accelerate the diversification process of the production and export base, in particular by developing agricultural sub-sectors that have been identified as promising: rice, maize, market gardening and pineapples. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -11 -11.3 -9.5 -12.2 -12.1 -12.3 -12.7 Exports of goods (f.o.b.) 8.5 11.2 13.8 9.1 9.1 8.9 8.6 Imports of goods (f.o.b.) 19.5 22.5 23.3 21.2 21.2 21.2 21.3 Services -1.2 -2 -1 -0.5 -0.6 -1.1 -0.7 Factor income -1 -0.5 -0.8 -0.5 -0.5 -0.5 -0.5 Current transfers 6 4.9 4.1 3.2 3.7 3.5 3.3 Current account balance -7.2 -8.9 -7.3 -10 -9.5 -10.4 -10.6 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy The updated 2012 analysis of debt sustainability indicates that Benin has a low risk of over-indebtedness thanks to its debt strategy, which sets the terms and conditions for new loans (concessional borrowing to finance the deficit) and is supervised by the country’s technical and financial partners. In addition, the criteria for the performance of non-concessional loans and for non-accumulation of arrears, as defined under the programme supported by the ECF, have been complied with since 2011. The stock of total external debt amounts to 17.0% of GDP, well below the 70% threshold set for all the WAEMU countries and is made up, in respect of nearly 70%, of multilateral debt and, in respect of more than 90%, of concessional loans. The ratio of debt service to exports of goods and services was estimated at 5.7% for 2012, up from 5.0% in 2011. The stock of domestic debt fell from 8.2% of GDP in 2011 to 6.7% of GDP in 2012 owing to the reimbursement of a portion of the Caisse autonome d’amortissement debenture bonds and of securitised wage arrears. Projections put the debt stock at 17.3% and 17.7% of GDP in 2013 and 2014, respectively, and resistance tests for 2031 indicate that debt will continue to be sustainable but will require a prudent debt policy to be maintained, in particular in the regional financial market. Figure 2: Stock of total external debt and debt service 2013 14 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Benin
  • 16. 15African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932804966 for 2031 indicate that debt will continue to be sustainable but will require a prudent debt policy to be maintained, in particular in the regional financial market. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 50% Percentage Benin
  • 17. Economic & Political Governance Private Sector The Beninese economy enjoys relative political stability but suffers from a gloomy business climate, which is adversely affected by excessive bureaucracy. Benin’s overall ranking in the World Bank report Doing Business 2013 is 175th out of 185 countries, up one position from the previous year. The country is lagging significantly behind, particularly in the categories of starting a business, protecting investors, paying taxes and in the time needed for enforcing contracts. It takes an average number of 42 procedures to execute a contract and an average of 795 days, against 39 procedures and 654.8 days on average, respectively, in sub-Saharan Africa. This is the longest time observed in the WAEMU and ECOWAS countries. The justice sector is still hampered by many constraints, including insufficient human and material resources. The legal framework is also still impaired by its texts, some of which are obsolete when brought to court, while others are inconsistent with the country's constitution. There is still poor flexibility in the labour market, which also suffers from a mismatch between training and the needs of enterprises. The private sector is dominated by individual enterprises engaged in informal activities. The informal sector also accounts for 94% of the working population, and involves more than nine out of ten businesses. Easier access to land titles is still a challenge in Benin. The number of procedures for registering property has remained stable, at four (or four steps), but Benin’s ranking in this area has gone down from 129th to 133rd in the 2013 Doing Business report. In 2012, the government continued its efforts to improve the business climate and boost the private sector. Amongst these efforts, an on-line one-stop shop for enterprises to deal with formalities was launched in March 2012, which should reduce the time needed for starting a business from 29 days to one day for individual businesses and to three days for limited liability companies, thanks to a separation of the formalities for starting a business from the requirements for business activity. Also in 2012, the government put in place a one-stop shop for port activities (SEGUB) which has helped to reduce the time needed for goods to leave the port, notably thanks to a single invoice document. The government also wishes to encourage greater involvement of the private sector in implementation of the 2011-15 SCRP strategy. It has thus made it a priority to promote public-private partnerships (PPPs) to finance development programmes, as well as to step up discussions with the private sector. In this regard, the government is getting support from the African Development Bank (AfDB) in setting up a framework for the development of PPPs. Financial Sector As in all WAEMU countries, Benin’s financial sector remains relatively stable as it is governed by community regulations and supervision. The capital adequacy ratio stood overall above the 8% threshold in 2011. Net outstanding claims stood at around 6% in 2011, two points better than in 2009. The financial sector is, however, poorly developed, consisting of 13 banks mainly geared to financing trade- related activities. Banking activities are strongly concentrated in three main banks, which in 2011 had 60% of the market share and 70% of the total balance of all banks. Access to finance remains a major concern for the private sector. The stock of credit to the economy amounts to about 20% of GDP, well below the 40% average in sub-Saharan Africa, and the interest rates proposed by the Beninese banks on loans granted to businesses and households are still amongst the highest of the WAEMU countries. These interest rates averaged 11.1% over 2010-12, against an 8.3% average in the WAEMU countries. The difficulties encountered by banks in terms of risk management and collateral, difficulties that are related to the inadequacy of the legal environment and of the land-management framework, affect access to credit adversely. It is therefore important for efforts to be made to remove these constraints in order to reduce the cost of credit and to promote better access by businesses and households to financial services and resources in the long term. The financial sector is marked by a strong presence of microfinance institutions, which are facing significant challenges in terms of governance, internal control and information systems. The microfinance sector, which is predominantly patronised by women, is characterised by a high proportion (80%) of institutions operating without official approval. It would therefore need to be put on a proper footing and professionalised in order to 16 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Benin
  • 18. 17African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 strengthen its relationship to the banking sector, always from the perspective of facilitating SME access to credit. In this regard, the government adopted in January 2012 a law laying down the principles for the regulation of decentralised financial systems. In particular the law places under the supervision of the CBWAS all decentralised financial systems that take deposits or have a loan portfolio amounting to more than XOF 2 billion. Public Sector Management, Institutions & Reform Despite progress made in recent years, the country’s economic and financial governance indicators are mixed. The government wishes to spread a culture of evaluation and results in public administration and to do so has adopted a strategic framework to generalise results-based management (RBM) since 2011. In addition, the authorities have committed themselves to fighting corruption, in particular by adopting in August 2011 a new draft law on corruption and a decree for the institution of a national authority to combat corruption specifying its powers, organisation and operation. The level of perceived corruption is still high, however, with the country placed 94th out of 176 countries in Transparency International’s 2012 ranking. To promote local development, the government adopted a national decentralisation and devolution policy in 2009, which serves to channel all efforts and actions. More than 87% of the performance targets set out in the 2011-15 SCRP strategy were reached in 2011. In particular, expenditure by local authorities rose from 5.9% of the total national budget in 2010 to 6.3% in 2011, above the 5.5% target. The level of transfers to local government in the national budget increased to 3.9% in 2011, up from to 3.2% in 2010. Successful implementation of the decentralisation process, however, still hinges on the lifting of two major constraints: the different ministries have not truly embraced the issues involved in decentralisation; and the resources of local communities, despite the progress in transfers, are still not enough to meet the investment requirements needed to achieve the Millennium Development Goals (MDGs). For its part, the programme set up to build up efficiency in public enterprises through increased participation of the private sector did not make significant progress in 2012. The invitation to tender for the privatisation of the national telecommunications enterprise, Bénin Télécoms, for example, was unsuccessful. Nor has there been any progress in the rehabilitation of railways through private partnership with the Benin-Niger Railway and Transport Organisation. This pending project continues to be a major constraint to consolidating Benin’s position as a trade corridor and transit area in the sub-region. Natural Resource Management & Environment Benin suffers from deterioration of its natural environment with rampant deforestation, soil degradation and rapid erosion of the coastal zone of the Gulf of Guinea. The country's main environmental problems are related to rapid population growth and an exploitation of natural resources outstripping their renewability possibilities. Benin has, however, initiated a variety of policies, in particular to improve energy efficiency and the sustainable management of forest resources, which has also helped to reduce greenhouse-gas emissions. The country finalised its forestry policy in 2011 and was able to extend waste pre-collection services to 33.7% of the population in 2011, up from 32.0% in 2010, though still under the initial 35% target. Progress in access to drinking water has been confirmed by growth in the coverage rate, from 57.2% in 2010 to 61.0% in 2011 in rural areas and from 58.5% to 62.1% in urban areas, the target being 67.3% by 2015. Improvement in access to basic sanitation facilities, on the other hand, remains a major challenge. The share of households with latrines stood at 46.5% in 2011 and at less than 24% in rural areas, to be compared to the 2015 target of 80.5%. The framework of support for environmental issues suffers singularly from the poor consideration paid among all sectors to climate issues and their impact on development. Political Context Benin has been politically stable for more than 20 years. Following the March and April 2011 elections, the re- elected president, Yayi Boni, has the majority he needs to carry out the scheduled reforms. The country has also been able to maintain security at the national scale. According to the 2012 Mo Ibrahim Index, Benin ranked 10th out of 52 countries in Africa in the Safety & Rule of Law category. There was, however, some social tension in 2012, including a long teachers’ strike for higher wages. Economic activity also suffered from tensions in 2012 between the president’s office and an important economic operator who virtually controlled the two key sectors of the economy, namely cotton and port activities, which ended in the private sector’s breaching of PVI agreements on management of the cotton chain, something that Benin
  • 19. temporarily clouded relations between the government and private operators. Discussions resumed, however, following a round table in October 2012 on talks between the public sector and the private sector to revive the economy in Benin. Municipal and local elections in the first quarter of 2013 are expected to mobilise a good part of the country’s political leaders and population. 18 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Benin
  • 20. 19African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources Human development remains poor despite significant progress achieved in improving basic care and social services. According to the Human Development Report 2013, the composite Human Development Index (HDI) for Benin in 2012 came out at 0.436, below the 0.475 average in sub-Saharan Africa. The HDI did, however, rise slightly, reflecting efforts in education and health (free-schooling policy and an increase in health facilities). Education made significant progress in terms of access and enrolment. The gross enrolment rate in primary schools increased from 110.6% in 2010 to 111.5% in 2011, reaching the targets that had been set. The number of pupils in lower secondary school rose sharply and the number of students nearly doubled in recent years. Unfortunately, this quantitative progress has not come with improvement in quality and efficiency. The system has been stagnating in the rate of completion of primary education at around 64% over the past five years, against the 88% target, making it unlikely that Benin will reach MDG 2 on achieving universal primary education. In addition, the percentage of repeaters in primary education is still rising as a result of recurrent strikes and of underequipped classrooms. Five years into the implementation of its ten-year development plan for the education sector, Benin will upgrade the plan. Health in the country is marked by high morbidity, predominance of endemic and epidemic diseases and acute respiratory infections. There has been some improvement, however, in moving towards MDGs 4 and 5 on reducing child mortality and improving maternal health, respectively. Such progress has nonetheless been insufficient to meet these MDGs by 2015. In the area of combating priority diseases, the country is continuing its efforts, in particular through programmes to fight malaria and HIV/AIDS. The HIV/AIDS prevalence amongst pregnant women was stabilised below 2% in 2011, heralding that MDG 6 may be met. Nonetheless, frequent breaks in the supply of antiretroviral drugs and reagents are putting continuity of progress in this area at risk. Lifting the constraints weighing on the health sector therefore constitutes a major challenge for the country. These are mainly bad construction planning, inadequate infrastructure and equipment upkeep, and a decline in human and financial resources. Poverty Reduction, Social Protection & Labour Despite progress made in improving basic social services, the social situation is still marked by persistent poverty. Poverty has remained a major concern in Benin, where 36.2% of the population lived below the poverty line in 2011. Poverty is increasingly concentrated in cities, as the country’s high urbanisation rate has not been supported by an urban-management plan. The 2011-15 SCRP strategy is being implemented in compliance with the priority-action programme, which itself is consistent with the public-investment programme and allows the preparation of programme budgets. These, along with the implementation of monitoring, assessment and performance-reporting frameworks in all the ministries, are making significant progress in generalising RBM in Benin. In addition, implementation of priority social expenditure is a monitoring criterion under the economic and financial programme supported by the ECF. The rate of implementation of this expenditure was above 100% in 2012, after a low of 75% in 2011 due to technical and administrative difficulties in the relevant ministries. In terms of social protection, a good part of the population is still deprived of access to basic social services. About 10% of the population are covered by the existing formal social-security systems, while social-assistance programmes (aid to the indigent) and food programmes targeting children and persons affected by HIV/AIDS are poorly developed. The main challenge in Benin therefore remains to extend social security to those who do not benefit from it, i.e. more than 85% of the population. To this end, the government is working on the effective implementation of the universal health-insurance scheme that was officially launched in 2011 and aims to improve the population’s financial accessibility to quality health services and care. With regard to children’s rights, the government has ratified the conventions against child labour and signed several regulatory provisions and programmes to raise awareness to combat the trafficking of children. Notwithstanding, respect of children’s rights is still a challenge in Benin, which has become a hub for the trafficking of children in West Africa. Priority actions to ensure respect of children’s rights are defined in the 2011-15 SCRP strategy. These include integrating “child protection” focal points across the board in the ministries in charge of basic social services, implementing the national action plan against trafficking for child labour and setting up a fund for the protection of children and adolescents. Benin
  • 21. Gender Equality The government adopted a national gender-promotion policy in March 2009, which is intended to achieve equality and equity between men and women by 2025. Nonetheless, Benin still has many challenges ahead in this area. Inter alia, according the 2013 Human Development Report, the female-to-male ratio in the population with at least secondary education stood at 0.438 in 2012. The 2012 Mo Ibrahim Index also shows that in gender issues, Benin suffered a setback between 2009 and 2011, ranking 34th out of 52 countries in this area. In addition, gender inequalities are persistent in terms of access to resources and opportunities. Only 25% of the public-service workforce are women, and women occupy only 11.5% of positions with responsibility. The activity of women is developing mainly in the informal sector and is confined to trade and catering, where they hold about 80% and 90% of the jobs respectively. Women also face difficult access to bank loans for lack of collateral, so they constitute the majority of clients in microcredit institutions. As regards the protection of women, Benin introduced gender equality in its constitution in 1990 and has ratified many international and regional instruments, including the Convention Eliminating All Forms of Discrimination against Women. Focal points in charge of gender issues are appointed in all the ministries. 20 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Benin
  • 22. 21African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources The structure of the Beninese economy, which is poorly diversified and mainly agricultural, has not changed significantly over the past 20 years. It is dominated by agricultural production starting with cotton, its main export crop. But cotton production, which had yielded more than 400 000 tonnes a year in the early 2000s, fell to about 200 000 tonnes for the 2011/12 crop. There are three main reasons for this sharp decline in production: i) bad governance of the cotton chain compounded by falling cotton prices; ii) the pre-eminence of informal activities, which are 68% of the GDP and in which the majority of jobs are concentrated; and iii) the country’s heavy dependence on re-export trade to its neighbouring countries (50% of total exports), especially Nigeria, which weakens the Beninese economy. Although the country has enormous potential, especially in the agricultural sector, only 17% of the usable agricultural areas is exploited annually. Similarly, out of more than 205 000 hectares of available lowlands and 117 000 hectares of available flood plains, only 7 000 hectares are exploited. Regarding water resources, Benin has a large water network consisting of 2 000 hectares of rivers, 1 900 hectares of lakes and a lagoon system covering more than 2 800 hectares. Of the surrounding areas of this water system, 1 500 hectares have been developed for partial exploitation and there are 20 000 hectares of river banks that can still be used. The main agricultural products are cotton, cashews, pineapples and lumber. Cotton, however, is currently the only truly organised sector, generating about 8% of the GDP. Cashew nuts and timber, mainly exported to China and India, account for about 3% and 1% of exports respectively. Production of these two products went into accelerated development in the early 2000s thanks to foreign private investments that allowed small processing units to be introduced, and thanks to strong demand from India and China. In addition to the agricultural sector, Benin has mining resources including limestone, sand, granite and gravel. These resources are exploited primarily for the local market. Limestone, sand and granite are raw materials for cement factories and for enterprises producing building materials. Exploitation of lagoon sand was developed after the marine-sand quarries were closed in 2007, and this helped to attract some investment to the sector. Nonetheless, the contribution of mining to government revenues is low at approximately XOF 1 billion per year, i.e. 0.1% of government revenues. Benin is still at the exploration stage for fossil fuels, both oil and gas. Five companies have signed agreements with the government for more intensive exploration. The terms of these exploration contracts provide for revenue sharing as follows: for 100 barrels of oil, the government is to collect 10%, 70% to 75% are to be allocated to the repayment of exploration-related loans and 15-20% are to be shared between the company and the state. Once the bank loans are reimbursed, new terms for sharing are to be defined between the government and each company. The various oil-exploration operations have led to the identification of sites that could hold enormous potential for hydrocarbons, both onshore and offshore. These discoveries are all the more important that Benin exported crude oil until 1995, with production at 653.6 million barrels per year, before stopping its oil production in 1999 because the oil fields were exhausted. According to the Beninese hydrocarbons bureau, exploitation of these new sources could begin in 2013, with oil reserves currently estimated at around 5 billion barrels. The poor exploitation of Benin’s agricultural potential and natural resources has made it impossible to undertake a structural change in the economy. The country is facing significant obstacles to developing the exploitation of its natural resources: i ) dependence of the agricultural sector on the vagaries of the weather and non- management of water; ii) poor organisation of the supply chain for agricultural inputs, and little use of specific inputs and of adequate mechanised agricultural equipment; iii) absence of public funding to carry out further exploration of existing and new resources; iv) the advanced age of the infrastructure and services required for the exploitation of resources; v) low competitiveness of local firms, especially in the field of mining; vi) absence of a framework favourable to policy making; and vii) insufficiency of basic skills and lack of innovation in local industries. Seeking to remedy the weak exploitation and processing of natural resources, the Government of Benin has built its structural-transformation policy around a key strategy: modernising and diversifying agriculture, coupled with establishing value chains in agriculture and mining. To this end, several goals have been set to help these activity sectors: i) improvement of the business climate to attract investments; ii) establishment of an institutional and legal framework to facilitate PPPs for building and running major infrastructure projects; and iii) provision of appropriate services such as direct financing for physical infrastructure, support in finding refinancing, tax incentives, or consulting services on access to domestic, regional and international markets, to technology and to training of human resources. The government would also like to take advantage of the country's geographical position, in particular its access to the sea, to accelerate its strategic transformation. The medium-term objective is to turn Benin into a regional hub for trading and services with a high added value, complete with an upgraded and extended port infrastructure, a rehabilitated and lengthened railway system, newly built dry ports and a second deep-water port at Sèmè. Benin
  • 23. Burkina Faso 2013 www.africaneconomicoutlook.org Richard Antonin Doffonsou / r.doffonsou@afdb.org
  • 24. Burkina Faso Sections According to preliminary estimates, GDP growth in real terms in 2012 will be 8%, driven by a good harvest and a favourable international environment. A similar economic trend of 7-8% is projected for 2013, thanks to strong performances by the primary and tertiary sectors. Nevertheless, the possibility of climatic shocks, volatile commodity prices (oil, gold) and regional insecurity, resulting from the Mali crisis, pose a threat. The country is slowly recovering from the social crisis of 2011, and the fact that the joint general and local elections held in December 2011 took place without any major incidents is a positive sign of the normalisation of the social and political situation. In terms of social progress, poverty persists despite a decade of sustained growth and programmes for vulnerable groups. Most of the indicators of the Millennium Development Goals (MDGs) will be unachievable by 2015. The economy still depends heavily on agriculture, forestry and livestock farming as well as the exploitation of mineral resources. In addition to mining, which keeps growing year-on-year, the pressure of the 3.1% population growth (one of the highest in West Africa) on extensive farming creates a major risk of accelerated degradation of the environment in a context of recurring climatic vagaries. Overview The economic outlook for 2013 is good, with provisional forecasts predicting growth of 6.7% or higher, compared with 8.0% in 2012. Growth will remain in the 6-8% range thanks to the vitality of the primary and tertiary sectors, which are the driving forces of the economy. The primary sector is the cornerstone of Burkina Faso’s economy, driven by food crops (11.0% of GDP), cash crops (3.5% of GDP) and livestock (11.3% of GDP). These three sub-sectors influence the secondary and tertiary sectors. The primary sector’s strong vulnerability to climatic vagaries makes the pillars of Burkina Faso’s economy fragile. Gold production – the main pillar of the secondary sector – experienced a sharp slowdown in 2012, with negative growth of 0.7% compared with strong growth of 39.4% in 2011. This downturn was caused by delays in opening the Bissa Gold mine. Growth should pick up again in 2013, with production expected to increase by at least 10.4%. Inflationary pressures will be contained at 2.2% in 2013 (down from 3.6% in 2012), and therefore below the convergence of the Economic and Monetary Union of West Africa (UEMOA). Burkina Faso is involved in an economic-growth acceleration programme. It intends to implement a new growth model based around the growth poles, including the Bagré pole, the first of its kind. The aim is to ensure that natural resources are exploited efficiently, especially in the agricultural sector, by growing the value chain of certain promising sectors (livestock goods, fruit and vegetables, shea butter, sesame) through agribusiness to reduce the country’s dependence on gold and cotton. To enhance its competitiveness and promote intra- regional trade, Burkina Faso is also developing infrastructure to integrate roads, energy and information and communication technologies (ICTs). The political sphere in 2012 was marked by simultaneous municipal and general elections in December. The general election brought about a new distribution of roles between the opposition and coalition led by the President, which took a majority of seats (70 out of 127). However, it is a slim majority, which prevents the coalition from unilaterally removing the constitutional restriction (particularly Article 37) limiting the president to two terms of office. Political observers believe this constitutional matter will remain a major concern for the country’s short- and medium-term stability. In the midst of this, government measures taken in 2011 to tackle the social crisis have had mixed results. The Mali crisis presents a new threat that could damage social stability. The government is faced with three main political and economic challenges: rapidly resolving the Mali crisis, which could affect budgetary decisions, resulting in greater spending on security and defence (and consequently lower spending on other items); improving the functioning of institutions, especially the judicial system; and implementing good governance. Burkina Faso Sections According to preliminary estimates, GDP growth in real terms in 2012 will be 8%, driven by a good harvest and a favourable international environment. A similar economic trend of 7-8% is projected for 2013, thanks to strong performances by the primary and tertiary sectors. Nevertheless, the possibility of climatic shocks, volatile commodity prices (oil, gold) and regional insecurity, resulting from the Mali crisis, pose a threat. The country is slowly recovering from the social crisis of 2011, and the fact that the joint general and local elections held in December 2011 took place without any major incidents is a positive sign of the normalisation of the social and political situation. In terms of social progress, poverty persists despite a decade of sustained growth and programmes for vulnerable groups. Most of the indicators of the Millennium Development Goals (MDGs) will be unachievable by 2015. The economy still depends heavily on agriculture, forestry and livestock farming as well as the exploitation of mineral resources. In addition to mining, which keeps growing year-on-year, the pressure of the 3.1% population growth (one of the highest in West Africa) on extensive farming creates a major risk of accelerated degradation of the environment in a context of recurring climatic vagaries. Overview The economic outlook for 2013 is good, with provisional forecasts predicting growth of 6.7% or higher, compared with 8.0% in 2012. Growth will remain in the 6-8% range thanks to the vitality of the primary and tertiary sectors, which are the driving forces of the economy. The primary sector is the cornerstone of Burkina Faso’s economy, driven by food crops (11.0% of GDP), cash crops (3.5% of GDP) and livestock (11.3% of GDP). These three sub-sectors influence the secondary and tertiary sectors. The primary sector’s strong vulnerability to climatic vagaries makes the pillars of Burkina Faso’s economy fragile. Gold production – the main pillar of the secondary sector – experienced a sharp slowdown in 2012, with negative growth of 0.7% compared with strong growth of 39.4% in 2011. This downturn was caused by delays in opening the Bissa Gold mine. Growth should pick up again in 2013, with production expected to increase by at least 10.4%. Inflationary pressures will be contained at 2.2% in 2013 (down from 3.6% in 2012), and therefore below the convergence of the Economic and Monetary Union of West Africa (UEMOA). Burkina Faso is involved in an economic-growth acceleration programme. It intends to implement a new growth model based around the growth poles, including the Bagré pole, the first of its kind. The aim is to ensure that natural resources are exploited efficiently, especially in the agricultural sector, by growing the value chain of certain promising sectors (livestock goods, fruit and vegetables, shea butter, sesame) through agribusiness to reduce the country’s dependence on gold and cotton. To enhance its competitiveness and promote intra- regional trade, Burkina Faso is also developing infrastructure to integrate roads, energy and information and communication technologies (ICTs). The political sphere in 2012 was marked by simultaneous municipal and general elections in December. The general election brought about a new distribution of roles between the opposition and coalition led by the President, which took a majority of seats (70 out of 127). However, it is a slim majority, which prevents the coalition from unilaterally removing the constitutional restriction (particularly Article 37) limiting the president to two terms of office. Political observers believe this constitutional matter will remain a major concern for the country’s short- and medium-term stability. In the midst of this, government measures taken in 2011 to tackle the social crisis have had mixed results. The Mali crisis presents a new threat that could damage social stability. The government is faced with three main political and economic challenges: rapidly resolving the Mali crisis, which could affect budgetary decisions, resulting in greater spending on security and defence (and consequently lower spending on other items); improving the functioning of institutions, especially the judicial system; and implementing good governance. 24 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 25. 25African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932805004 http://dx.doi.org/10.1787/888932807987 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 4.4 8 6.7 6.8 Real GDP per capita growth 1.3 4.9 3.6 3.7 CPI inflation 2.8 3.6 2.2 2.1 Budget balance % GDP -1.4 -0.5 -1.5 -2.3 Current account % GDP -1.2 -3.5 -5 -4.4 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2% 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) BurkinaFaso
  • 26. http://dx.doi.org/10.1787/888932808975 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 32.7 33.7 Construction 6 4 Electricity, gas and water 1.2 0.9 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 6.2 5.5 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 11.1 7.5 Mining 0.5 12.9 Other services 2.4 2.1 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services - - Public administration, education, health & social work, community, social & personal services 22 17 Social services - - Transport, storage and communication 12.1 12.6 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 5.8 3.7 Wholesale, retail trade and real estate ownership - - Burkina Faso’s economy is slowly recovering from the social crisis that occurred in the first six months of 2011. The authorities believe the crisis affected the economy throughout 2012, making growth 0.5 percentage points lower than it should have been. However, thanks to good rainfall real GDP growth in 2012 is estimated to have almost doubled from 4.4% to 8.0%. The economy is dominated by the tertiary sector (43.2% of GDP). However, the vitality of the primary sector, which employs most of the workforce and contributed 31.3% to GDP in 2012, determines the rate of growth of the secondary and tertiary sectors. Cereal and cotton production still influence the economic activity of the cotton ginning, transport, trade and financial services. The fastest-growing sectors are agriculture (14.5% of GDP), the extractive industries (30.6% of GDP), livestock (11.3% of GDP) and trade (11.0% of GDP). These four sectors account for almost half of GDP. Thanks to better rainfall in 2012, agriculture performed well, growing by 23.7% (compared to the previous year's crops). These results have been achieved thanks to ongoing efforts by the government to support small farmers (distribution of higher quality seeds, provision of compost pits, farming equipment). Thanks to these 26 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 27. 27African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 efforts and adequate rainfall, cereal production grew by 8% in 2013. The cotton sector is also recovering from the internal crisis of 2011 thanks to government incentives for producers, including continued subsidies for agricultural inputs, a rise in prices paid to cotton producers to XOF 245 (CFA Franc BCEAO) per kg over the last two seasons, and the settlement of arrears owed to them. As a result of these incentives the area of planted land rose by an estimated 38%. Cottonseed production was estimated at 572 000 tonnes in 2012, a 38% rise on the 2011 figure. The upward trend in production should continue in 2013 and 2014, with annual growth of at least 5%. The main threats to this sub-sector will remain climatic shocks, a decline in international cotton prices and a big rise in the cost of inputs. The livestock sector should continue growing at an average rate of 3.8% a year in 2013, thanks especially to the ongoing vaccination initiatives, insemination and spread of a high-performance cattle breed and incoming animals belonging to Malian refugees. Mining (25.3% of GDP) forms the backbone of the secondary sector, and its strong growth is boosting all other sectors. Gold production was estimated at 32.4 tonnes in 2012, with seven of the country’s eight operational mines extracting gold. However, growth in the sector slowed considerably in 2012 to just 0.7% from 39.4% the previous year. This slump probably occurred because the reserves of some mines depleted and the Bissa Gold mine did not begin operations. The tertiary sector’s vitality was boosted by market services, especially trade, which recorded 9.2% growth in 2012. Market services will continue to grow strongly in 2013, benefiting from the knock-on effects of reforms to improve the business climate and events such as the Pan-African Film and Television Festival of Ouagadougou. But the security risk, marked by the crisis in Mali, will be the main risk to market services. On the demand side, growth in GDP in 2012 was mainly attributable to final consumption (81.3% of GDP) and investments. According to estimates, they respectively contributed 5.4 and 1.7 percentage points to growth. Foreign trade contributed very little to growth (0.1 percentage points) because the country relies so heavily on imports (petroleum products, food products and equipment linked to public investment). Final consumption grew by an estimated 11.1% in 2012, driven mainly by the private sector (63% of the total). Public consumption also grew by 14.8%, thanks to government aid to disadvantaged groups (social measures and support for Malian refugees), election costs and the cost of managing the 2012 food crisis. Investment growth of 6.7% in 2012 was helped by a 10.1% increase in private gross fixed-capital formation (GFCF). The outlook for 2013 and 2014 is positive. Growth should remain strong thanks to investment in infrastructure envisaged as part of the Strategy for Accelerated Growth and Sustainable Development (SCADD) and private consumption. Several major investment projects will continue: Donsin Airport, the Bagré Growth Pole, new roads under the Millennium Challenge Account and the electrification programme. Consequently, real GDP growth should remain strong, at 6.7% in 2013 and 6.8% in 2014. Burkina Faso’s economy has always been vulnerable to adverse climatic conditions (lack of rainfall), a drop in gold prices and a sharp rise in international oil prices. But now it is faced with a new threat in the shape of the Mali crisis. BurkinaFaso
  • 28. http://dx.doi.org/10.1787/888932809963 Macroeconomic Policy Fiscal Policy The government continued with an expansionary fiscal policy in 2012 as it tried to manage the effects of the 2011 social crisis while taking care of Malian refugees and vulnerable people affected by the 2012 food crisis. To ensure enough ressources are available to tackle these issues, staff costs rose by 13.7% in 2012. Social spending also increased sharply, from XOF 298.2 billion in 2011 to XOF 391.2 billion in 2012, as the government intensified its efforts to support the most vulnerable groups following the food crisis and the influx of refugees. This represents an increase of just over one percentage point over the previous year (from 6.2% to 7.3% of GDP). Subsidies for petroleum products are relatively low, amounting to less than 1% of GDP. The subsidies primarily focus on the price of hydrocarbons from the state electricity firm, the Société nationale de production et de commercialisation de l’électricité. To help contain subsidies for hydrocarbons the government raised the price at the pump by XOF 50 in 2012. Overall, current expenditure is estimated to have increased from 12.4% of GDP in 2011 to 13.2% in 2012. There was also a slight increase in total public expenditure in 2012, which rose to an estimated 23.6% of GDP from 22% in 2011. Government revenue, including donations, showed strong growth of 19% in 2012. Total revenue and donations, meanwhile, stood at an estimated 23.1% of GDP, up from 20.6% the previous year. Tax revenue surged by 22.7%, reaching 14.2% of GDP in 2012, up from 13.7% in 2011. This strong growth was fuelled by taxes on trade and international transactions, the tax on goods and services and income taxes. Non-tax revenue, meanwhile, could be up by 24.8% thanks to increased dividends and taxes on mining licences. Burkina Faso’s good overall performance for generating revenue stems from government measures to simplify and modernise the tax and customs system, combat fraud and forgery, strengthen the performance of tax-collection agencies, etc. However, the tax burden (14.2%) is still below the regional WAEMU criterion (17%). The low tax burden is largely explained by the size of the still-untaxed primary sector and the prevalence of the informal economy in the tertiary sector. The government’s cautious management policy helped reduce the overall budget deficit (commitment basis, including grants), which was reduced from 1.4% of GDP in 2011 to 0.5% in 2012. The deficit was financed by disbursements from the International Monetary Fund (IMF) under the Extended Credit Facility and the issue of bond loans on the WAEMU market. In the coming years, the budget deficit is likely to grow to 1.5% in 2013 and 2.3% in 2014. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 19.6 19.8 20.6 23.1 22.5 22.3 Tax revenue 12.5 12.7 13.7 14.2 14.3 14.1 Oil revenue 5.9 4.5 5 7 6.3 6.3 Grants - - - - - - Total expenditure and net lending (a) 24.3 22.7 22 23.6 24.1 24.6 Current expenditure 12.7 11.9 12.4 13.2 13.4 13.8 Excluding interest 12.2 11.4 11.8 12.7 12.9 13.3 Wages and salaries 5.8 5.5 5.5 6 5.8 6 Interest 0.4 0.5 0.6 0.5 0.5 0.5 Primary balance -4.3 -2.4 -0.9 0 -1 -1.8 Overall balance -4.8 -2.9 -1.4 -0.5 -1.5 -2.3 Figures for 2012 are estimates; for 2013 and later are projections. 28 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 29. 29African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932810951 Monetary Policy In the context of the fixed exchange rate of the CFA Zone, the region’s monetary policy in 2012 supported economic growth and price control. However, given the volatility of food prices and the direct and indirect impact of the XOF 50 rise in fuel prices at the pump, inflation rose to 3.6% in 2012, which is above the WAEMU target. In the event of a good harvest, inflationary pressures should subside in 2013 and 2014. From 2013 onward, inflation is expected to average at less than 2% a year, and therefore below the WAEMU threshold of 3%. The money supply grew by 11.3% in 2012, thanks to the 17.3% increase in credit to the economy. This trend is expected to continue in 2013 and 2014, growing by an average of 11.3% a year. Economic Cooperation, Regional Integration & Trade Burkina Faso is a member of nearly all West African institutions and is home to the WAEMU headquarters. For trade, WAEMU – of which Burkina Faso is a member – implemented a common external tariff to simplify trade and reduce tariff protection among member countries. There are four tariff bands: 0%, 5%, 10% and 20%. The average for Burkina Faso is less than 16%. The WAEMU tariff also includes a statistical fee (1%) and a community solidarity levy (1%). Cases of discriminatory domestic taxation are rare and temporary and there is no export tax. Nevertheless, prior authorisations are needed for certain imports (sugar, cement, etc.) and are not issued systematically. Burkina Faso is not very open to international and regional trade. Although it is a member of WAEMU and the Economic Community of West African States (ECOWAS) and is strategically located at the geographical centre of both organisations, Burkina Faso trades mainly with Asia and Europe rather than with its neighbours. Trade with other WAEMU and ECOWAS countries is limited to raw materials. Overall exports grew by 10.4% in 2012 thanks to growth in cotton and gold production. However, this growth was much lower than the 43.9% recorded in 2011. Exports fell slightly to 21.9% of GDP in 2012, down from 22.2% in 2011. Similarly, the current-account balance deteriorated in 2012, with the deficit having expanded from 1.2% of GDP in 2011 to an estimated 3.5%. There is a mixed outlook for 2013 and 2014, with the external deficit expected to widen in 2013 to 5.0% of GDP before contracting in 2014 to 4.4%. To improve foreign trade, the country will have to remove constraints on trading across borders and implement WAEMU community directives on the free circulation of goods and people. For cross border trade, the number of documents required for export and import transactions remains high at ten, compared to a sub- Saharan average of eight for exports and nine for imports. Costs per container are higher than the sub-Saharan African average, at USD 2 412 for export containers (compared to the average of USD 1 990) and USD 4 030 for import containers (compared to the average of USD 2 567). To facilitate trade within WAEMU, adjacent border posts have been set up at the borders with Ghana, Togo and Niger. The country should become more open over the next few years through exports in mining and agriculture (gold, manganese, cotton, sesame, etc.). The export share of GDP should thus remain at around 21.7% in 2013. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -9.4 -5.8 -1.6 0.2 -0.9 -1.4 -0.2 Exports of goods (f.o.b.) 10 10.8 17.6 22.2 21.9 21.7 23 Imports of goods (f.o.b.) 19.4 16.6 19.2 22 22.8 23 23.2 Services -4.7 -4.9 -5.9 -6.7 -7.4 -7 -7.4 Factor income -0.6 -0.1 -0.1 -0.1 0.1 0.1 0.1 Current transfers 3.9 6.2 5.5 5.3 4.6 3.3 3.1 Current account balance -10.8 -4.6 -2 -1.2 -3.5 -5 -4.4 Figures for 2012 are estimates; for 2013 and later are projections. BurkinaFaso
  • 30. http://dx.doi.org/10.1787/888932805004 Debt Policy The World Bank-IMF debt sustainability analysis of 2012 downgraded Burkina Faso’s long-term risk of debt distress from “high” to “moderate”. This improvement was mainly driven by strong growth in gold exports. Thus in 2012 all the indicators were below their respective critical thresholds. The ratio of net present value of debt to exports should continue to fall due to the positive effect of gold exports. In 2012 this ratio fell to an estimated 55.6%, from 56.1% in 2011. However, the debt distress rating could be upgraded if there is a reversal in the trend of commodity prices. It is also worth noting that in 2012 the country had no arrears in external-debt payments. The country's government has appointed a team responsible for debt management and macroeconomic policy. The debt data is readily available and the legal framework of public borrowing is clearly defined. In the past, government policy was to limit borrowing to concessional loans in which the grant share was higher than 35%. Since the country’s debt distress ranking was changed, the government is exploring new financing options to fund infrastructure projects with a high economic return. It is also currently drafting a bill on public–private partnership. Debt analysis and management skills still need improving. This could be achieved through technical assistance used to draw up a medium-term debt strategy and through training technicians responsible for analysing debt sustainability. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 5% 10% 15% 20% 25% 30% 35% Percentage 30 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 31. 31African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Economic & Political Governance Private Sector The private sector is dominated by the informal sector. Most businesses are very small or medium sized, and operate in retail or construction. Improving the business climate to attract investment remains a major challenge with much at stake. The current investment code helps streamline and control licensing requirements for most activities. This code provides accredited firms with various benefits, depending on the accreditation scheme, both in the investment phase and in the operational phase. Despite these benefits, small- and medium-sized companies struggle to take advantage of the opportunities available to them in a wide range of sectors, including agriculture, agribusiness, mining and tourism. Concerning the protection of shareholders’ rights, Burkina Faso’s legislation complies with the relevant legislation of the African Business Law Harmonisation Organisation (OHADA). However, this legislation has certain weaknesses, which are currently being examined. Thus, in the strength of investor protection index (where countries score between 0 and 10 according to how much protection investors receive), Burkina Faso has a relatively low score of 3.7 out of 10, which is below the sub-Saharan African average of 4.5 and the OECD average of 6.0. All in all, the business environment deteriorated slightly in 2012 according to the World Bank report Doing Business 2013. Burkina Faso slipped three places in the rankings from 150th to 153rd. For business start-up it also lost two places. The regulatory framework on competition in Burkina Faso is determined by national legislation. All public-sector bodies are free to make their purchases from any company. The private sector does not always respect the legislation, so in 2012 the authorities began to supervise market prices, especially for consumer goods. Over the next few years the government plans to focus on public–private partnerships (PPPs) to accompany the private sector in taking advantage of the opportunities the country has to offer. Legislation on PPPs is currently being drafted. Financial Sector The Central Bank of West African States (BCEAO) operates a strict monitoring policy. Banks generally complied with regional prudential ratios. Overall, Burkina Faso’s financial system is healthy, but five of the twenty financial institutions struggle to comply with the new minimum capital requirements (XOF 5 billion). In response, the government’s economic and social development fund has acquired a stake in each of the five banks to accompany them through until private partners are found. Despite a higher level of bank capitalisation, interest rates remain high, making the banks less competitive. The government thus continued implementing its development strategy for the financial sector in 2012. It also focused its efforts on micro-credit development to ensure wider access to financial services, setting up structures responsible for strategy and the action plan to promote microfinance and a better-regulated sector. The share of credit to the economy is improving, having risen from 19.8% of GDP in 2011 to 20.6% in 2012. This upward trend is set to continue in 2013, with the share reaching 21.7% of GDP. Public Sector Management, Institutions & Reform In 2012, Burkina Faso did not improve in the protection of property rights. The cost of recovering debts remains high, at 81.7% of the debt versus an average of 50% for sub-Saharan Africa. However, the time needed to recover debts (446 days) is shorter than the sub-Saharan African average (649 days). Government is fairly well structured, despite some overlaps of services. In 2012, parliament also created two commissions of enquiry: one on government procurement and one on subsidies to the health sector. Both commissions’ reports were made public. The state auditing authority (Autorité supérieure de contrôle de l’État) and the auditor-general’s office (Cour des comptes) also published their annual report. All these reports highlighted many areas of improvement inside the administration and cases of mismanagement. However, those found to have been involved in embezzlement are not always punished. Transparency International’s 2012 report ranks Burkina Faso 83 rd, a marked improvement on its 2011 rank of 100th. But there remains a perception of corruption as a result of cases of embezzlement revealed by a report by the chief auditor’s office commissioned by the prime minister. BurkinaFaso
  • 32. Governance is expected to improve in 2013 and 2014 and perceived corruption to diminish as a result of government determination to prosecute embezzlers. The prime minister announced that from 2013 anti- corruption measures will centre around four areas: creating laws and regulations; strengthening the independence of control bodies; making the judicial system competent; effective and independent; as well as educating the public and raising their awareness. No major changes were made in the area of decentralisation in 2012. Nevertheless, the local elections held in December 2012 should give new impetus to the decentralisation process. In 2012, only 2% of the national budget was transferred to local authorities. Natural Resource Management & Environment Environmental affairs in Burkina Faso are governed by the environment code, the forestry code, the mining code, the framework law on water management, the law on pastoral herding and the national policy on security of tenure in rural areas. The national environmental policy framework covers all the relevant fields. The policies and programmes currently being implemented are the national anti-desertification plan, which aims to ensure the sustainable management of natural resources, and the environmental plan for sustainable development. Given the need to adapt to climate change and strengthen the population’s resilience to climatic threats, the government has committed to formulating a national investment plan for the environment and sustainable development. The plan is currently in the process of being approved and will become the frame of reference for all actors involved in the environment and sustainable development sector. The investment plan is complemented by a national action plan and a sustainable land-management strategy adopted in June 2012. Thanks to the newly created Ministry of the Environment and Sustainable Development, the minimum human, institutional and financial capacities are now in place. Burkina Faso has ratified most international conventions on environmental issues. Legislation on environmental impact requires any development project to produce an environmental- and social- impact study. The government has also made the environment a factor that is taken into account in all sectoral strategies. However, the use of a number of dangerous products (cyanide, mercury) in the extractive industries and poor management of their environmental impact have given rise to much criticism from politicians and civilians alike. The public authorities therefore began a review of the mining code in 2011, which should make the mining industry improve its management of social and environmental issues. Political Context The wounds opened up by civil unrest in 2011 were treated in 2012. The joint general and local elections of December 2012 ran relatively smoothly, helping to restore social and political normality. The peaceful elections were deemed satisfactory by all political parties and the international community, despite a few minor disputes leading to cancelled votes at some polling stations. The results strengthened the ruling party, which claimed the majority of seats both in the National Assembly and in local councils. Apart from increasing its majority, the ruling party was hoping to achieve the two-thirds majority it would need to push constitutional changes through parliament. In the end the ruling party won 70 of the 127 seats available, and therefore will not be able to change the constitution unilaterally. The election also saw a redistribution of roles among the opposition parties. The main risks to the country’s stability are essentially political and security-related. Trouble could break out as a result of any changes to Article 37 of the Constitution, and insecurity could worsen in the Sahel as a result of the Malian crisis. 32 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 33. 33African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources The 2011‑15 SCADD passed in 2010 has been the frame of reference for government policy on human- resources development. The development priorities of the social sectors (health and education) are included in this strategy, which has been made operational through sector plans. In the health sector, the authorities have continued implementing the 2011‑20 national health-development programme, the healthcare system development-support programme and the national nutrition programme. Overall, progress in the sector in 2012 was satisfactory. The immunisation coverage rate is estimated to have exceeded 100% in 2012, and the percentage of healthcare and social-promotion centres that comply with the minimum staffing standards (nurses and midwives) increased from 77.35% in 2010 to 79.35% in 2012. Thanks to free antiretroviral therapy (ART) and ongoing awareness campaigns, major steps forward have been made in combating HIV/AIDS. The HIV-infection prevalence rate was thus reduced by 1.2% in 2012, and 83% of those with HIV received ART, compared to 79% in 2010. The weak link in the health system remains the fight against malnutrition. Although progress was made in 2012, underweight prevalence amongst children under five is still high (24.0% in 2012 compared with about 25.7% in 2010). In education, the authorities have continued to implement policies, action plans and initiatives geared towards reaching the goals of universal basic education, literacy and fair access to early-childhood development programmes. The authorities have also implemented policies to improve the level of technical and vocational education, which has had positive effects, increasing the gross enrolment rate (GER) from 79.6% in 2011 to 87.8% in 2012. Satisfactory progress made in these priority social sectors is the result of substantial government funding. In 2012, the share of the national budget allocated to these sectors is estimated at 12.0% for health (up from 11.4% in 2011) and 15.6% for education (up from 15.2% in 2011). However, the results show that Burkina Faso has still not made enough progress to achieve the MDGs by 2015. Poverty Reduction, Social Protection & Labour The government adopted a comprehensive strategy to promote protection and social awareness in 2012. It took measures to strengthen social safety nets, especially in the context of the food crisis. The government has just set up a sectoral framework to monitor this strategy, but the framework is not yet fully operational. To help those affected by the crisis, the government carried out a XOF 112 billion strategy involving the subsidised sale of cereals in areas affected by the food crisis. Despite a decade of efforts to help vulnerable groups, poverty persists. The latest survey on living conditions, conducted in 2009, revealed that poverty declined slowly between 2003 and 2009. Nationwide, poverty declined by 2.5 percentage points from 46.4% to 43.9%. In rural areas it declined by 1.6 percentage points from 52.3% to 50.7%. Gender Equality The authorities are committed to fighting inequalities between men and women. The government thus adopted a national gender policy in 2009. Also, a sector-level gender framework was introduced to ensure that the implementation of the gender policy is monitored. As part of the efforts to reduce gender inequalities in education, incentives were put in place for girls to enroll (free tuition and free school supplies). These efforts have already improved the percentage of girls enrolling in primary schools, bringing the GER for girls in 2012 to an estimated 86.1%, compared to an overall GER (girls and boys) of 87.8%. Measures have also been taken to improve healthcare. The rate of births assisted by qualified staff reached an estimated 79.35% in 2012, up from 77.35% in 2011, while the immunisation coverage rate for each antigen (BCG, DTP-Hep-Hb3, measles, yellow fever) is about 100%. Through its action plan, the government pays particular attention to violence against women. Such acts of violence are considered a serious crime and are heavily punished by the judicial system (such as cases of female circumcision or rape). More specifically, a fund is in the process of being set up to support action aimed at redressing gender inequalities. BurkinaFaso
  • 34. Thematic analysis: Structural transformation and natural resources Burkina Faso has significant natural resources. Eight industrial mines are currently operational. In addition to gold, the country has many other minerals it can exploit, such as nearly 20 million tonnes of manganese at Tambao. There is also bauxite at Kaya and Kongoursi, with a 1.5 million tonne capacity. The phosphate capacity is estimated at more than 63 million tonnes at Kodjari. The country also has copper, zinc, lead, iron, nickel and other minerals. The first private industrial mines emerged over the last decade. Gold exports totalled 31.7 tonnes in 2012, contributing the equivalent of XOF 862.2 billion in foreign currency in 2012. Gold helped increase the amount of foreign direct investment (FDI) in the country, from an average of XOF 3.8 billion between 1985 and 2002 to 37.8 billion between 2003 and 2012 (about ten times the amount). More than sixty international firms (Australian, Canadian, South African, etc.) are involved in exploration activities. In the coming years, gold exports are expected to rise substantially with the opening of new gold, zinc and manganese mines. Although its contribution is still relatively weak, the exploitation of natural resources is gradually helping transform the economy. In 2012, the exploitation of mining resources represented 12.5% of GDP, compared to less than 1% in 2005. The exploitation of natural resources still has a very limited impact on the economy as a whole, and even less of an impact on the local areas of the sites and the people living in those areas. Taxes and royalties must be paid for mining, and in 2012 the government collected XOF 188.69 billion,1 less than 20% of total government revenue. This mining revenue is injected straight into the national or municipal resources, and can be used for any budget stream. There is no specific mechanism to allocate resources obtained from gold. Production is exported without any local processing. Some local inputs are used in the production of gold. These include water, fuel, land, labour and technical services (geophysics, geochemistry and sampling). The technical services are often insufficient in terms of quality, quantity or both. In total, mining contributes to creating only 5,000 jobs, most of which are low skilled. The structural transformation of the economy remains slow. Gold and cotton are the main export products, accounting respectively for 69% and 18% of total exports in 2012. Other products with a strong potential include livestock products, fruits and vegetables, shea butter, peanuts and sesame. Very little processing of these products is done locally before export, although there are investment opportunities and possibilities to subcontract to local or foreign companies. Gold, for instance, is refined to 18 carats before export; all further refinement taking place outside Africa. Cotton is exported immediately after ginning. About 1% is used locally by the local spinning company. By-products (cottonseed cakes, oil, etc.) are used by other companies to produce animal feed and soap. Although exported raw, cotton has helped structure local economies. It has boosted trade and enabled a series of industries to develop, including oil mills and soap factories. Cottonseed cakes are an important food supplement for livestock and play an essential role in intensive livestock farming in Burkina Faso. Cotton farming has created more than 250 000 jobs, and almost 3 million people in Burkina Faso live directly or indirectly from the cotton industry. As a result of the cotton-sector crisis of the past five years, production has diversified somewhat towards cereals (maize), sesame and cowpeas. The government has recognised the need to strengthen policies to diversify and transform the economy by improving the value chains of agricultural, forestry and livestock products with a high potential. For this reason, as part of its SCADD adopted in late 2010 for the period 2011-2015, the government is focusing on creating growth poles. The Bagré pole is currently in the experimental phase. Gold production has reduced the country’s heavy dependence on a single export commodity (cotton). It has not resulted in “Dutch disease”, and therefore has not damaged agricultural production. Gold mining sites are supposed to be closed during the rainy season, so in theory mining complements agriculture. Nevertheless, sometimes fields are spoilt by gold prospecting. Schools are also deserted in certain areas where gold has been discovered. The main challenges for Burkina Faso in the area of natural resources are: Developing value adding services for natural resources: the country loses revenue because of the lack of skilled labour; Safeguarding production: the economy loses about 1.5 tonnes through fraud in artisanal mining; Improving information on mineral resources and the sector’s legal and regulatory framework. Gold is not a renewable resource, and revenue from this activity could be used to help local development by building infrastructure to improve road access and connections, and by fostering the enhancement of the value of agricultural, forestry and livestock products with a high potential. A special infrastructure fund that will collect contributions from the extractive industries could be set up to make the management of revenue from natural resources more transparent. This fund would serve to finance basic infrastructure for Burkina Faso’s future (paved roads, electrification, ICTs, railways).34 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 BurkinaFaso
  • 35. 35African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 of agricultural, forestry and livestock products with a high potential. A special infrastructure fund that will collect contributions from the extractive industries could be set up to make the management of revenue from natural resources more transparent. This fund would serve to finance basic infrastructure for Burkina Faso’s future (paved roads, electrification, ICTs, railways). Burkina Faso’s development prospects depend on the creation of adequate infrastructure, better youth training and competent monitoring and control systems. Burkina Faso also needs to intensify its research to grow its exploitable deposits and diversify its production of minerals (zinc, silver, lead, copper, manganese and limestone cement). Notes 1. However, in terms of quantities already produced, there is growing criticism of how little goes to the central and local authorities. The environmental impact and health and safety of some sites is also criticised. To help restore the environment, an environmental restoration fund was created in 2011, to which seven companies contributed around XOF 3 billion. BurkinaFaso
  • 36. Cape Verde 2013 www.africaneconomicoutlook.org Heloisa Marone / heloisa.marone@cv.jo.un.org Adalbert Nshimyumuremyi / a.nshimyumuremyi@afdb.org
  • 37. Cape Verde Sections Cape Verde remains a model for political rights and civil liberties in Africa, and its economic governance is sound despite unfavourable external factors and rising public debt levels. However, the country’s economic performance continues to be undermined by the economic and financial crisis around the globe, and in the euro area in particular. High unemployment, persistent inequality and rising living costs could lead to social instability. Overview The slowdown observed since the end of 2011 persisted in 2012, due to economic stagnation around the globe, and in the euro area in particular. Reduced foreign aid and sluggish foreign investment resulted in gross domestic product (GDP) growth dropping from 5.0% in 2011 to a projected 4.0% in 2012. Remittances inflows held up, however, and tourism did well. Tourism and ancillary activities remained the driving force of the economy in 2012, accounting for around 30% of GDP and 90% of total exports. Yet the deteriorating global economic outlook and the euro area sovereign debt crisis is likely to continue to weigh on Cape Verde’s economic performance. However large new public investments are expected to provide support to domestic demand and raise the GDP growth up to 4.8% in 2013. Over the medium term, the resumption of structural reforms will be critical if Cape Verde is to sustain the high growth rates of the past decade. Macroeconomic and fiscal management remained sound in 2012. Tighter fiscal policy and prudent monetary policy resulted in low inflation (2.5% in 2012 against 4.5% in 2011), an improvement in the external position and a recovery of international reserves to 3.8 months of imports in September 2012. Credit growth slowed considerably, however, reflecting sluggish demand and increased credit risks. The budget deficit equalled -7.3% of GDP. The government has already adopted corrective measures to improve revenue collection and scale back public investment in 2013. Cape Verde is still on track to achieve all the Millennium Development Goals (MDGs) by 2015, and remains a regional model of good governance, political rights and civil liberties. In spite of its past success, Cape Verde is facing challenges to keep growing at a sustainable and inclusive way. The country’s lack of non-renewable natural resources and poor conditions for agriculture keep it highly vulnerable to external shocks. Tourism, the main driver for economic growth, has successfully tapped into natural resources such as biodiversity, landscape and the environment. Hotels and restaurants, for instance, grew almost six times faster than the national economy between 2000 and 2010, accounting for almost 16% of GDP in 2010. Yet it supplied only 4.6% of all jobs in 2010, compared to 2.5% in 2000. The government of Cape Verde has therefore been seeking to promote a more balanced economic development. The Third Growth and Poverty Reduction Strategy Paper (GPRSP III), yet to be adopted, reflects the government’s attempt to address the country’s structural challenges and adapt the country’s development model to its new non-Least Developed Country (LDC) circumstances. Cape Verde Sections Cape Verde remains a model for political rights and civil liberties in Africa, and its economic governance is sound despite unfavourable external factors and rising public debt levels. However, the country’s economic performance continues to be undermined by the economic and financial crisis around the globe, and in the euro area in particular. High unemployment, persistent inequality and rising living costs could lead to social instability. Overview The slowdown observed since the end of 2011 persisted in 2012, due to economic stagnation around the globe, and in the euro area in particular. Reduced foreign aid and sluggish foreign investment resulted in gross domestic product (GDP) growth dropping from 5.0% in 2011 to a projected 4.0% in 2012. Remittances inflows held up, however, and tourism did well. Tourism and ancillary activities remained the driving force of the economy in 2012, accounting for around 30% of GDP and 90% of total exports. Yet the deteriorating global economic outlook and the euro area sovereign debt crisis is likely to continue to weigh on Cape Verde’s economic performance. However large new public investments are expected to provide support to domestic demand and raise the GDP growth up to 4.8% in 2013. Over the medium term, the resumption of structural reforms will be critical if Cape Verde is to sustain the high growth rates of the past decade. Macroeconomic and fiscal management remained sound in 2012. Tighter fiscal policy and prudent monetary policy resulted in low inflation (2.5% in 2012 against 4.5% in 2011), an improvement in the external position and a recovery of international reserves to 3.8 months of imports in September 2012. Credit growth slowed considerably, however, reflecting sluggish demand and increased credit risks. The budget deficit equalled -7.3% of GDP. The government has already adopted corrective measures to improve revenue collection and scale back public investment in 2013. Cape Verde is still on track to achieve all the Millennium Development Goals (MDGs) by 2015, and remains a regional model of good governance, political rights and civil liberties. In spite of its past success, Cape Verde is facing challenges to keep growing at a sustainable and inclusive way. The country’s lack of non-renewable natural resources and poor conditions for agriculture keep it highly vulnerable to external shocks. Tourism, the main driver for economic growth, has successfully tapped into natural resources such as biodiversity, landscape and the environment. Hotels and restaurants, for instance, grew almost six times faster than the national economy between 2000 and 2010, accounting for almost 16% of GDP in 2010. Yet it supplied only 4.6% of all jobs in 2010, compared to 2.5% in 2000. The government of Cape Verde has therefore been seeking to promote a more balanced economic development. The Third Growth and Poverty Reduction Strategy Paper (GPRSP III), yet to be adopted, reflects the government’s attempt to address the country’s structural challenges and adapt the country’s development model to its new non-Least Developed Country (LDC) circumstances. 38 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 38. 39African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932805061 http://dx.doi.org/10.1787/888932808044 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 5 4 4.8 5 Real GDP per capita growth 4 3 3.8 4 CPI inflation 4.5 2.5 2.4 2.5 Budget balance % GDP -7.5 -7.3 -8.9 -8.9 Current account % GDP -16.4 -14.1 -15 -16.4 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2.5% 0% 2.5% 5% 7.5% 10% 12.5% RealGDPGrowth(%) CapeVerde
  • 39. http://dx.doi.org/10.1787/888932809032 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2010 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 9.9 9.2 Construction 12.7 12.4 Electricity, gas and water 0.9 1.6 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 4.6 4.2 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 5.3 6.2 Mining 0.8 0.6 Other services 15.2 16.2 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services - - Public administration, education, health & social work, community, social & personal services 13.2 13.7 Social services - - Transport, storage and communication 18.9 17.4 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 18.6 18.5 Wholesale, retail trade and real estate ownership - - In 2012, Cape Verde’s economy was impacted by the weak international economic situation. GDP growth rate dropped to 4.0%. Foreign direct investment (FDI) decreased, mainly driven by the intensification of the crisis in many European countries. Official development assistance (ODA) also dropped, following the downward trend observed since Cape Verde’s graduation out of the group of LDCs. Tourism remained the main economic driver. Despite the weak global economy, the tourism sector remained strong and expanded by 23% in 2012, helping to compensate for some of the decline in FDI and ODA. However, tourism did not substantially contribute to job creation and did not support the expansion of other sectors. Structural reforms — such as a better organisation of local production of goods and services, the creation of a quality certification system for local products, and improvements in inter-islands transportation systems — are necessary for the dynamism in tourism to translate into broader economic benefits. Economic difficulties in Europe (mainly Portugal and Spain) will continue to have a direct and negative impact on the Cape Verdean economy. Cape Verde’s overwhelming reliance on the European economy will likely affect remittances, ODA, FDI, and external demand, forcing the authorities to maintain a tight fiscal policy. The 40 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 40. 41African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 country’s economic growth is therefore expected to remain below 5% in 2013. The European crisis, if it gets worse, could result in a decline in government revenues, even though the Millennium Challenge Account (MCA) will be introduced in 2013, contributing 31.7% of all projected ODA. Moreover, tax reforms in 2013 could affect tourism investment and increase the odds of tax evasion. Hence, the government’s projected revenues might be too optimistic, and public debt could in fact increase in 2013. The tertiary sector represents about 70% of GDP and is dominated by tourism and ancillary activities (transport, real estate and construction). Tourism, real estate, and construction is mostly driven by FDI, with tourism being mostly based on foreign-owned, all-inclusive resorts. Growth and diversification outside tourism remains limited. Agriculture accounts for less than 8% of GDP. It is estimated that favourable weather conditions and new dams led to an increase in agriculture production in 2012. However, agriculture remains a marginal sector of the economy. Although new irrigation infrastructure supported by public investment is currently under construction, it is expected that agriculture will continue to make a very modest contribution to GDP growth. The industrial sector is still modest but is forecast to be the fastest-growing part of the economy, averaging annual growth of 5% in 2013-14. This is largely due to the government's capital spending programme. Indeed, public investment will be an important driver of growth in 2013-14, as FDI is set to stagnate as a result of poor economic conditions in Europe — the main source of foreign investment into Cape Verde. Cape Verde is not well endowed in non-renewable natural resources. Its solar and wind potential, however, has led to expanding investment in renewable energy in recent years. The Cabeólica project, which involved the construction of four wind farms, was completed in 2012 and covers about 25% of the country's electricity needs. The project contributes significantly to achieving the government's ambition to reduce non-renewable energy to 50% of the country’s energy consumption by 2020. After the monetary tightening adopted by the Central Bank in December 2011, Cape Verde’s external position stabilised significantly during 2012. International reserves recovered to 3.8 months of imports in September 2012. In addition, the current account deficit declined, due to the resilience of tourism and remittances. CapeVerde
  • 41. http://dx.doi.org/10.1787/888932810020 Macroeconomic Policy Fiscal Policy Cape Verde’s fiscal stance has been tightened to respond to increasing budgetary pressure. The budget deficit is estimated at 7.3% of GDP in 2012. The simultaneous drop in tax revenues and donor grants, the ongoing expenditure demands of the government’s public investment programme and the limited space for further cuts in recurrent expenditures are responsible for the fiscal situation. Tax revenue reached only 19.9% of GDP in 2012. The tax-to-GDP ratio had steadily grown and peaked at 25% in 2008 but has been plunging since 2009. This is likely due to the inefficiency of the tax administration and to the increased share in GDP of some sectors, such as tourism, that benefit from tax incentives. To compensate for the revenue loss, the government scaled back its investment programme by 3% of GDP. Indeed, a mid-term review of the budget execution resulted in the cancellation of investment projects with a budgetary execution lower than 30% and in the reduction of capital expenditures financed by domestic resources. In addition, recurrent expenditures declined by 0.8% of GDP, with the government cutting purchases of goods and services and postponing salary increases and new recruitments. The Ministry of Finance and Planning (MFP) intends to raise the tax-to-GDP ratio to 25% in 2016 by reforming tax policy, tax procedures and tax administration. Some measures already included in the 2013 Budget Law are expected to boost tax revenues by about 2% of GDP (an increase of 18.5% compared to 2012). The changes include: i) the elimination of the 6% special rate on the value added tax (Imposto sobre Valor Acrescentado - IVA) for hotels and restaurants, which will now pay the regular rate of 15%; ii) the harmonisation of the IVA’s incidence tax base for electricity, water, oil, telecommunications and transport services; and iii) changes in the formula for computing the monthly withholding of the income tax (IUR). Authorities are aware that increasing the tax burden may harm investment, growth, equity, and price stability. For this reason, the reform will also seek to simplify and rationalise taxation to make it more business and investment friendly. On the expenditure side, the investment programme will be reviewed to identify projects that could be postponed or cancelled. Strict controls on recurrent spending will also be maintained. This adjustment is expected to stabilise the overall deficit to 6.7% of GDP in 2013. To cover the deficit, the government continues to favour foreign debt to finance major projects, prioritising concessional borrowing in euros. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 26.9 27.9 25.7 25 25.4 26.2 Tax revenue 18.9 19 20.2 19.9 19.8 19.8 Oil revenue - - - - - - Grants 5 6.3 2.9 2.5 3 3.8 Total expenditure and net lending (a) 32.7 38.5 33.2 32.4 34.3 35.1 Current expenditure 19.6 19.8 23.1 22.8 24.2 25.4 Excluding interest 18.2 18.2 21.5 21.2 22 22.8 Wages and salaries 10.9 11.7 10.6 10.5 10.3 10.1 Interest 1.4 1.6 1.5 1.6 2.2 2.6 Primary balance -4.5 -9 -6 -5.7 -6.7 -6.3 Overall balance -5.9 -10.6 -7.5 -7.3 -8.9 -8.9 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy 42 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 42. 43African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Monetary policy is constrained by the need to maintain the Cape Verde Escudo (CVE) currency peg to the euro. Measures to reduce inflation and stabilise foreign-exchange reserves have been in place since 2011. In 2012, interest rates and commercial banks’ reserve requirements were maintained at the levels set in December 2011. In addition, the central bank controlled the expansion of domestic credit to both the public and private sectors. Despite the recent increase in net external assets led by the recovery of international reserves, the money supply expanded only modestly. Indeed, loan conditions became more restrictive, and credit to the economy stagnated. The monetary aggregate M2 increased by only 2.4% in September 2012 year on year (compared to 3.6% in December 2011) as a result of the decline in the banking sector’s net credit to the government (10.1%) and the sharp slowdown in credit to the economy (from 11.8% in December 2011 to 2.9% in September 2012). The money supply in the narrow sense (M1), which signals the growth of money demand for transactions, declined in 2012. M1 decreased by 6.6% in September year on year, due to the reduction in currency in circulation (4.6%) and in demand deposits (7%). Meanwhile, interest-bearing deposits grew by 10.1%, primarily due to residents’ increased time deposits in domestic currency (10.1%) and emigrants’ deposits (9.2%). The growth of monetary and quasi-monetary liabilities suggests that consumers and business people are losing confidence in the economy, a behavior that is not alien to current financial constraints to private sector activity. Loans to non-financial companies and individuals stagnated in 2012, and effective interest rates on loans grew by 0.37 percentage points on average. Sluggish credit reflects the banks’ more careful evaluation of credit and liquidity risks. This caution is due to a rise in non-performing loans, the tight monetary policy, and macroeconomic risk aversion. Also due to tighter monetary conditions and the slowdown of economic activity, inflation fell from 4.5% in December 2011 to 2.5% in December 2012. A relatively benign inflationary outlook is expected in 2013, as economic growth will slow further and monetary policy will remain tight. A moderation in global oil prices will also ease pressure on prices, resulting in an average inflation rate of 2.4%. In 2014, consumer prices are expected to rebound to 2.5%, in line with upticks in economic activity and international oil prices. Any surge in global oil or food prices, however, would lead to a strong upward revision of this forecast. Economic Cooperation, Regional Integration & Trade Since 2007, Cape Verde has been part of a Special Partnership Agreement (SPA) with the European Union, which promotes co-operation in trade and investment. Cape Verde is seeking to reduce its economic dependency on Portugal, especially when it comes to FDI and tourism. The implementation of the second phase of the MCA also reflects closer economic ties with the United States. Cape Verde joined the World Trade Organization (WTO) in 2008. Cape Verde has also benefited from Growth and Opportunity Act (AGOA), and maintains a fishing agreement with Japan. It has begun to develop co-operation with China, and most recently, India. Although Cape Verde is member of the Economic Community of West African States (ECOWAS), commercial relations with the sub-region are still weak. The impact of all these agreements on exports, however, has been marginal, due to Cape Verde’s limited infrastructure and small industrial sector. About 90% of the country’s food is imported. The trade balance deficit increased from 45.7% of GDP in 2011 to 46.5% in 2012. Europe remains the largest trading partner, accounting for more than 80% of imports and 90% of exports. Tourism, a key source of revenue for the economy, grew by 23% in 2012. The current-account deficit therefore narrowed to -14.1% of GDP in 2012, compared to -16.4% in 2011. It is projected to increase to -15% in 2013. Current transfers declined, as ODA in the first three quarters of 2012 were 22% below the 2011 level. FDI dropped by 57% between 2011 and 2012. Italy, Spain, and Portugal contributed more than 70% of total FDI in 2011; during the first three quarters of 2012, their collective share had dropped to less than 26%. In contrast, 48.4% of FDI has originated from other non-EU countries, including non-traditional investors such as China. Most FDI still flows into the tourism sector, which absorbed 83.3 % of the total in the first three quarters of 2012, up from 68.9 % in 2011. http://dx.doi.org/10.1787/888932810020 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy CapeVerde
  • 43. http://dx.doi.org/10.1787/888932811008 Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -41 -39.5 -41 -45.7 -46.5 -47.6 -48.7 Exports of goods (f.o.b.) 6.2 5.4 8.1 11.4 12.1 11.5 11.1 Imports of goods (f.o.b.) 47.2 45 49.1 57.1 58.6 59.1 59.8 Services 3.4 9.4 12.4 14 18.2 19.2 20.1 Factor income -2 -2.5 -4.7 -4 -2.2 -2.1 -2.1 Current transfers 25.2 18.1 20.4 19.4 16.5 15.4 14.3 Current account balance -14.4 -14.6 -12.9 -16.4 -14.1 -15 -16.4 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy As a result of the increase in the public sector’s borrowing requirements, the total nominal government debt has increased by 5.6% to an estimated 81.0% of the GDP in 2012. The external debt represents 59.8% of the GDP although it is predominantly concessional. The domestic debt, contracted mostly from the non-banking sector, represents 21.2% of the GDP. Debt Sustainability Analysis (DSA) show that Cape Verde’s public debt should remain sustainable in the long term, but significant vulnerabilities persist in the short and medium term. Total public debt is forecast to keep increasing in 2013 and to peak at 92.2% of GDP in 2014. The debt burden is then projected to decline from 2015 onward, based on the twin assumptions of decreasing fiscal deficits and a long-term GDP growth rate of around 5% a year. Efforts to increase revenues and slow down the implementation of the public investment programme would substantially reduce Cape Verde’s vulnerability to macroeconomic shocks. Yet the country would remain vulnerable, even in a very favourable scenario of continuous access to concessional lending (which is arguably unrealistic given Cape Verde’s graduation to MIC status). The rapid increase in public debt expected over the next few years elevates the probability of debt distress from low to medium. Consequently, accelerating the process of budgetary consolidation would help slow the growth of the debt burden, reduce the government’s total financing needs over the medium term, and mitigate the likelihood of debt distress. Reducing fiscal deficits would also contribute to building resilience and reducing exposure to liquidity risks stemming from large financing needs and the prospect of unforeseen adverse macroeconomic shocks. The tax measures and scaling back of the public investment programme announced by the authorities are therefore expected to improve the government’s debt profile. Reforms in SOE’s oversight should also mitigate the risks coming from contingent liabilities. 44 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 44. 45African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932805061 Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 25% 50% 75% 100% 125% Percentage CapeVerde
  • 45. Economic & Political Governance Private Sector Cape Verde’s business environment has markedly improved thanks to the adoption of new or revised regulations. Key changes include the reforms adopted to facilitate Cape Verde’s admission to the WTO, as well as the simplification of business licensing, property registration and bankruptcy/liquidation procedures. These achievements made Cape Verde one of the top reformers in the World Bank reports Doing Business 2011 and 2012, with the country’s overall position rising from 142nd in 2010 to 121st in 2012. The slight drop in the 2013 ranking (to 122nd), however, highlights that further actions are required. To foster entrepreneurship, the government has created the Agency for the Development of Enterprises and Innovation (ADEI). Moreover, ADEI also has been promoting investments for small- and medium-sized enterprises (SMEs). Tax incentives have been introduced to promote private investment and encourage the consumption of some goods. These incentives, however, have resulted in significant fiscal pressure over the last few years. The government is therefore considering rationalising tax incentives to maintain fiscal revenues. Domestic and foreign investors often cite the rigidity of the labour market as a significant constraint. Labour regulations focus on the protection of the employees and, added to the slow pace of the legal system, impose a high cost on businesses. The rigidity of the labour market explains, in part, the high level of informality and the reliance on foreign workers in sectors such as construction. Financial Sector Cape Verde’s financial system suffers from a structural problem, which has resulted in credit rationing in 2012. High liquidity has not translated into lending, due to the high percentage of non-performing loans (around 10%), generally associated with investment in real estate. The lack of credit also occurred because of the low quality of applications. At the same time, the financial sector generally does not have the capacity to finance large projects, which have to be funded by international institutions. Besides commercial banks, the financial system in Cape Verde includes a stock market and insurances companies. Operations on the stock–exchange, however, have been limited in the past two years. Two companies (Garantia and Impar) control the small insurance market. The social security system is controlled by the National Institute of Social Security (INPS). The institution, created in 1954, is highly liquid and is a major lender to the government. INPS is also a stockholder in several state-owned enterprises such as Electra, a power utility. Public Sector Management, Institutions & Reform Cape Verde received the second-highest ranking for governance performance in the 2012 Ibrahim Index of African Governance, out of 52 countries. It came 1st out of 16 countries in West Africa. Transparency International’s 2012 Corruption Perception Index ranked Cape Verde as the second least-corrupt African country after by Botswana. Cape Verde’s ranking improved from 41st in 2011 to 39th out of 174 countries in 2012. However, the country still suffers from significant police corruption, mostly among border police. The implementation of Public Finance Management (PFM) reforms has made some strides, specifically in the areas of treasury banking and budget administration and planning. Significant challenges remain, however, particularly in the oversight of state-owned enterprises (SOEs) and the effectiveness of internal and external controls. Authorities have also identified tax administration and tax policy reforms as a priority. A public procurement legislative review has suffered some delays. However, new decrees should be submitted to the National Assembly during 2013. The third Growth and Poverty Reduction Strategy Paper (GPRSP-III) for the period 2012-16 is waiting to be approved by the government. The GPRSP-III focuses on competitiveness and sustainable, inclusive, and broad- based economic growth. The GPRSP-III identifies four reform areas: i ) overhauling the taxation system to increase the government’s ability to mobilise domestic resources; ii) reforming the labour code to reduce hiring and firing costs and make the labour market more flexible; iii) fostering human capital development by expanding technical and vocational training (TVET) and improving the quality of tertiary education; and iv) enhancing the service delivery by SOEs while fostering the participation of the private sector in the provision of infrastructure services. Reforms are already underway. A new tariff regulation model in the energy sector Economic & Political Governance Private Sector Cape Verde’s business environment has markedly improved thanks to the adoption of new or revised regulations. Key changes include the reforms adopted to facilitate Cape Verde’s admission to the WTO, as well as the simplification of business licensing, property registration and bankruptcy/liquidation procedures. These achievements made Cape Verde one of the top reformers in the World Bank reports Doing Business 2011 and 2012, with the country’s overall position rising from 142nd in 2010 to 121st in 2012. The slight drop in the 2013 ranking (to 122nd), however, highlights that further actions are required. To foster entrepreneurship, the government has created the Agency for the Development of Enterprises and Innovation (ADEI). Moreover, ADEI also has been promoting investments for small- and medium-sized enterprises (SMEs). Tax incentives have been introduced to promote private investment and encourage the consumption of some goods. These incentives, however, have resulted in significant fiscal pressure over the last few years. The government is therefore considering rationalising tax incentives to maintain fiscal revenues. Domestic and foreign investors often cite the rigidity of the labour market as a significant constraint. Labour regulations focus on the protection of the employees and, added to the slow pace of the legal system, impose a high cost on businesses. The rigidity of the labour market explains, in part, the high level of informality and the reliance on foreign workers in sectors such as construction. Financial Sector Cape Verde’s financial system suffers from a structural problem, which has resulted in credit rationing in 2012. High liquidity has not translated into lending, due to the high percentage of non-performing loans (around 10%), generally associated with investment in real estate. The lack of credit also occurred because of the low quality of applications. At the same time, the financial sector generally does not have the capacity to finance large projects, which have to be funded by international institutions. Besides commercial banks, the financial system in Cape Verde includes a stock market and insurances companies. Operations on the stock–exchange, however, have been limited in the past two years. Two companies (Garantia and Impar) control the small insurance market. The social security system is controlled by the National Institute of Social Security (INPS). The institution, created in 1954, is highly liquid and is a major lender to the government. INPS is also a stockholder in several state-owned enterprises such as Electra, a power utility. Public Sector Management, Institutions & Reform Cape Verde received the second-highest ranking for governance performance in the 2012 Ibrahim Index of African Governance, out of 52 countries. It came 1st out of 16 countries in West Africa. Transparency International’s 2012 Corruption Perception Index ranked Cape Verde as the second least-corrupt African country after by Botswana. Cape Verde’s ranking improved from 41st in 2011 to 39th out of 174 countries in 2012. However, the country still suffers from significant police corruption, mostly among border police. The implementation of Public Finance Management (PFM) reforms has made some strides, specifically in the areas of treasury banking and budget administration and planning. Significant challenges remain, however, particularly in the oversight of state-owned enterprises (SOEs) and the effectiveness of internal and external controls. Authorities have also identified tax administration and tax policy reforms as a priority. A public procurement legislative review has suffered some delays. However, new decrees should be submitted to the National Assembly during 2013. The third Growth and Poverty Reduction Strategy Paper (GPRSP-III) for the period 2012-16 is waiting to be approved by the government. The GPRSP-III focuses on competitiveness and sustainable, inclusive, and broad- based economic growth. The GPRSP-III identifies four reform areas: i ) overhauling the taxation system to increase the government’s ability to mobilise domestic resources; ii) reforming the labour code to reduce hiring and firing costs and make the labour market more flexible; iii) fostering human capital development by expanding technical and vocational training (TVET) and improving the quality of tertiary education; and iv) enhancing the service delivery by SOEs while fostering the participation of the private sector in the provision of infrastructure services. Reforms are already underway. A new tariff regulation model in the energy sector 46 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 46. 47African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 was introduced in 2012 as well as institutional reforms in the public energy utility, ELECTRA. In addition, authorities have finalised the tax reform package that includes the rationalisation of incentives. Changes in the corporate income tax legislation have been submitted to Parliament in December 2012. Further reforms are expected in 2013 to streamline the Value Added Tax (VAT) legislation. Natural Resource Management & Environment Cape Verde has made important strides toward achieving Millennium Development Goal (MDG) 7, in particular regarding the increase in the proportion of the population with access to safe drinking water (from 42% in 1990 to 89.5% in 2007). The country’s adverse climate conditions, coupled with with its geomorphologic, social and economic conditions, put severe strain on the already limited and fragile natural resources and ecosystems, increasing the risks of environmental degradation and poverty. In the last decade, there have been significant efforts to strengthen environmental protection including the protection of endemic species and critical habitats. The legal framework for the environmental sector in Cape Verde is broad and thorough. However, there are still challenges for improving environmental governance, which include sector specific regulations and enforcement, as well as strengthening institutional capacities while promoting the participation of the civil society and local communities in natural resources conservation. The lack of a clear institutional framework for the water sector and sanitation has been a significant challenge for integrated management of water resources and solid waste. The country is responding to this challenge and institutional reform is underway. Regarding climate change mitigation and adaptation, Cape Verde has made tremendous progress in the reduction of emissions of greenhouse gases and in taking adaptive developmental measures. For instance the renewable energy projects completed in 2012 reduced CO2 emissions by 15 000 tonnes. By 2020, the country plans to have 50% of the energy mix covered by renewable energy sources. Political Context Cape Verde continues to be a model of political rights and civil liberties in Africa. Ethnic strife, which is a major cause of instability elsewhere on the continent, is unlikely given the country's relative homogeneity. During the last decade, five presidential and legislative elections have been held in Cape Verde, all marked by a peaceful transition of power between the two major parties in the country: the African Party for the Independence of Cape Verde (Partido Africano da Independencia de Cabo Verde - PAICV) and the Movement for Democracy (Movimento para a Democracia - MPD). PAICV won parliamentary elections in February 2011, and the opposition MPD won the presidency in August 2011. Both polls were considered credible and fair by international observers. Municipal elections held in July 2012 resulted in the opposition MPD controlling 13 municipal councils (up from 11 in 2008), and the ruling PAICV holding eight (down from 10 in 2008). The two parties have been fighting over the shape of 2013 budget, especially the programme to raise taxes on water and electricity. However, the cohabitation is peaceful and seems unlikely to pose any problems in the future. With national elections not due until 2016, the government now has an opportunity to devote renewed attention to structural reform, the implementation of which was delayed by the parliamentary, presidential and municipal elections held in 2011-12. CapeVerde
  • 47. Social Context & Human Development Building Human Resources Cape Verde’s 2011 Human Development Index (HDI) of 0.568 was below the average of 0.630 for countries in the medium human development group but above the average of 0.463 for countries in sub-Saharan Africa. The literacy rate among the 15-24 year-olds is close to 96%, and there are no clear disparities between boys and girls or between income levels. Secondary school remains a challenge because of high dropout rates, especially among boys. Whereas almost all children aged 6 to 11 were attending school in 2009-10, more than 30% of 17- year-olds were out of the school system. High dropout rates have been associated with the direct costs of going to school (transportation, books, and fees). The quality of education varies significantly and can be quite poor. Enrollment in tertiary education is estimated to be close to 13 times higher for the highest income groups (quartiles five and four) when compared to the lowest income groups (quartiles one and two). Child mortality has retreated thanks to a strict immunisation policy. The under-five mortality rate dropped significantly from 56% in 1990 to 23.7% in 2009, edging closer to the MDG target of 18.7%. Infant mortality has also improved to about 20% in 2009 (the MDG target is 14%). Evidence suggests that 15% of children under the age of one die of infections and parasites, which calls for improvement in the water and sanitation system and public health education. The maternal mortality rate fluctuates significantly because of the small size of the population. In 2009, the mortality rate reached 53.7 per one hundred thousand deliveries, substantially above the MDG target of 17.3% and the much lower rate of 16.2% recorded in 2007. In absolute terms, however, seven women died of pregnancy-related causes in 2009, compared to two in 2007 and in 2008. The proportion of births attended by skilled health professionals dramatically improved from 36% in 1998 to 76% in 2009. However, post-natal visits remain very low and a concern: more than 50% of mothers did not visit doctors after giving birth in 2009. The incidence of HIV/AIDS is relatively low (0.8% of the population) but the number of people infected with HIV rose steadily from 114 in 2000 to 319 in 2009. This can partly be explained by the increase in the number of people getting tested for the disease. The number of people dying of AIDS, while relatively small, has more than doubled between 2000 and 2009. The third national strategic plan against AIDS was launched in 2011 and primarily focuses on vulnerable groups. Poverty Reduction, Social Protection & Labour Recent poverty estimates are not available because of lack of data on income and consumption. According to the 2007 household survey, national poverty rates dropped significantly from 49% in 1990 to 26.6% in 2007. Progress has been uneven, however. Recent work based on the 2010 Demographic Census indicates that poverty rates on islands with the best tourism infrastructure, Sal and Boa Vista, are less than half of the national average. Meanwhile, poverty incidence in largely rural islands with limited tourism infrastructure such as Fogo and Santa Antão are well above the national average. Similarly, whereas poverty in urban areas dropped from 25% to 13.2 % between 2002 and 2007, poverty in rural areas improved only from 51.1% to 44.3%. Even if Cape Verde is on track to achieve all the targets of the MDGs by 2015, significant challenges remain. The Human Development Index stood at 0.568 in 2011, ranking Cape Verde 113th out of 169 countries. Over the 2000-11 period, the rating progressed by only 0.6% a year on average. The slow progress challenges the Government to redouble its efforts to improve the population's standard of living. Although planning documents, including the GPRSP, adopt an inclusive approach to growth, they do not present a clear plan to integrate poverty reduction, social protection, and job creation with the economic growth strategy. Authorities largely consider poverty reduction and job creation as likely positive outcomes of economic growth. The evidence, however, contradicts this assumption. Cape Verde is seeking to reform social protection as part of the country’s efforts to build a more inclusive strategy for economic growth. Preliminary analysis of the current social protection system, which include a pension system, health, education, and nutrition programmes, indicates that programmes, objectives and implementing agencies are highly fragmented and poorly co-ordinated.1 While there is a general understanding of socio-economic risks to the population,2 there is little systematic information on vulnerabilities and on factors that exacerbate the risks associated with the intergenerational transmission of poverty. The existing social protection framework has therefore a limited ability to address the country’s main socio-economic challenges in a systematic way. Another issue of concern is unemployment among the youth, who account for 50% of the working-age population. The 2010/11 fiscal recovery plan helped to scale unemployment down from 13.1% in 2009 to 10.7% 48 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 48. 49African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 in 2010. Yet unemployment rose again to 12.2% in 2011, and the plan did not create enough first-job opportunities for young workers. An estimated 20.1% of 15-to-24 year olds were unemployed in 2010, rising to 27.1% or more than twice the overall average in 2011. High unemployment, persistent inequality and rising living costs could lead to social instability. Gender Equality Gender equality remains a challenge, despite significant progress in recent years. Although the share of seats in national parliament held by women has almost doubled since 2005, it remains low at around 21%. Since it was introduced in 2005, a survey on sexual and reproductive health has contributed significantly to gathering information about gender-based violence and to the increase in social campaigns and awareness against that type of violence. Gender disparities in unemployment rates, especially between young men and women, also indicate an uneven access to resources. More than a third of women aged 15-24 were unemployed in 2011, well above the overall unemployment rate of 12.2% and the 22.1% recorded for men in the same age category. Access to jobs for women in Cape Verde is especially important to further reduce poverty, considering that households headed by women tend to be one and a half times more likely to be poor than those headed by men. Gender is often mentioned in official strategic documents, including the GPRSP. Yet concrete policy actions that directly seek to create a better gender balance or mitigate gender disparities remain limited. CapeVerde
  • 49. Thematic analysis: Structural transformation and natural resources Cape Verde lacks non-renewable natural resources and therefore does not export energy or hard commodities. Extractive industries accounted for less than 1% of GDP in 2007-10, and the country relies heavily on fuel imports. The country’s marine potential remains largely untapped. Whereas fisheries provided more than three quarters of total exports in 2010, the sector is relatively small in the Cape Verdean service-driven economy and accounted for only 1% of GDP that year.3 The country’s lack of sizable arable land and dry climate make it unsuitable for large-scale agriculture, and about 90% of the food it consumes is imported. The dry climate also means that a lot of the water for irrigation and national private consumption comes from oil-fueled desalination plants. Cape Verde, however, has capitalised on its biodiversity and landscape through the development of tourism, which has become the country’s economic engine. A recent study estimates that natural resources in a broad sense contribute about 35% of GDP, about half of which comes from tourism. However, the study points out that this contribution could reach more than 56%, if losses from environmental degradation were avoided and potential gains from natural resources exploitation, such as the promotion of eco-tourism, were maximised. The largest loss from degradation comes from beach sand extraction for construction, which costs the country 4% of GDP. While more attention has been given to the problem since 2009, sand extraction from beaches and saline intrusion in farmlands persist (PEMFAR 2011). In addition, about a third of Cape Verde’s precious rainwater goes unharvested every year. 4 The country, on the other hand, has been successfully harnessing its wind and solar potential, thereby reducing its dependence on oil-fueled stations. Renewable energy penetration was estimated at 25% in 2012, up from only 3% in 2009 (PEMFAR 2011). The development of tourism has underpinned Cape Verde’s process of economic and social transition in the last few decades, which culminated in the country’s graduation out of the LDC category in 2008. The economy grew by an average of about 6% in real terms over the decade ending in 2010, despite the sharp decline recorded in 2008 and in 2009, a result of the global economic and financial crisis. Limited available data suggests that the hotels and restaurants sector increased its contribution to growth significantly: between 2006 and 2007, this sector contributed the most, about 30%, to the country’s growth followed by the trade sector (23%). This is in contrast to the average contribution of less than 5% during 1992-2002 and of about 14% during 2003-06. Yet tourism’s substantial contribution to economic growth has failed to translate into a significant change in the structure of employment in the country: hotels and restaurants accounted for about 4.6% of total jobs in 2010, only 2.1 percentage points higher than in 2000. The nature of Cape Verde’s tourism partly explains why such a dynamic sector has had little impact on job creation. Investment in all-inclusive hotels has been the most dynamic feature of the sector in recent years. About 76% of tourist beds in Cape Verde are concentrated in all-inclusive hotels and on two of the nine inhabited islands. This model of tourism, however, generally has little impact on local development because its value chain tends to be controlled and managed by foreigners, with limited local involvement. Most profits are funneled abroad (see, for instance, Akama and Kieti 2007 in their study of the Mombasa resort in Kenya that also discusses similar dynamics in Cape Verde). Indeed, the total repatriation of profits increased substantially (more than 23 times) between 1999 and 2010, suggesting that the positive impact of higher foreign investment was mitigated by significant financial outflows. Profits repatriated in 2010 were equivalent to 42% of goods exports and to about half of incoming remittances. While it is not possible to determine from available data how much of these outflows are directly associated to tourism-related sectors (including construction), the high correlation between unprecedented outflows of profits and growth in these sectors suggests that the all- inclusive model of tourism generates high leakage rates and narrow economic benefits. Notes 1. ILO Report “A Proteção Social em Cabo Verde: situação e desafios”, 2012 2. “Estratégia Para o Desenvolvimento da Proteção Social de Cabo Verde” 3. “Boletim de Estatísticas 20 anos,” Cape Verde Central Bank, accessed in 13 September 2012 and GDP 2007- 2010 data, INE 2013, www.ine.cv/actualise/destaques/files/53d5516d-527a-4971-b408- a56fb67aaad5Contas%20Nacionais_2007-2010_VF.pdf, accessed on January 30 2013 4. Public Expenditures Management and Financial Accountability Report (PEMFAR) in the Environment Sector in Cape Verde, 2011 50 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 CapeVerde
  • 50. Côte d’Ivoire 2013 www.africaneconomicoutlook.org Daniel Ndoye / d.ndoye@afdb.org
  • 51. Côte d’Ivoire Sections Thanks to a return to political, social and institutional normality and efforts to rebuild and rehabilitate basic infrastructure, economic activity picked up, with growth estimated at 8.6% in 2012, expected to reach 8.9% in 2013 and 9.8% in 2014. If these growth rates are to be achieved the process of national reconciliation and social cohesion will need to be strengthened, and reforms to improve the business climate accelerated so the private sector can act as a driver of the revival of the economy. The country needs to take full advantage of its natural resources to maintain this momentum both by increasing the share of its agricultural products that are processed and by strengthening its institutional and and human capabilities and making more transparent the management of its fossil-fuel and mineral resources. Overview Economic activity after the post-election crisis was more vigorous than expected. The return of confidence among economic actors in the aftermath of the normalisation of the security situation and increased peace efforts was accordingly confirmed. After a fall of -4.7% in 2011 real gross domestic product (GDP) registered growth estimated at 8.6% in 2012, driven by public investment and the pick-up in final consumption. In the medium term the implementation of the National Development Plan (PND) 2012-15 should put the country back on the trajectory of inclusive and sustainable growth. GDP is forecast to grow in 2013 and 2014 at 8.9% and 9.8% respectively, sustained by the recovery of oil and gas production and by a rise in investment prompted by a better business climate and a strengthening of public-private partnerships. As a result of efforts to revive the economy the overall budget deficit deepened in 2012. For the first time in five years the external current account recorded a deficit. Nevertheless the satisfactory execution of the 2011- 14 economic and financial programme, backed by the Extended Credit Facility (ECF) of the International Monetary Fund (IMF), enabled the country to reach the completion point of the Highly Indebted Poor Countries (HIPC) Initiative in June 2012 and to benefit from a substantial cut in its external debt. Inflation also returned to below the 3% level set at community level. On the political front the country saw notable progress in institutional, social and political, security and human rights normalisation. To fortify the recovery and ensure sustainable growth Côte d’Ivoire needs to continue its efforts in terms of structural transformation by taking full advantage of its considerable natural resources. In this respect, several obstacles hampering the sustainable management of natural resources need to be overcome. These are the weakness of the links between the companies exploiting the resources and the other sectors of the economy, and inadequate transparency in natural resources management and contracts relating to the sharing of production between the government and the oil companies. The country also enjoys a strong agricultural potential as the world’s biggest producer of cocoa. An increase in the rate of processing of agricultural production, which varies between 2% and 27%, should be a priority objective for the authorities in the years ahead. Côte d’Ivoire Sections Thanks to a return to political, social and institutional normality and efforts to rebuild and rehabilitate basic infrastructure, economic activity picked up, with growth estimated at 8.6% in 2012, expected to reach 8.9% in 2013 and 9.8% in 2014. If these growth rates are to be achieved the process of national reconciliation and social cohesion will need to be strengthened, and reforms to improve the business climate accelerated so the private sector can act as a driver of the revival of the economy. The country needs to take full advantage of its natural resources to maintain this momentum both by increasing the share of its agricultural products that are processed and by strengthening its institutional and and human capabilities and making more transparent the management of its fossil-fuel and mineral resources. Overview Economic activity after the post-election crisis was more vigorous than expected. The return of confidence among economic actors in the aftermath of the normalisation of the security situation and increased peace efforts was accordingly confirmed. After a fall of -4.7% in 2011 real gross domestic product (GDP) registered growth estimated at 8.6% in 2012, driven by public investment and the pick-up in final consumption. In the medium term the implementation of the National Development Plan (PND) 2012-15 should put the country back on the trajectory of inclusive and sustainable growth. GDP is forecast to grow in 2013 and 2014 at 8.9% and 9.8% respectively, sustained by the recovery of oil and gas production and by a rise in investment prompted by a better business climate and a strengthening of public-private partnerships. As a result of efforts to revive the economy the overall budget deficit deepened in 2012. For the first time in five years the external current account recorded a deficit. Nevertheless the satisfactory execution of the 2011- 14 economic and financial programme, backed by the Extended Credit Facility (ECF) of the International Monetary Fund (IMF), enabled the country to reach the completion point of the Highly Indebted Poor Countries (HIPC) Initiative in June 2012 and to benefit from a substantial cut in its external debt. Inflation also returned to below the 3% level set at community level. On the political front the country saw notable progress in institutional, social and political, security and human rights normalisation. To fortify the recovery and ensure sustainable growth Côte d’Ivoire needs to continue its efforts in terms of structural transformation by taking full advantage of its considerable natural resources. In this respect, several obstacles hampering the sustainable management of natural resources need to be overcome. These are the weakness of the links between the companies exploiting the resources and the other sectors of the economy, and inadequate transparency in natural resources management and contracts relating to the sharing of production between the government and the oil companies. The country also enjoys a strong agricultural potential as the world’s biggest producer of cocoa. An increase in the rate of processing of agricultural production, which varies between 2% and 27%, should be a priority objective for the authorities in the years ahead. 52 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 52. 53African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932805175 http://dx.doi.org/10.1787/888932808158 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth -4.7 8.6 8.9 9.8 Real GDP per capita growth -6.8 6.5 6.7 7.5 CPI inflation 4.9 2.1 2.2 2.3 Budget balance % GDP -1.8 -3.5 -4 -3.1 Current account % GDP 6.7 -3.3 -3.8 -1.9 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -7.5% -5% -2.5% 0% 2.5% 5% 7.5% 10% 12.5% RealGDPGrowth(%) Côted’Ivoire
  • 53. http://dx.doi.org/10.1787/888932809146 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 26.1 30 Construction 4.9 6 Electricity, gas and water 2.6 2.7 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 12.5 11.2 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 12.9 13.1 Mining 6.8 4.7 Other services 0.3 0.3 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 14.6 13.6 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 14.8 14.7 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 4.5 3.8 Wholesale, retail trade and real estate ownership - - Helped by a return to social and political normality, economic activity picked up vigorously in 2012, with growth in GDP of 8.6% compared with a drop of 4.7% in 2011. On the supply side this growth was sustained by a rise in activity in the main sectors of the economy and on the demand side by an increase in public investment and the recovery of household consumption. Primary sector production, which accounts for 30% of GDP, recorded growth of 0.7%, in 2012, a clear slowdown compared with 2011 when it grew by 4.8%. This was due to poor performance by export crops and mineral extraction. The drop in cocoa production, following a period of dormancy, accounts for the drop in agricultural exports while the fall in mining products of 6.1% is explained by the drop in oil and gas production, arising from natural depletion and the closing of some wells for work to be done on them. However, production of crops rose by 3% and of gold by 20.5% thanks to good rainfall, the use of improved seeds and the full-time activity of the Tongon mine. The secondary sector, which represents 22% of GDP, experienced a drop in activity of 7.4% in 2011, but recovered in 2012, growing by 14.8%. This was the result of the good performance of: i) agro-industry linked to 54 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 54. 55African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 a rise in national and sub-regional demand; ii) building and public works involved in the completion of socio- economic infrastructure; iii) oil products following the resumption of activity by the Société ivoirienne de raffinage; and, iv) the energy sector due to intensified industrial activity and continued rural electrification. The tertiary sector accounts for 48% of GDP and grew by 14.1% in 2012, driven by transport and trade. The transport sub-sector benefited from the improved security environment and the good performance of maritime transport as imports picked up. Trade had the return of household confidence and the recovery of exports to thank for its vigorous showing. On the demand side growth was chiefly driven by investment, which recorded progress of 9.5% in 2012, thanks to the construction and rehabilitation of socio-economic infrastructure by the government and the renewal of production equipment in the private sector. Final consumption also recovered under the effect of rising revenues and a general resumption of confidence among economic actors. Nevertheless the positive contributions to growth made by investment and final consumption were to some extent offset by the performance of foreign trade (-5.2%) as a result of a rise in imports prompted by strong demand for intermediate goods and equipment. The recovery of the country’s economy should be consolidated in 2013 and 2014 with real GDP growth rates forecast at 8.9% and 9.8%, respectively. But these macroeconomic prospects depend upon a series of conditions being satisfied. They include: a favourable international economic environment; sufficient mobilisation of external finance to implement the National Development Plan; and, the absence of acute sociopolitical upheavals and a marked improvement in the security situation. The recovery in oil and gas production, combined with higher gold production and the continuation of reforms to improve the business climate, the encouragement of private investment and strengthening of public-private partnerships (PPP) will be major elements in helping growth in 2013 and 2014. Moreover, growth should continue to be driven by a rise in investment (of 9.2% in 2013 and 11.1% in 2014) as a result of major government construction projects and rising private investment, benefiting from a return of confidence among investors and the improved business climate. Prospects are favourable but not without risks. Internally, these essentially arise from the fragility of the socio- political context owing to worries about security. Externally, the risks might come from shocks caused by poor prices for raw materials (cocoa, oil) and a worsening of the international environment which might hamper an adequate mobilisation of external financing and reduce the inflows of foreign direct investment (FDI). Côted’Ivoire
  • 55. http://dx.doi.org/10.1787/888932810134 Macroeconomic Policy Fiscal Policy Fiscal policy in 2012 was conducted in line with the undertakings made in the framework of the economic and financial programme backed by the Enlarged Credit Facility (ECF) and agreed with the IMF for the 2012- 14 period. Receipts (including grants) totalled 19.6% of GDP in 2012 compared with 19.5% in 2011. This slight improvement arose from an increase in income from oil and gas and the reorganisation of tax services. Expenditure rose from 21.4 % of GDP in 2011 to 23.1% in 2012, the result of an increase in the wages and salaries bill and investment spending. The rise in the wage bill is explained by the financial support for volunteer teachers in the central, north and west zones and the exceptional recruitment of former combattants. The proportion of wages and salaries in fiscal receipts was 43.5% in 2012, a long way above the maximum threshold of 35% stipulated by the West African Economic and Monetary Union (UMEAO/WAEMU). Spending on investment reached 5.4% of GDP compared to 3.4% in 2011, linked to reconstruction and the execution of emergency programmes. The overall deficit deteriorated from 1.8% of GDP in 2011 to 3.5% in 2012. It was chiefly financed by external resources and borrowing on the regional financial market. In 2013 total receipts should rise by 1.4% of GDP over 2012 thanks to an expected rise in grants. Public spending should amount to 25% of GDP and 24.6% in 2014, as higher investment spending continues. Current spending should fall back, in part because of a lowering of subsidies on oil products after an automatic price adjustment mechanism came into effect and in part because of good control of the overall payroll thanks to the integrated system of management of public service workers and state employees (SIGFAE) which became operational. Capital spending should continue to increase in the framework of the implementation of the state investment programme and should be financed to a large degree by external resources. As a result of the twin effects of rising revenue and lower public spending, the budget deficit should fall to 4.0% of GDP in 2013 and 4.1% in 2014, compared with 6.3% in 2012. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 21.8 20.1 19.5 19.6 21 21.5 Tax revenue 16.5 17 13.1 13.5 13.5 13.8 Oil revenue 2.9 0.9 0.3 0.5 1.8 2.2 Grants - - - - - - Total expenditure and net lending (a) 19.7 20.6 21.4 23.1 25 24.6 Current expenditure 16.5 17.3 16 16.7 16.2 15.9 Excluding interest 15 15.6 14.1 14.9 14.6 14.5 Wages and salaries 6.8 7.1 8.4 7.5 6.2 6 Interest 1.5 1.7 1.9 1.8 1.6 1.5 Primary balance 3.6 1.2 0.1 -1.7 -2.3 -1.6 Overall balance 2 -0.5 -1.8 -3.5 -4 -3.1 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy 56 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 56. 57African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 http://dx.doi.org/10.1787/888932811122 Côte d’Ivoire is a member of the West African Economic and Monetary Union (WAEMU/UEMOA). Monetary policy is directed by the Central Bank of West African States (BCEAO) and explicitly targets price stability. Average annual inflation in 2012, estimated at 2.1%, down from 4.9% in 2011, was maintained within the limits of the community norms (around 3%). This satisfactory control of price levels can be attributed to policies instituted by the government to combat high living costs. The measures included, among others: i) the application of agreements between the government and various commercial interests on the price of consumer products, backed by a stronger campaign on the display of prices; ii) systematic weekly price summaries to provide complete and reliable information about the price of leading consumer products, their availability and the provision on the markets of staple necessities; and, iii) a temporary suspension of duties and import taxes on rice for the period from 1 August to 31 October 2012. The lasting effect of these measures and the expected impact of crop production subsequent to the implementation of the national agricultural investment programme (PNIA) should maintain the rate of inflation at 2.2% in 2013 and 2.3% in 2014. During 2012 the BCEAO lowered its lending rate to support economies grappling with various shocks. Accordingly the minimum bid rate in open market operations and the marginal lending rate were cut by 25 basis points in June 2012 to 3% and 4% respectively. The ratio of obligatory reserves was lowered from 7% to 5% on 16 March 2012. This easing of interest rates, in a context of slowing inflation, together with the improved socio- economic climate contributed to a rise of 5% in credits to the economy in 2012 compared with 2% in 2011. Economic Cooperation, Regional Integration & Trade For the first time in five years the external current account recorded a deficit in 2012, falling from a surplus of 6.7% of GDP in 2011 to -3.3% in 2012, as a result of the drop in the trade balance surplus and a worsening of the services deficit. The drop in the trade surplus was the result of a sharp rise in imports (36% of GDP in 2012 compared with 28.3% in 2011) in line with the growing need for intermediate and capital goods. In 2013 and 2014 the current account should remain in deficit because of rises in imports. The country has resumed its co-operation with the major regional integration organisations and since February 2012 has occupied the presidency of the Economic Community of West African States (ECOWAS/CEDEAO). Côte d’Ivoire applies the ECOWAS common external tariff (CET) which identifies four distinct category product bands. The creation of a fifth tariff band to be added to the existing four (of 0%, 5%, 10% and 20%) in the structure of the CET is under discussion. While awaiting the conclusion of the Economic Partnership Agreement (EPA) at the ECOWAS level in November 2008 the country signed a temporary EPA with the European Union (EU) which provides for an 80% rate of openness in terms of duty-free access for its products to European markets. A sunset clause provides for the disappearance of this interim agreement in favour of a regional EPA. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance 16.6 18.4 14.5 20.4 10.4 10.2 10.4 Exports of goods (f.o.b.) 43.3 46.4 47 48.7 46.4 48 48.2 Imports of goods (f.o.b.) 26.7 28 32.6 28.3 36 37.8 37.8 Services -7.4 -6.6 -7.2 -8.2 -8.5 -8.5 -8.2 Factor income -4.6 -4.4 -4.3 -4.3 -4 -3.5 -2.2 Current transfers -3 -0.4 -1.8 -1.2 -1.2 -2 -1.8 Current account balance 1.6 7 1.1 6.7 -3.3 -3.8 -1.9 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Thanks to the ending of the post-election crisis and the conclusion of the economic and financial programme backed by the IMF, Côte d’Ivoire was able to reach the completion point of the Highly Indebted Poor Countries (HIPC) Initiative in June 2012. Debt relief extended under the HIPC Initiative should enable a substantial http://dx.doi.org/10.1787/888932810134 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Côted’Ivoire
  • 57. http://dx.doi.org/10.1787/888932805175 lightening of the debt burden. The updated debt/income ratio should amount to 99.6% in 2012 compared with 298.9% in 2011. This lightening of external debt should make it possible for the country to restore public finances and once again become credit-worthy in regard to its financial partners. The government has also been successful in restructuring its entire internal debt, extending maturities and financing itself on the regional financial market. The restructuring of short-term bonds into two-year treasury bills and three- and five-year bonds took place in December 2011 and accumulated interest has been paid. However, analysis of the sensitivity of the debt shows the country is still vulnerable to shocks. With the backing of the IMF and the World Bank, the government has introduced a new comprehensive debt management strategy covering internal and external debt and new borrowings with a view to ensuring that the debt is sustainable. It has also decided on a special treatment of the debt through the creation in November 2011 of a national public debt committee (CNDP) in line with the ECOWAS community regulations which call for the institutionalisation of debt management. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 5% 10% 15% 20% 25% 30% 35% Percentage http://dx.doi.org/10.1787/888932811122 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Thanks to the ending of the post-election crisis and the conclusion of the economic and financial programme backed by the IMF, Côte d’Ivoire was able to reach the completion point of the Highly Indebted Poor Countries (HIPC) Initiative in June 2012. Debt relief extended under the HIPC Initiative should enable a substantial 58 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 58. 59African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Economic & Political Governance Private Sector Business in the Côte d’Ivoire suffered badly in the crisis that followed the elections. Production facilities suffered major destruction and as a result financing requirements became more acute. The country’s employers calculate that 1 113 businesses, most of them small- and medium-sized enterprises (SMEs), suffered damage totalling more than XOF 650 billion (CAF Franc BCEAO). Under these circumstances the thorny question of the low rate of financing of the private sector by the banking system came into sharper relief. This low rate of bank financing of SMEs and small- and medium-sized industries (SMIs) is chiefly due to their unreliable structuring and the absence of certified accounts. In addition, the private sector has poor knowledge of innovative financing mechanisms such as factoring and leasing. Analysis of the structure of credits declared to the Central Risk Division at the end of July 2012 showed that 61% of credits allocated went to the tertiary sector, which remains the chief beneficiary of banking finance. The secondary and primary sectors come in second and third with 34.6% and 4.4% of bank credits respectively. The World Bank report Doing Business 2013 maintained the country’s 2011 rank of 126th of 183 countries in regard to access to credit. The report also found that in regard to improving the business climate Côte d’Ivoire fell back in 2012, losing three places compared with 2011, to occupy 176th place out of 185 economies. As for regulating insolvency the country lost three places compared with 2011 to be classified 76th. Attempts by the authorities to improve the business climate which had deteriorated because of the prolonged consequences of the post-electoral crisis took a number of forms. The committee of co-operation between the state and the private sector (CCESP), one of whose priorities is making it easier to start up businesses, has been reactivated; the business court in Abidjan has been created and has been at work since October 2012; and, a new investment code was adopted by decree in June 2012. Financial Sector The country’s financial sector is progressively returning to normal activity but remains limited in size. It was weakened by the post-election crisis and the government took subsequent steps to improve the solidity of the banking sector. Public banks stayed open during the crisis and were the most affected. Measures to safeguard them were taken, in particular: debt recovery was strengthened, operating charges were reduced and commercial strategy and governance were reinforced. Nonetheless the banking sector is still rendered fragile by capital weaknesses. The average capital to risk-weighted assets ratio deteriorated slightly in 2011, linked to a fall in the effective capital of public commercial banks. At the end of 2011 six commercial banks out of 23 (among them four of the five public banks) were not respecting the regional minimum capital adequacy standards. The implementation of the plan to restructure the public banks, agreed in 2012, represents a major challenge for the consolidation of financial stability. Elsewhere, actions to revive and develop the microfinance sector were initiated with the help of technical and financial partners. These include: the undertaking of an audit of the sector; the preparation and implementation of the restructuring of the country’s union of national savings and credit co-operatives (UNACOOPEC); and, updating the national microfinance strategy (SNM). In the financial markets the government resumed its intervention in the public securities market with the issue of securities with longer maturities of two to five years. Activity on the regional securities stock exchange (BRVM), which is dominated by Ivorian companies, recorded a favourable overall performance. Public Sector Management, Institutions & Reform A plan to restructure public enterprises was adopted with the aim of reducing state holdings by a quarter through privatisation, merger or transferring authority to technical oversight. A census of public service workers and state employees was completed and led to the establishment of an integrated public employee management system (SIGFAE). Savings of XOF 11 billion were achieved through the discovery of about 3 000 phantom public service employees. The adoption of draft legislation on a code of conduct for public service staff and the signing of a decree relating to promotion on merit in the public sector are aimed at strengthening the culture of ethical behaviour and merit in the public administration. Transparency International’s Corruption Perception Index saw the country’s ranking improve from 154th out of 182 countries in 2011 to 130th out of 176 in 2012. In November 2011 the country ratified the United Nations Convention against Corruption. The reform designed to improve the efficiency of the coffee/cocoa sector was completed and led to the Côted’Ivoire
  • 59. establishment of a new institutional and regulatory framework. This provides for: i) the creation of a central body (the Coffee and Cocoa council, or CDC) made up of representatives of all the stakeholders, which is responsible for management, regulation, development and price stabilisation in the sector; ii) a marketing mechanism that includes forward sales of export licences and producer price guarantees; and, iii) a reserve fund set up at the BCEAO to cover exceptional risks. The reform of the electricity sector is aimed at absorbing its structural financial deficit. A base price of USD 5.5 per million BTUs (MMBTU) was set, compared with an average of USD 9.8 in 2011, and a 10% rise in industrial electricity tariffs was decided. Natural Resource Management & Environment In line with the criteria of the Extractive Industries Transparency Initiative (EITI) the 2008, 2009 and 2010 reports relating to financial flows between the state and the extractive industries were published in May 2012. The country has had the status of a candidate for EITI membership since 2008 but cannot yet take advantage of the initiative. The country is among those where there has been major deforestation, with at least 35% of its forests subject to unauthorised settlement and exploitation. The implementation of the national reforestation programme which began in 2005 with the aim of a rate 20% (6.45 million hectares) in 2015 has slowed. The country has inadequate infrastructure for drainage for rainwater and collection and treatment of waste water, a weak level of treatment and disposal of household waste and a low number of public lavatories. A little more than 60% of the population have access to drinking water and if the target of raising that proportion to 80% by 2015 is to be achieved there will need to be effective management of under-used water resources and a strengthening of infrastructure. Nevertheless encouraging efforts are being made by the authorities by way of sanitation programmes in the big cities. In addition, since February 2012 two decrees have been signed. One deals with the creation, organisation and operation of a national commission of the Global Environment Facility (GEF). The second provides for a new procedure for classifying national parks and nature reserves through a committee established for the purpose. Political Context Parliamentary elections and the election of a speaker of the national assembly in March 2012 marked a return of the institutions to normality. At the socio-political level a democratic dialogue between the government and opposition made possible the creation of a permanent framework for dialogue (CPD) operating on the basis of consensual decisions. The chief issues treated by the CPD include: i) the status of the opposition and the financing of political parties; ii) electoral issues, in particular the renewal of the independent electoral commission (CEI) and the bringing up to date of the electoral register in the light of the results of the population census; and, iii) legal and security questions, in particular respect for the rule of law and the disarmament of former combattants. The reform of the armed forces is continuing and the dialogue, truth and reconciliation (CDVR) committee has started work. Furthermore, public universities have resumed their activities. Sporadic attacks by armed groups were reported in 2012 and there were frequent prison breaks. Among the steps taken by the government are the strengthening of security at frontiers and inside prisons, the restructuring and modernisation of the united armed forces, and the creation of a national security council. These decisions have had a positive impact on security which has greatly improved. In regard to human rights the authorities have decided to combat impunity by making efforts to promote an independent and impartial justice system and make political life more ethical. The national inquiry committee has delivered its first report on human rights violations during the period following the election. Overall Côte d’Ivoire has recorded perceptible advances in terms of institutional, socio-political, security and human rights normalisation. These advances were confirmed in the 2013 report on civil liberties published by Freedom House. The indices relating to political rights and civil liberties improved and allowed the country to achieve the status of a “partly free” state compared its previous “not free” ranking. Nevertheless given that the scars left by the crisis that followed the election are still raw and deep in the minds of people, it is essential that political issues do not hamper the consolidation of national reconciliation and social cohesion that the country’s inhabitants so expect. are aimed at strengthening the culture of ethical behaviour and merit in the public administration. Transparency International’s Corruption Perception Index saw the country’s ranking improve from 154th out of 182 countries in 2011 to 130th out of 176 in 2012. In November 2011 the country ratified the United Nations Convention against Corruption. The reform designed to improve the efficiency of the coffee/cocoa sector was completed and led to the establishment of a new institutional and regulatory framework. This provides for: i) the creation of a central body (the Coffee and Cocoa council, or CDC) made up of representatives of all the stakeholders, which is responsible for management, regulation, development and price stabilisation in the sector; ii) a marketing mechanism that includes forward sales of export licences and producer price guarantees; and, iii) a reserve fund set up at the BCEAO to cover exceptional risks. The reform of the electricity sector is aimed at absorbing its structural financial deficit. A base price of USD 5.5 per million BTUs (MMBTU) was set, compared with an average of USD 9.8 in 2011, and a 10% rise in industrial electricity tariffs was decided. Natural Resource Management & Environment In line with the criteria of the Extractive Industries Transparency Initiative (EITI) the 2008, 2009 and 2010 reports relating to financial flows between the state and the extractive industries were published in May 2012. The country has had the status of a candidate for EITI membership since 2008 but cannot yet take advantage of the initiative. The country is among those where there has been major deforestation, with at least 35% of its forests subject to unauthorised settlement and exploitation. The implementation of the national reforestation programme which began in 2005 with the aim of a rate 20% (6.45 million hectares) in 2015 has slowed. The country has inadequate infrastructure for drainage for rainwater and collection and treatment of waste water, a weak level of treatment and disposal of household waste and a low number of public lavatories. A little more than 60% of the population have access to drinking water and if the target of raising that proportion to 80% by 2015 is to be achieved there will need to be effective management of under-used water resources and a strengthening of infrastructure. Nevertheless encouraging efforts are being made by the authorities by way of sanitation programmes in the big cities. In addition, since February 2012 two decrees have been signed. One deals with the creation, organisation and operation of a national commission of the Global Environment Facility (GEF). The second provides for a new procedure for classifying national parks and nature reserves through a committee established for the purpose. Political Context Parliamentary elections and the election of a speaker of the national assembly in March 2012 marked a return of the institutions to normality. At the socio-political level a democratic dialogue between the government and opposition made possible the creation of a permanent framework for dialogue (CPD) operating on the basis of consensual decisions. The chief issues treated by the CPD include: i) the status of the opposition and the financing of political parties; ii) electoral issues, in particular the renewal of the independent electoral commission (CEI) and the bringing up to date of the electoral register in the light of the results of the population census; and, iii) legal and security questions, in particular respect for the rule of law and the disarmament of former combattants. The reform of the armed forces is continuing and the dialogue, truth and reconciliation (CDVR) committee has started work. Furthermore, public universities have resumed their activities. Sporadic attacks by armed groups were reported in 2012 and there were frequent prison breaks. Among the steps taken by the government are the strengthening of security at frontiers and inside prisons, the restructuring and modernisation of the united armed forces, and the creation of a national security council. These decisions have had a positive impact on security which has greatly improved. In regard to human rights the authorities have decided to combat impunity by making efforts to promote an independent and impartial justice system and make political life more ethical. The national inquiry committee has delivered its first report on human rights violations during the period following the election. Overall Côte d’Ivoire has recorded perceptible advances in terms of institutional, socio-political, security and human rights normalisation. These advances were confirmed in the 2013 report on civil liberties published by Freedom House. The indices relating to political rights and civil liberties improved and allowed the country to achieve the status of a “partly free” state compared its previous “not free” ranking. Nevertheless given that the scars left by the crisis that followed the election are still raw and deep in the minds of people, it is essential that political issues do not hamper the consolidation of national reconciliation and social cohesion that the country’s inhabitants so expect. establishment of a new institutional and regulatory framework. This provides for: i) the creation of a central body (the Coffee and Cocoa council, or CDC) made up of representatives of all the stakeholders, which is responsible for management, regulation, development and price stabilisation in the sector; ii) a marketing mechanism that includes forward sales of export licences and producer price guarantees; and, iii) a reserve fund set up at the BCEAO to cover exceptional risks. The reform of the electricity sector is aimed at absorbing its structural financial deficit. A base price of USD 5.5 per million BTUs (MMBTU) was set, compared with an average of USD 9.8 in 2011, and a 10% rise in industrial electricity tariffs was decided. Natural Resource Management & Environment In line with the criteria of the Extractive Industries Transparency Initiative (EITI) the 2008, 2009 and 2010 reports relating to financial flows between the state and the extractive industries were published in May 2012. The country has had the status of a candidate for EITI membership since 2008 but cannot yet take advantage of the initiative. The country is among those where there has been major deforestation, with at least 35% of its forests subject to unauthorised settlement and exploitation. The implementation of the national reforestation programme which began in 2005 with the aim of a rate 20% (6.45 million hectares) in 2015 has slowed. The country has inadequate infrastructure for drainage for rainwater and collection and treatment of waste water, a weak level of treatment and disposal of household waste and a low number of public lavatories. A little more than 60% of the population have access to drinking water and if the target of raising that proportion to 80% by 2015 is to be achieved there will need to be effective management of under-used water resources and a strengthening of infrastructure. Nevertheless encouraging efforts are being made by the authorities by way of sanitation programmes in the big cities. In addition, since February 2012 two decrees have been signed. One deals with the creation, organisation and operation of a national commission of the Global Environment Facility (GEF). The second provides for a new procedure for classifying national parks and nature reserves through a committee established for the purpose. Political Context Parliamentary elections and the election of a speaker of the national assembly in March 2012 marked a return of the institutions to normality. At the socio-political level a democratic dialogue between the government and opposition made possible the creation of a permanent framework for dialogue (CPD) operating on the basis of consensual decisions. The chief issues treated by the CPD include: i) the status of the opposition and the financing of political parties; ii) electoral issues, in particular the renewal of the independent electoral commission (CEI) and the bringing up to date of the electoral register in the light of the results of the population census; and, iii) legal and security questions, in particular respect for the rule of law and the disarmament of former combattants. The reform of the armed forces is continuing and the dialogue, truth and reconciliation (CDVR) committee has started work. Furthermore, public universities have resumed their activities. Sporadic attacks by armed groups were reported in 2012 and there were frequent prison breaks. Among the steps taken by the government are the strengthening of security at frontiers and inside prisons, the restructuring and modernisation of the united armed forces, and the creation of a national security council. These decisions have had a positive impact on security which has greatly improved. In regard to human rights the authorities have decided to combat impunity by making efforts to promote an independent and impartial justice system and make political life more ethical. The national inquiry committee has delivered its first report on human rights violations during the period following the election. Overall Côte d’Ivoire has recorded perceptible advances in terms of institutional, socio-political, security and human rights normalisation. These advances were confirmed in the 2013 report on civil liberties published by Freedom House. The indices relating to political rights and civil liberties improved and allowed the country to achieve the status of a “partly free” state compared its previous “not free” ranking. Nevertheless given that the scars left by the crisis that followed the election are still raw and deep in the minds of people, it is essential that political issues do not hamper the consolidation of national reconciliation and social cohesion that the country’s inhabitants so expect. 60 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 60. 61African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources Political stabilisation helped improve the education system. In the 2011/12 school year more than 90% of children in the public primary cycle were given at least three books dealing with such issues as civic and moral education, mathematics and French. The policy of free primary education continued during 2012/13 with the distribution of school kits. In 2012, 3 000 volunteer teachers were recruited and major efforts are being made to remedy the shortage of 10 000 teachers. Reaching the second Millennium Development Goal (MDG), that of achieving universal primary education, appears unlikely. Nevertheless progress towards this objective can be made. Reforms that have been adopted provide for monitoring by school management committees (Comités de gestion scolaire: COGES) and the introduction of two new subjects: human rights and citizenship (EDHC) and information and communications technology ICT). Furthermore the Emergency Presidential Programme has made possible the recruitment of 3 000 instructors and 5 000 graduates to teach in secondary schools. In regard to reproductive health, improved infrastructure and the distribution of contraceptive products had a positive effect on maternal and neonatal death rates. Assisted births rose from 66.72% in 2009 to 69.2% in 2011. The 2012-16 national health development plan and efforts to speed up progress to achieving MDG 5 (improve maternal health) are under way. Between April 2011 and January 2012 healthcare was entirely free but health facilities were overwhelmed and shortages of medical supplies became more acute. The authorities accordingly adopted a policy of free treatment of pregnant women and children up to the age of five. The number of consultations fell but there were 33% more births with trained staff present and the rate of most of the other interventions concerning the target groups remained stable. But the chances of achieving MDGs 4 (reduce infant mortality) and 5 remain, nonetheless, remote. The World Food Programme (WFP) monitoring report found that the overall rate of acute malnutrition was 5.4% in 2011 (the target is below 8.5%). Among people living with HIV/AIDS the proportion of those who had been cured of malnutrition was 46% (the target is above 75%). In 2011, 5 000 food parcels were distributed to undernourished people with HIV/AIDS. Poverty Reduction, Social Protection & Labour The chief aim of the 2012-15 National Development Plan (PND) is to make a substantial cut in poverty through appropriate policies emerging from a participatory process, with the ambition of transforming Côte d'Ivoire into an emerging country by 2020. The cost of the Plan is estimated at XOF 11.07 trillion (about USD 21 billion) over four years, half of it provided by the state budget. The 2012 budget also takes into account the Medium-Term Expenditure Framework (MTEF) funds available for the health and education and training sectors. These sectors also benefited from budgetary spending integrated into pro-poor expenditure in 2012. For the preparation of the 2013 budget the MTEF process was extended to eight new ministries: security, defence, justice, agriculture, economic infrastructure, energy, environment and social affairs. The main aim is to cut the incidence of poverty from 48.9% in 2008 to 33.6% in 2013 and further to 16% by 2015. Pro-poor spending1 rose from 7.8% of GDP in 2010 to 10% in 2011 and 7.9% in 2012, compared with a forecast of 7.8% of GDP in the economic and financial programme (PEF). The precarious nature of social protection in Côte d'Ivoire follows two decades of tension aggravated by the post-election crisis. Apart from occasional humanitarian aid the country still does not have a social protection system that covers people against risks. Social protection is limited to a social security regime that benefits a small number of employees in the formal sector and those entitled to a small number of low-funded programmes such as school canteens, or aid targeted at vulnerable children. Public and private pension reform took place in 2012, providing for higher contribution rates and an increase in the retirement age. Gender Equality Women made up 35% of those in higher education, against 65% of men, giving a gender ratio of 0.54 according to the United Nations Development Programme (UNDP) report. Data from the Interparliamentary Union (IPU) on the representation of women elected by direct suffrage to national parliamentary assemblies reveal that in 2011 in Côte d’Ivoire 11% of parliamentarians were female, putting the country in 108th position out of 190 countries, compared with 8.9% in 2000 (108th out of 188). Legal measures have been taken to make it easier Social Context & Human Development Building Human Resources Political stabilisation helped improve the education system. In the 2011/12 school year more than 90% of children in the public primary cycle were given at least three books dealing with such issues as civic and moral education, mathematics and French. The policy of free primary education continued during 2012/13 with the distribution of school kits. In 2012, 3 000 volunteer teachers were recruited and major efforts are being made to remedy the shortage of 10 000 teachers. Reaching the second Millennium Development Goal (MDG), that of achieving universal primary education, appears unlikely. Nevertheless progress towards this objective can be made. Reforms that have been adopted provide for monitoring by school management committees (Comités de gestion scolaire: COGES) and the introduction of two new subjects: human rights and citizenship (EDHC) and information and communications technology ICT). Furthermore the Emergency Presidential Programme has made possible the recruitment of 3 000 instructors and 5 000 graduates to teach in secondary schools. In regard to reproductive health, improved infrastructure and the distribution of contraceptive products had a positive effect on maternal and neonatal death rates. Assisted births rose from 66.72% in 2009 to 69.2% in 2011. The 2012-16 national health development plan and efforts to speed up progress to achieving MDG 5 (improve maternal health) are under way. Between April 2011 and January 2012 healthcare was entirely free but health facilities were overwhelmed and shortages of medical supplies became more acute. The authorities accordingly adopted a policy of free treatment of pregnant women and children up to the age of five. The number of consultations fell but there were 33% more births with trained staff present and the rate of most of the other interventions concerning the target groups remained stable. But the chances of achieving MDGs 4 (reduce infant mortality) and 5 remain, nonetheless, remote. The World Food Programme (WFP) monitoring report found that the overall rate of acute malnutrition was 5.4% in 2011 (the target is below 8.5%). Among people living with HIV/AIDS the proportion of those who had been cured of malnutrition was 46% (the target is above 75%). In 2011, 5 000 food parcels were distributed to undernourished people with HIV/AIDS. Poverty Reduction, Social Protection & Labour The chief aim of the 2012-15 National Development Plan (PND) is to make a substantial cut in poverty through appropriate policies emerging from a participatory process, with the ambition of transforming Côte d'Ivoire into an emerging country by 2020. The cost of the Plan is estimated at XOF 11.07 trillion (about USD 21 billion) over four years, half of it provided by the state budget. The 2012 budget also takes into account the Medium-Term Expenditure Framework (MTEF) funds available for the health and education and training sectors. These sectors also benefited from budgetary spending integrated into pro-poor expenditure in 2012. For the preparation of the 2013 budget the MTEF process was extended to eight new ministries: security, defence, justice, agriculture, economic infrastructure, energy, environment and social affairs. The main aim is to cut the incidence of poverty from 48.9% in 2008 to 33.6% in 2013 and further to 16% by 2015. Pro-poor spending1 rose from 7.8% of GDP in 2010 to 10% in 2011 and 7.9% in 2012, compared with a forecast of 7.8% of GDP in the economic and financial programme (PEF). The precarious nature of social protection in Côte d'Ivoire follows two decades of tension aggravated by the post-election crisis. Apart from occasional humanitarian aid the country still does not have a social protection system that covers people against risks. Social protection is limited to a social security regime that benefits a small number of employees in the formal sector and those entitled to a small number of low-funded programmes such as school canteens, or aid targeted at vulnerable children. Public and private pension reform took place in 2012, providing for higher contribution rates and an increase in the retirement age. Gender Equality Women made up 35% of those in higher education, against 65% of men, giving a gender ratio of 0.54 according to the United Nations Development Programme (UNDP) report. Data from the Interparliamentary Union (IPU) on the representation of women elected by direct suffrage to national parliamentary assemblies reveal that in 2011 in Côte d’Ivoire 11% of parliamentarians were female, putting the country in 108th position out of 190 countries, compared with 8.9% in 2000 (108th out of 188). Legal measures have been taken to make it easier for those attending women's education and training institutions to find work. In spite of the relative growth of participation by women in public life the country remains well short of the target of 30% representation. The country ratified the optional protocol of the Convention on the Elimination of Discrimination against Women (CEDAW) in October 2011 and the report on its application has been finalised. New legislation regarding marriage was adopted by the national assembly in November 2012 to strengthen the principle of equality between spouses and enhance women’s autonomy. The Global Gender Gap Report 2012 2 from the World Côted’Ivoire
  • 61. for those attending women's education and training institutions to find work. In spite of the relative growth of participation by women in public life the country remains well short of the target of 30% representation. The country ratified the optional protocol of the Convention on the Elimination of Discrimination against Women (CEDAW) in October 2011 and the report on its application has been finalised. New legislation regarding marriage was adopted by the national assembly in November 2012 to strengthen the principle of equality between spouses and enhance women’s autonomy. The Global Gender Gap Report 2012 2 from the World Economic Forum ranked the country 130th out of 135 in 2012, the same as in 2011 when 132 countries were evaluated. 62 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 62. 63African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources The extractive energies (oil and gas) and information and communications technologies (ICT) sectors have generated positive developments in the nation’s economy. The discovery of new deposits (the Foxtrot field in 1991, Panthère-Lion in 1993 and Baobab in 2001) and the rise in the price of hydrocarbons on world markets have stimulated the oil and gas sectors. ICTs have taken advantage of an ever-increasing demand and the existence of suitable infrastructure. The contribution of the telecommunications sub-sector to GDP is put at around 6% over the last five years. With Nigeria and Chad, Côte d’Ivoire is among the chief oil producers in the West African region. Production of crude oil and natural gas rose continually between 2001 and 2005. In 2006 export earnings from crude oil and oil products were greater than those from the main export crop, cocoa, of which Côte d’Ivoire has been the world’s biggest producer for decades. Nevertheless, overall the benefits in terms of jobs and competitiveness of the structural changes that have taken place in these sectors remain very limited due to the socio-political crisis that affected the country for more than ten years (1999-2011). Yet the country’s substantial natural resources still represent potential engines of growth and job creation over the next ten years. Mineral raw materials at present only account for 1% of GDP but are a sector of the future. The country’s subsoil contains estimated wealth in the form of 3 billion tonnes of iron ore, 390 million tonnes of nickel, 1.2 billion tonnes of bauxite, 3 million tonnes of manganese and 100 000 carats of diamonds. Prospects for fossil resources (crude oil and natural gas) are equally promising in the light of recent oil and gas discoveries. There are plans for more intensive exploration in deep territorial waters beyond the continental shelf. Plans to intensify mining research involve: the awarding of licences to operators equipped with the greatest technical and financial capacities; improving the geological and mining information system; and, launching prospection and evaluation work on the deposits of reserves of iron at Monogaga and phosphates at Eboinda. Côte d’Ivoire has major plant and marine resources. About 75% of the country’s land is arable. The quality of the soil and the agro-climatic conditions make possible the cultivation of a wide variety of tropical plants, including cashews, rubber, bananas and pineapples, which, together with coffee and cocoa, are major cash crops. These natural resources provide the state with a major source of income. Revenues from some of them (oil, natural gas, coal, minerals, forest products) amounted to 7% of GDP in 2010, according to the national council of the Extractive Industries Transparency Initiative (EITI). Taxes, duties, dividends and other income from the energy sector (oil, gas and electricity) accounted on average for about 14% of state revenues in 2008 and 2009. These major natural resources suggest a favourable outlook for the nation’s economy but bottlenecks continue to hamper management and put a brake on structural transformation efforts of the country. First, relationships between the natural resources sector, and in particular fossil fuel and mineral resources, and the other sectors of the economy are very weak. Furthermore, the industrial processing of agricultural raw materials and fisheries’ products is still inadequate for the generation of strong economic growth. During the last decade the rate of local processing was 2% for rubber, 5% for cashew nuts, 10% for coffee, 20% for cotton and 27% for cocoa. In addition, the lack of clarity that characterises the contracts for the sharing of production between the government and the oil companies through different confidentiality clauses means transparent management of the resources is impossible. Yet again, the country has no specific instrument to manage income from natural resources, which is pooled with other resources in the general budget. Finally, the country’s ability to conduct good governance of its natural resources is still relatively weak. Côte d'Ivoire should make full use of its natural resources with a view to supporting structural transformation of the economy and achieving sustained growth. With this in mind it should first strengthen the links between the natural resources sector (fossil fuels and minerals) and the other branches of the economy, in particular through refining and marketing, as well as a greater use of local services and equipment. Furthermore, the state should adopt specific policies to train staff suited to the needs of natural resource management. These needs concern: i) better capacity in the conception and negotiation of exploration and exploitation contracts to maximise public revenues while not discouraging private investment in the natural resources sector; ii) the creation of a framework of participatory and transparent revenue management from the exploitation of natural resources; and, iii) management of the environmental and social aspects with a view to promoting sustainable development. In regard to agricultural raw materials and fisheries’ products, the authorities need to reallocate economic Côted’Ivoire
  • 63. activity from the primary to the secondary and tertiary sectors, which are relatively more productive, resulting in exports of products with high capital intensity. In this respect the free zones created by the government are to be encouraged. The fish processing businesses in these zones have made an appreciable effort in taking on more than 2 800 new staff in 2011, 98% of them Ivorians, in spite of the crisis. The fish processing industry is a key sector of the economy since it alone accounts for around 15% of income from the country’s exports to the European Union. Notes 1. This spending covers, among other things, agriculture; rural development, marine resources and livestock production; education and health; water, sanitation and electricity; infrastructure; and decentralisation. 2. The Global Gender Gap Report is the global report on the gap between men and women. It ranks countries according to their ability to reduce inequalities in four areas: health and life expectancy; access to education; participation in politics; and economic equality. i) better capacity in the conception and negotiation of exploration and exploitation contracts to maximise public revenues while not discouraging private investment in the natural resources sector; ii) the creation of a framework of participatory and transparent revenue management from the exploitation of natural resources; and, iii) management of the environmental and social aspects with a view to promoting sustainable development. In regard to agricultural raw materials and fisheries’ products, the authorities need to reallocate economic 64 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Côted’Ivoire
  • 64. Gambia 2013 www.africaneconomicoutlook.org Jamal Zayid / j.zayid@afdb.org
  • 65. Gambia Sections The Gambia’s economic performance has been reasonable over the last few years, but it suffered in 2011 as a result of an agricultural harvest failure. Recovery started in 2012 and real GDP growth accelerated from -4.4% in 2011 to 1.0% in 2012. Economic growth is expected to rebound in 2013 and 2014 due to a recovery in agriculture and strong performance in the tourism sector. Growth will also depend on the efficacy of reforms and the response to the shock. In 2012, the Gambia implemented its new poverty reduction strategy, the Program for Accelerated Growth and Employment (PAGE) 2012-2015. This program succeeds the Poverty Reduction Strategy II (PRSP) 2007-2012. The PAGE aims at improving employment and accelerating pro-poor growth. Governance continues to be a challenge and only modest progress has been made in human development. According to the 2012 African Human Development Report, the Gambia’s Human Development Index (HDI) is still as low as 0.42, below the African average of 0.46. The governance situation has recently strained relations with the international community. Overview Economic growth was hurt in 2011 by a harvest crop failure, but agricultural production started to recover in 2012 and real GDP growth accelerated in 2011. The outlook is optimistic for 2013 and 2014 as real GDP growth is projected to reach 4.3% and 5.1% in 2013 and 2014, respectively, on account of strong expansion in agriculture and tourism. These projections are on the high side; performance will depend on the efficacy of the drought emergency plan, as well as on the impact of government reforms implemented to sustain the agriculture sector. Prudent monetary policy has helped the Gambia to contain inflation and reduce pressures on interest and exchange rates. Inflation remains at a single digit level, below the central Bank target of 5%. It slipped from 4.8% in 2011 to 4.2% in 2012, but is projected to climb to 5% in 2013 and 5.1% in 2014 in response to the introduction of the value added tax (VAT) in January 2013. The 2011 crop failure contributed to a drop in government revenues leading to a deterioration of the budget deficit from 4.6% of GDP in 2011 to 6.0% in 2012. The budget deficit is expected to improve to 5.2% of GDP in 2013 and 4.0% in 2014 thanks to the VAT and other fiscal adjustments expected in 2013 and 2014. The trade deficit reduced slightly from 23.9% of GDP in 2011 to 23.5% in 2012. It is expected to follow the same downward trajectory in 2013 and 2014, as exports began recovering in 2012. The debt burden and the risk of debt distress are very high in the Gambia because of the large accumulated public deficit from excessive government borrowing. The public debt stock increased from 71.1% of GDP in 2011 to 78.9% in 2012. It is projected to reduce to 68.2% in 2013 and 64.3% in 2014 in response to tighter fiscal policy. The Gambia has experienced some structural transformation, albeit modest. This has led to a shift of labour from the agriculture sector to lower productivity sectors such as services, instead of to manufacturing where higher productivity could be achieved easily. The government is trying to promote economic development through: increasing investment in other sectors such as agro-industry; enhancing domestic participation in mineral exploitation, thus reducing unemployment; improving education and aligning it to resource-related skills needs; and improving infrastructure, especially when associated with trade and export activities. Gambia Sections The Gambia’s economic performance has been reasonable over the last few years, but it suffered in 2011 as a result of an agricultural harvest failure. Recovery started in 2012 and real GDP growth accelerated from -4.4% in 2011 to 1.0% in 2012. Economic growth is expected to rebound in 2013 and 2014 due to a recovery in agriculture and strong performance in the tourism sector. Growth will also depend on the efficacy of reforms and the response to the shock. In 2012, the Gambia implemented its new poverty reduction strategy, the Program for Accelerated Growth and Employment (PAGE) 2012-2015. This program succeeds the Poverty Reduction Strategy II (PRSP) 2007-2012. The PAGE aims at improving employment and accelerating pro-poor growth. Governance continues to be a challenge and only modest progress has been made in human development. According to the 2012 African Human Development Report, the Gambia’s Human Development Index (HDI) is still as low as 0.42, below the African average of 0.46. The governance situation has recently strained relations with the international community. Overview Economic growth was hurt in 2011 by a harvest crop failure, but agricultural production started to recover in 2012 and real GDP growth accelerated in 2011. The outlook is optimistic for 2013 and 2014 as real GDP growth is projected to reach 4.3% and 5.1% in 2013 and 2014, respectively, on account of strong expansion in agriculture and tourism. These projections are on the high side; performance will depend on the efficacy of the drought emergency plan, as well as on the impact of government reforms implemented to sustain the agriculture sector. Prudent monetary policy has helped the Gambia to contain inflation and reduce pressures on interest and exchange rates. Inflation remains at a single digit level, below the central Bank target of 5%. It slipped from 4.8% in 2011 to 4.2% in 2012, but is projected to climb to 5% in 2013 and 5.1% in 2014 in response to the introduction of the value added tax (VAT) in January 2013. The 2011 crop failure contributed to a drop in government revenues leading to a deterioration of the budget deficit from 4.6% of GDP in 2011 to 6.0% in 2012. The budget deficit is expected to improve to 5.2% of GDP in 2013 and 4.0% in 2014 thanks to the VAT and other fiscal adjustments expected in 2013 and 2014. The trade deficit reduced slightly from 23.9% of GDP in 2011 to 23.5% in 2012. It is expected to follow the same downward trajectory in 2013 and 2014, as exports began recovering in 2012. The debt burden and the risk of debt distress are very high in the Gambia because of the large accumulated public deficit from excessive government borrowing. The public debt stock increased from 71.1% of GDP in 2011 to 78.9% in 2012. It is projected to reduce to 68.2% in 2013 and 64.3% in 2014 in response to tighter fiscal policy. The Gambia has experienced some structural transformation, albeit modest. This has led to a shift of labour from the agriculture sector to lower productivity sectors such as services, instead of to manufacturing where higher productivity could be achieved easily. The government is trying to promote economic development through: increasing investment in other sectors such as agro-industry; enhancing domestic participation in mineral exploitation, thus reducing unemployment; improving education and aligning it to resource-related skills needs; and improving infrastructure, especially when associated with trade and export activities. 66 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 66. 67African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth -4.4 1 4.3 5.1 Real GDP per capita growth -7.1 -1.7 1.6 2.4 CPI inflation 4.8 4.2 5 5.1 Budget balance % GDP -4.6 -6 -5.2 -4 Current account % GDP -14.8 11.3 -13 -12.9 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -7.5% -5% -2.5% 0% 2.5% 5% 7.5% 10% RealGDPGrowth(%) Gambia
  • 67. http://dx.doi.org/10.1787/888932809279 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 22.7 32 Construction 4.2 3.6 Electricity, gas and water 1.4 1.3 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 11.5 13.8 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 7.5 4.9 Mining 2.2 2.7 Other services -1.6 -2.3 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 2.8 4.6 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 14 11.6 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 35.3 27.8 Wholesale, retail trade and real estate ownership - - In 2011, the Gambia’s economic growth was affected by crop failure that reduced production by 45%. Agricultural production began to recover in 2012, however, and real GDP consequently grew by 1.0% in 2012 following a contraction of 4.4% in 2011. Crop production is expected to recuperate in 2013 and 2014, which, in addition to the continued expansion of tourism, should boost real GDP growth to 4.3% in 2013 and 5.1% in 2014. These projections are contingent upon the efficiency of the reforms and measures taken in response to the drought. The outlook also depends on favourable weather conditions, as agriculture in the Gambia is mainly rain-fed. Services continue to be the largest driver of the economy, contributing to over 60% of GDP in 2011. Within the sector, re-export, trade and tourism, as well as transport and telecommunication are the major drivers of growth. Tourism specifically is a significant source of foreign exchange earnings as well as employment. According to the World Travel and Tourism Council, travel and tourism generated 25 000 jobs in 2011 (3.7% of total employment). This has been forecasted to grow in 2012 by 6% to reach 26 500 jobs (3.8% of total employment). 68 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 68. 69African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Re-export and transit trade have been an important part of the Gambian economy as the port of Banjul – the only port in the country – has historically been one of the most efficient and safest in the region. That said, the Gambia is gradually losing its comparative advantage as outlined in the World Bank’s 2008 “Diagnostic Trade Study”. Tension and temporary border closures to goods between Senegal and the Gambia have also affected activity. In general, the country’s infrastructure remains weak, particularly the road network. The planned trans-Gambia bridge, to be funded by the African Development Bank (AfDB), will be a positive development. The telecommunication sector is quite developed; the country’s mobile market penetration rate of 89% is well above the 53% African average. There are four mobile networks (one is government-owned) in the Gambia with a fifth one, Globacom, preparing to enter the market. A second mobile operator launched 3G mobile broadband services in early 2012, bringing more competition to the sector. Agriculture continues to be the second most important sector in the Gambian economy in terms of GDP share and employment, accounting for about 44% of the population. The 2011 fall in crop production precipitated a food crisis that affected nearly half of the population, according to the Ministry of Agriculture. In response, the government carried out an assessment that identified immediate actions to assist the most affected populations and to prepare farmers for the upcoming agricultural season. According to the Central Bank, the recommendations consist mainly of supplying and distributing seed and fertiliser, as well as providing between USD 23 million and USD 28 million in food relief (about 2.5 to 3.0% of GDP). The country has also benefited from the assistance of donors such as the AfDB and the World Bank. While the agriculture sector is expected to recover in the medium term, it remains at risk as it depends on unpredictable rainfall. Furthermore, the limited use of modern inputs such as improved seeds and fertiliser, as well as the low level of mechanisation, all imply that productivity growth will be modest. Agriculture is already heavily dependent on groundnuts, 60% of which are exported. This makes the sector vulnerable to international price variations. In addition, low produce availability will threaten seed security for the next cropping season. Manufacturing continues to be a small-scale, underexploited and primarily domestic-oriented sector. It is also dominated by urban micro-, small- and medium-sized enterprises (MSMEs) working on low value added activities such as packaging agriculture products and fish processing. Manufacturing accounted for 4.9% of GDP in 2011. Its share has been stagnant over the years despite government efforts to promote the industrial sector under Vision 2020. The weakness of the sector is explained by the small Gambian market, poor investment and weak trade facilitation. Mining and quarrying is the smallest component of the Gambia's economy in 2011 (2.7% of GDP) as the country only produces industrial minerals for local consumption. Exploration is being undertaken, however. The government expropriated Carnegie’s mine and the case is currently under arbitration at the International Centre for Settlement of Investment Disputes. Gambia
  • 69. Macroeconomic Policy Fiscal Policy The budget balance enlarged from -4.6% of GDP in 2011 to -6.0% in 2012 as a consequence of a large revenue drop and massive government spending for the drought. It is expected to contract progressively, however, to 5.2% in 2013 and 4.0% in 2014 thanks to the introduction of the VAT in early 2013 and measures to control tax evasion and improve tax administration. Short-term treasury bills will finance this deficit. The government’s efforts to boost revenues and tax compliance are not yet paying off, as evidenced by the decrease in tax revenues between 2011 and 2012. The government established a Commission of Inquiry into Tax Evasion and other Corrupt Practices to investigate tax avoidance and collect arrears. The Commission published its report in early June 2012 and, on the basis of its findings, the Gambia Revenue Authority’s (GRA) executive management team was replaced. Since 2011, the GRA has enforced the collection of excise taxes on domestically produced manufactured goods. In addition, it has implemented a compliance improvement plan for major taxpayers because up to 70% of large companies have not filed their income tax returns. This spurred the government to strengthen the GRA’s Large Taxpayer Unit by hiring 25 staff in July 2012. The agency also benefits from technical assistance from development partners such as the European Union and the International Monetary Fund (IMF). The Gambia has one of the highest taxation rates in the region. The government plans to continue reforms in tax policy and revenue administration to increase revenues, simplify the tax system, increase efficiency and improve the business environment. It has also progressed towards a smooth introduction of the VAT in line with its commitments to the Economic Community of West African States (ECOWAS). Specifically, the government has launched sensitisation campaigns to explain the implications of compliance with the VAT. It also plans to pursue a long-term strategy for tax reform with the aim of broadening the tax base; eliminating taxes that do not meet a cost-benefit criterion; reducing the number of tax brackets; and lowering rates. As part of this strategy, government will conduct a comprehensive survey of tax expenditures in early 2013. As well, it will review the tax on salary allowances with a view to applying it consistently to all civil servants, employees of public corporations and private sector employees. Finally, it will assess the impact of withholding tax on interest income. Similarly, the government’s performance on expenditure is still weak. Total expenditure and net lending increased in 2012 to 25.9% of GDP as compared to 25.7% in 2011. Part of this increase was due to drought- related extra-budgetary spending in addition to the funding of investment projects planned under the PAGE. Expenditures are expected to fall to 25.3% in 2013 and 23.6% in 2014 as a result of plans to tighten fiscal policy and increase control over public spending. To meet Net Domestic Borrowing (NDB) objectives, the authorities continue to use a cash budgeting approach that keeps spending under control. The government progressed with public financial management (PFM) reforms in 2012, including improving budget preparation and execution and introducing a Medium Term Expenditure Framework (MTEF) on a pilot basis to cover the Ministry of Finance and Economic Affairs and the Ministry of Basic Education. 70 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 70. 71African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 20.2 18.8 21.1 19.9 20.1 19.7 Tax revenue 14.5 13.1 14.1 14 13.9 13.5 Oil revenue - - - - - - Grants 4.1 4 5.1 3.9 4.2 4.2 Total expenditure and net lending (a) 23.2 22.7 25.7 25.9 25.3 23.6 Current expenditure 15 14.6 17.1 17.8 18.2 17.6 Excluding interest 11.9 11.7 13.6 14.4 14.4 14.2 Wages and salaries 4.9 5.7 6.4 6.7 6.8 6.7 Interest 3.1 2.9 3.4 3.5 3.8 3.5 Primary balance 0 -1 -1.2 -2.6 -1.4 -0.5 Overall balance -3 -3.9 -4.6 -6 -5.2 -4 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Monetary policy has been prudent in the Gambia and has succeeded in reducing inflationary pressures, interest rates and exchange rate changes. The gradual elimination of fiscal predominance has also contributed to more independent policy from the Central Bank of the Gambia (CBG). The main challenge for the CBG is to strengthen liquidity management against the backdrop of government plans to reduce the stock of outstanding Treasury bills. Thus, the CBG may have to employ new policy instruments to manage liquidity. The CBG is pursuing price stability with the objective of keeping inflation at or below 5%. It has decided to limit the growth of reserve money to about 7% in 2012 to offset the expansionary impact of the reduced reserve requirement in May 2012. This has in turn helped to ease inflation, which fell from 4.8% in 2011 to 4.2% in 2012. Nevertheless, inflation is projected to rise to 5.0% and 5.1% in 2013 and 2014, respectively, as a result of the VAT introduction in 2013 and recovery in agricultural production. Although GDP inflation has been contained in 2012, the Monetary Policy Committee voted that a further reduction of the policy rate is inappropriate. Thus, the Committee decided to leave it at 12% as of February 2013. The CBG will continue to use its rediscount rate to signal changes in policy and to monitor average daily reserve money. The aim is to shift to an average daily reserve money target in early 2013 once an effective market tool for managing daily liquidity is made available. Monetary policy in 2013 will aim to limit average reserve money and broad money to 10% and 14%, respectively. The Central Bank will continue to monitor energy and food prices. The Gambia’s relatively low inflation provides scope for monetary policy to accommodate the first-round inflationary effects of higher energy and food prices. However, the CBG appears poised to tighten monetary policy if shocks to energy and food prices shift to a higher price level. The midpoint exchange rate in the interbank market was GMD 30.44 (Gambia dalasi) per USD at the end of March 2012. The Gambia has accepted IMF obligations to maintain an exchange system free of restrictions on payments and transfers for current international transactions, with the exception of restrictions maintained for the preservation of national or international security. CBG continues to work with other central banks within the ECOWAS to monitor the required convergence for the establishment of a monetary union. The target date for meeting the convergence criteria was 15 January 2013. Gambia
  • 71. Economic Cooperation, Regional Integration & Trade Its location and the ease of transportation to neighbouring land-locked countries via the Gambia River helped the Gambia to become a trade and transit hub of western Africa. The Gambia operates a liberal trade regime and there are no barriers to capital movement. Consequently, the country ranks well in cross-border trading with some of the world’s lowest per container export and import costs (averaging USD 800 less than competitors). The Gambia also enhanced its competitiveness after the depreciation of the dalasi from 2009-12, but it stands to lose ground in the medium term as neighbouring countries improve infrastructure, including building and upgrading their ports. Re-exports constitute about 80% of the country’s total exports; 60% of the government’s tax revenue stems from foreign trade. Its main merchandise exports are peanuts, fish and cotton, and its major export destinations are China, the United Kingdom and India. Regional integration within the ECOWAS (primarily Côte d’Ivoire, Senegal, Guinea and Guinea Bissau) is also high, accounting for 26% of total external trade in 2009. Imports have grown from 35.9% of GDP in 2011 to 36.5% in 2012, mainly because of a surge in capital imports following the implementation of the public investment plan. As for exports, they started to recover and their share in GDP increased from 11.9% in 2011 to 13.1% in 2012. Consequently, the trade deficit decreased from 23.9% in 2011 to 23.5% in 2012. The trade balance is projected to improve in 2013 and 2014 as exports are expected to rebound. The key strategic issues for trade liberalisation are the tariff reform, the capacity to reform the regulatory framework according to World Trade Organization conventions, and the ability to exploit the potential gains of trade liberalisation. The government is also implementing the ECOWAS Trade Liberalization Scheme (ETLS) under which unprocessed goods from the ECOWAS region enter the Gambia without paying custom duties. A committee to regulate the scheme has been established under the Ministry of Trade, Industry, Employment and Regional Integration. In addition to the ETLS, the government is committed to implementing ECOWAS programmes including: the Inter-state Road Transit Scheme; Common External Tariff; ECOWAS Protocol on the community levy; and the Gambia’s operational plan for the ECOWAS Economic Partnership Agreement- Development Programme. The Automated System for Customs Data has been rolled out to the most important border stations. The Gambia Bureau of Statistics, CBG and the GRA Customs and Excise Department have resumed holding quarterly meetings on re-exports. These gatherings are important for trade facilitation given that approximately 80% of merchandise imports are re-exported. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -18.3 -22.3 -22.6 -23.9 -23.5 -23.2 -22.5 Exports of goods (f.o.b.) 16.7 10.4 10.3 11.9 13.1 12.8 11.9 Imports of goods (f.o.b.) 35 32.7 32.9 35.9 36.5 36 34.5 Services 3.8 6.3 3.9 6.2 6.6 6.5 6.2 Factor income -6 -4.7 -4.2 -3.3 -3.7 -3.7 -3.3 Current transfers 16.4 10 5.8 6.2 9.2 7.4 6.7 Current account balance -4.2 -10.7 -17.1 -14.8 -11.3 -13 -12.9 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Despite progress, the debt burden is still high in the Gambia. The country is at great risk of debt distress as a consequence of the large public debt and the contracting of non-concessional loans, especially since 2008. The stock of domestic public debt increased in 2012 to 33.1% of GDP from 30.4% in 2011. However, it is expected to decline from 29.7% in 2013 to 26.5% of GDP in 2014. Similarly, the stock of external public debt surged from 40.8% of GDP in 2011 to 44.2% in 2012, and is expected to fall to 41.4 % in 2013 and 39.4% in 2014. The country’s interest bill is projected to continue its upward trajectory in 2012 (to 23.5 % of government revenue), but decline afterward. In addition to reducing the stock of debt (relative to GDP), low levels of annual NDB would ease pressure on interest rates and inflation, which in turn would substantially replenish fiscal 72 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 72. 73African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 40.8% of GDP in 2011 to 44.2% in 2012, and is expected to fall to 41.4 % in 2013 and 39.4% in 2014. The country’s interest bill is projected to continue its upward trajectory in 2012 (to 23.5 % of government revenue), but decline afterward. In addition to reducing the stock of debt (relative to GDP), low levels of annual NDB would ease pressure on interest rates and inflation, which in turn would substantially replenish fiscal savings to help finance PAGE priorities. The debt situation in the Gambia has deteriorated after it reached the Heavily Indebted Poor Countries (HIPC) Initiative completion point in December 2007. Interest on domestic debt now consumes 18.5% of government revenues; with obligations on external debt added, it consumes to 22.5%. The country continues to risk high debt distress according to recent reports on Debt Sustainability Analysis. With technical assistance from the AfDB's Institutional Support Project for Economic and Financial Governance, in 2010 the Ministry of Finance and Economic Affairs prepared a debt management strategy encouraging the government to contract only highly concessional additional debt. The government exercised fiscal restraint in 2012 to stem the growing debt burden — particularly domestic debt — by eliminating certain extra-budgetary expenditures and stabilising revenues. Still, government revenues fell short of budget targets, mainly on account of implicit fuel subsidies. In early 2012, sharply rising import prices led to a temporary increase in fuel subsidies, but these were reduced by sustained monthly adjustments in pump prices. With support from the IMF, authorities are preparing a new debt management strategy to ease the burden and risks of external and domestic debt. This strategy will take into account IMF recommendations on new external borrowing by the government that will require a minimum grant element of 35%. External borrowing by state- owned enterprises, which will be restricted to concessional terms, will also need explicit government guarantees. The strategy will enhance debt management capacity and create an enabling environment to attract non debt-creating resource inflows. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 25% 50% 75% 100% 125% 150% Percentage Gambia
  • 73. Economic & Political Governance Private Sector The private sector participates extensively in economic activity. The sector is liberalised, as there is little outright intervention in goods markets; labour and capital regulations are also flexible. However, the Labour Act imposes restrictions on the right to organise and strike. Civil service employees, for example, are not allowed to strike. Except for utilities, most sectors are open to competition. Land tenure comprises both modern/statutory codes and customary tenure administered by traditional rulers. No restrictions are imposed on market entry and exit for foreign investors and profit repatriation. In the World Bank report, Doing Business 2013, Gambia’s ranking deteriorated, moving from 143rd in 2012 to 147th in 2013. Indeed, private sector development is hindered by the high cost of starting a business, high effective tax rates and limited access to credit. Only two areas related to contract enforcement and access to electricity have achieved progress in 2013. To develop the private sector, the government offers facilities such as fiscal incentives to: investors that target priority sectors (agriculture, tourism and manufacturing); Export Promotion Zones; and underserved regions outside urban coastal areas. In addition, authorities promote private sector credit growth by: reviewing banks’ reserve requirements; encouraging commercial banks to become more efficient; and reducing the legal and institutional obstacles to recovering loans and realising collateral. The government launched a programme, The Matching Grant Facility, which is a sub-component of the World Bank-funded Growth and Competitiveness Program that offers matching grants to qualifying MSMEs to develop businesses and create jobs. Financial Sector The financial sector is stable. Gambian banks do not seem to have significant exposure to financial problems in Europe. Certain indicators of financial soundness have registered positive trends under CBG’s intense supervision in 2011. For instance, the share of non-performing loans (NPLs) has declined from 13.8% in 2011 to 12% in 2012. In addition, the fundamentals of the banking industry remain strong: Banks are generally well capitalised and liquid. According to the CBG, the average risk-weighted capital adequacy ratio increased to 33.0% in 2012 as compared to 25.1% in 2011 and the minimum requirement of 10%. The gearing ratio in 2012 was only 3:1, lower than in 2011 when it was 4:1, and lower than the prudential ceiling of 10:1. The international situation is also comfortable as gross official reserves totaled USD 184.5 million at the end of 2012, equivalent to five months of imports of goods and services. Commercial bank credit to the private sector and public enterprises fell by 1% in July 2012, mainly reflecting conservative lending practices by banks in an effort to contain NPLs on their balance sheets. Through the CBG, government continues to monitor and supervise the financial sector using a variety of instruments, policies and initiatives. The 2011 amendments to the Central Bank Act (2005) provide for stronger supervision of the financial sector. By the end of 2013 the CBG will require all commercial banks to audit their accounts according to International Financial Reporting Standards. Also, it will submit to National Assembly amendments, which will strengthen CBG's autonomy. In June 2012, the CBG launched V-RegCoSS, an electronic reporting system for commercial banks that will facilitate the accurate and timely submission of statutory returns. V-RegCoSS will enable the CBG to access information from banks in real time, which will improve offsite and onsite supervision. Concurrently with the launch of V-RegCoSS, the CBG reviewed the Manual of Guidelines and Instructions (MGI). By end-2012 it started regularly collecting new data, including on the term structure of commercial bank assets and liabilities, on weighted interest rates on loans and deposits, and on the largest credit exposures. Other revisions to the MGI will introduce hard limits on aggregate large exposures with equal treatment for secured and unsecured loans. Loan classification and provisioning rules will be tightened by introducing “special mention loans” capturing those which are 30-90 days past due with a 5% provisioning rate. If necessary, the CBG will further tighten provisioning rules for loans more than 90 days past due. The rediscount rate stands at 12% and the legal reserve requirement was reduced by 2 percentage points in May 2012. To safeguard the banking system, the minimum capital requirement for commercial banks has been raised from GMD 150 million to GMD 200 million at end-December 2012. The CBG plans to enforce this requirement with no forbearance. To ensure its smooth implementation, the CBG reviewed each bank’s plan for raising the necessary resources. It verified that all commercial banks meet at least 50% of the capital increase by end- September 2012. The CBG stands ready to ensure a smooth consolidation in the banking system in the event that some banks choose to wind down operations in the Gambia. 74 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 74. 75African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 The installation of CBG’s new national payment system is almost complete. The National Switch and the Securities Settlement System are now operational. The new system will help reduce the overhead of commercial banks. The CBG anticipates that commercial banks will pass these significant cost savings on to consumers. Public Sector Management, Institutions & Reform Governance remains a major issue in the Gambia despite the public generally having access to laws and regulations. The court system is relatively inefficient in enforcing contracts and resolving disputes but some progress has been recorded according to the World Bank report Doing Business 2013. Indeed, the Law Reform Commission and the National Council for Law Reporting have constitutionally been saddled with the responsibility of developing the indigenous laws and jurisprudence of the Gambia. However, these legal bodies have not been functioning, especially due to human and financial resource constraints. While the United Nations Development Programme (UNDP), the UK Department for International Development and the World Bank have been extending technical assistance to the Judiciary and the Attorney General’s Chambers, the Law Reform Commission and the National Council for Law Reports have yet to receive such support. The Integrated Financial Management System (IFMIS) was rolled out in January 2011, connecting all central government institutions. Completion of the IFMIS interface with the CBG has been finalised and the backlog of unaudited public accounts has been cleared. The government accounts for 2008‑10 were submitted to the National Audit Office (NAO); the accounts for 2011 and 2012 will be submitted by end-March 2013. The government has also formulated the Public Financial Management Reforms Comprehensive Strategy (2010- 14), which has as its priorities transparency in the budget process, strengthening budget execution and building capacity in internal and external audit functions. The government has prepared a budget framework paper for 2013 with indicative budget projections for 2013- 15 as well as an indicative MTEF on a pilot basis. The government has put a cap on its borrowing from CBG and plans not to increase it while serving current arrears. The link between PAGE and the budget is well defined through poverty-reducing expenditures as it was under the PRSP II. Corruption remains a challenge: according to Transparency International, the Gambia's ranking deteriorated from 77th in 2011 to 105th in 2012. Further, according to the World Bank Worldwide Governance Indicator, the country’s percentile ranking of government effectiveness has deteriorated significantly from 52 in 2000 to 26 in 2006 to 22 in 2011. Natural Resource Management & Environment The Gambia has no major mineral and hydrocarbon deposits to exploit. However, deposits of silica sand, titanium (rutile and ilmenite), tin and zircon have been identified. There has also been limited exploitation of quartz (silica) in some parts of the country. Further investigations will be conducted to update the reserve base of these minerals. The country’s other major natural resource is the River Gambia, which has been exploited to a limited extent. The government continues to monitor research on the possibility of more mineral deposits – especially those with higher marketing value – and seek interested investors to exploit them. At the same time, authorities are mindful of conservation and environmental preservation. With regard to the large hydrocarbon potential, the government is calling for potential investors and collaborators to improve storage. The Gambia has promising prospects and the government is relentlessly collecting, updating and storing the relevant seismic data, and marketing the prospects to interested oil companies and businesses. The Gambia is on track to meet Millennium Development Goal (MDG) 7, ensuring environmental sustainability, by 2015. The two sub-components related to integrating the principles of sustainable development into country policies and programmes, and improving access to safe drinking water and sanitation, are on track. However, insufficient progress has been recorded in the other sub-components related to reducing biodiversity loss and achieving significant improvement in the lives of at least 100 million slum dwellers by 2020. Political Context The Gambia has been relatively stable under the rule of President Yahya Jammeh, who came to power in a bloodless coup in 1994. Jammeh won the last elections held in November 2011 with about 72% of the vote. The last parliamentary elections were held in March 2012 for 48 of 53 seats, with five seats being appointed by the President. The ruling Alliance for Patriotic Reorientation and Construction Party won 43 out of the 48 contested seats. ECOWAS has refused to recognise this election, considering it neither free, nor fair nor transparent. Gambia
  • 75. The National Assembly of the Gambia continues to play an important role but it is affected by the dominance of a single party. While there are six other political parties, the opposition remains fragmented and unable to affect policy decisions or foment an uprising, even in the wake of the Arab spring. This is explained by the lack of a sizeable middle class that would play a critical role in removing an authoritarian regime. The media is not free and censorship is common, especially for those who criticise the government. 76 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 76. 77African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources Minimal progress has been made on human development and social indicators remain poor. According to UNDP’s Human Development Report 2012, the Gambia gained only one place in the overall ranking. Based on the report’s HDI, its ranking improved from 168th out of 187 countries in 2011 to 167th out of 187 countries in 2012. While primary enrolment rates reached 81% in 2011, middle and high school levels remain low. This can be explained by the high direct and indirect costs of schooling, such as mandatory school fees for middle and high school and the fact that many poor families depend on their children’s labour. This has disadvantaged poor households and prevents their children from continuing their education. But the country is attempting to ensure that all children complete a full course of primary schooling, which in turn will help the country to meet MDG 2, related to universal primary education, by 2015. The infant mortality rate is around 70 deaths per thousand live births preventing the country from reaching MDG 4 related to reducing child mortality by 2015. The maternal mortality rate decreased (from 400 deaths per one hundred thousand live births in 2008 to 360 deaths per one hundred thousand live births in 2010) but it remains high as a consequence of poor roads, which make access to emergency obstetrical care difficult. Thus, the Gambia is not likely to meet MDG 5, improving maternal health. Likewise, the risk of infectious disease continues to be eminent despite a 90% rate of immunisation. Consequently, the Gambia is not likely to meet the MDG 6 component related to malaria. Similarly, insufficient progress has been made on the HIV/AIDS component under the same MDG. Poverty Reduction, Social Protection & Labour Poverty remains a major concern in the Gambia. Approximately 36% of the population is living on less than 1 dollar per day. Poverty is highly correlated with the employment type of household heads. According to the 2010 Integrated Household Survey (IHS), poverty incidence is highest in households headed by agriculture and fishery workers, followed by households headed by people working in construction. Poverty is also higher in rural areas. Poverty reduction is a key development objective of the government. Through the Poverty Reduction Strategy Paper I (2003-2005) and II (2007-2011)), the government has aimed to address poverty challenges and improve the population’s welfare. While this had a positive impact on overall incidence, the poverty rate is still below the annual PRSP II target of 2%. An evaluation of the PRSP II shows that despite progress, the strategy has had limited impact on reducing overall poverty levels. Limited human resource capacities, poor targeting and co-ordination of interventions, and the slow implementation of some of the key building blocks of the strategy help to explain this. The PRSP II was followed in 2012 by the PAGE 2012-2015. The PAGE, which aims at accelerating pro-poor growth and generating efficient employment, is based on five pillars: i) accelerating and sustaining economic growth; ii) improving and modernising infrastructure; iii) strengthening human capital stock to enhance employment; iv) improving governance and fighting corruption; and v) reinforcing social cohesion and cross cutting interventions. To improve social protection for the population, the government has established several sector policies: social welfare policy, draft disability policy, national employment policy and the national population policy. These measures have been coupled with the enactment of legislation, including the Children’s Act (2005), the Labour Act (2007), the Trafficking in Persons Act (2008) and the Women’s Act (2010). Under the PAGE, the government plans to develop a social insurance and safety net programme, strengthen and build the capacity of social welfare institutions, and conduct research on social protection, child protection and disabilities. Gender Equality Gambian society is patriarchal and gender disparity is still significant. Women and girls have been marginalised in the development process and have limited participation in formal economic activities despite notable participation in the informal sector. Likewise, women’s opportunities to participate in political decision making continue to be weak as they are under-represented at all political levels. The Gambia has, however, made significant progress towards gender equality in education, narrowing the gender gap and achieving gender parity in primary school enrolment. The current ratio of female to male Gambia
  • 77. enrolment at primary school is 102% in 2012 as compared to 87% in 2001. That said, gender parity targets for enrolment at the secondary and tertiary levels have yet to be achieved. Similarly, reasonable progress has been made on poverty. According to the 2010 IHS, male-headed households are more likely to be poor than female-headed ones. This constitutes a reversal of the findings of the 2003 survey, which showed that female headed-households had higher poverty rates (53.4%) when compared to males (34.8%). The government has established the Gambia National Gender Policy (2010-2020), which aims to eliminate socio- cultural and traditional barriers to the advancement of women and girls through information, education and advocacy. However, the implementation of this strategy is constrained by a weak capacity to mainstream gender and apply gender analyses to policy making, as well as by weak co-ordination and monitoring. Under the PAGE, government is planning to: create an enabling policy framework based on a gender analysis; improve employability and entrepreneurial skills among women and girls; mobilise funding for gender equality and women’s empowerment; and ensure the adequate co-ordination, monitoring and evaluation of women’s and gender programmes. These will help the Gambia to meet MDG 3 on gender equality and women’s empowerment. Gambian society is patriarchal and gender disparity is still significant. Women and girls have been marginalised in the development process and have limited participation in formal economic activities despite notable participation in the informal sector. Likewise, women’s opportunities to participate in political decision making continue to be weak as they are under-represented at all political levels. The Gambia has, however, made significant progress towards gender equality in education, narrowing the gender gap and achieving gender parity in primary school enrolment. The current ratio of female to male 78 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Gambia
  • 78. 79African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources The Gambia has experienced some structural transformation, albeit modest. It has led to a shift of labour from agriculture to the lower productivity sector of services, rather than to manufacturing where higher productivity could be achieved easily. Agriculture is considered the sole means of income generation for the majority of rural households. While agriculture and fishing employ 75% of the population, account for 70% of domestic exports and contribute substantially to the country’s foreign exchange earnings, their contribution to GDP has stagnated around 25% for the last decade. The development of the sector has been a priority for the government. Several measures have been taken since the 1990s to achieve food security and upgrade the sector to a modern, market-led one with an efficient value chain. However, several factors such as weak capacity, reliance on rain-fed agriculture, land tenure problems and use of traditional and inappropriate fishing methods, have slowed the development of the sector and reduced its productivity. This has provoked a diversion effect and shifted labour from agriculture to other, less productive sectors with smaller value added. By contrast, the service sector has flourished and become the main driver of GDP. Its contribution has grown from 53% of GDP in 2004 to over 60% in 2012 where it is expected to stabilise for the next few years. Tourism, which is a high-potential sector, has increased its contribution to the GDP from 2.5% in 2004 to 3.8% in 2007 to decelerate to 3.0% in 2012 as a result of the economic slowdown, especially in Europe. Tourism became an important source of foreign earnings and improved the country’s competitiveness. The sector has grown by over 7% in 2012 as compared to 2011, and employment in tourism is expected to increase by 2.5% per year over the next few years. Similarly, the financial sector’s contribution to economic activity has increased from 6% of GDP in 2004 to 10% in 2012. The sector has expanded to support trade, investment and re-export. Transport and telecommunication have also improved and their contribution to GDP has grown from 11.1% in 2004 to 13.9% in 2012 as a consequence of international technological developments. The manufacturing sector, which is supposed to be the most productive sector, continues to be the weakest. Its contribution to the GDP has accelerated slightly from 5.6% in 2004 to 6.1% in 2011. It decelerated to 4.9% in 2012, however, and is expected to continue this downward trend to reach 4.4% in 2018 according to IMF projections. In addition to soft commodities (e.g. fisheries, cereals), the Gambia is endowed with hard commodities such as water, arable land, forest and mineral products (clay, silica sand, titanium, tin and zircon) discovered recently during explorations that are ongoing. Exports are not well diversified and remain concentrated on products where the Gambia has comparative advantages such as groundnuts and fish. This, in turn, amplifies the vulnerability of the country to external shocks and changes in international prices. Natural resources constitute between 15 and 20% of government revenues. This offers opportunities to: enhance economic development through increased investment in sectors such as agro-industry; enhance domestic participation in mineral exploitation, reducing unemployment; improve education and align it to resource-related skills needs; improve infrastructure, especially when related to trade and export activities; and create instruments to fuel the general budget. For instance, PRSP expenditures are partially funded by forestry resources in the Gambia. To improve resource management and upgrade agriculture to improve productivity and attract farmers, the government has prepared a National Agriculture Investment Plan (GNAIP). The Plan is based on: i) the improvement of agricultural land and water management to increase food security, income generating capacity and the nutritional status of farmer beneficiaries, especially women and youth; ii) improved management of other shared resources to improve livelihoods and food security, and reduce poverty among populations that depend on these resources; iii) development of agricultural chains and market promotion to transform agriculture from a traditional subsistence economy to a modern market-oriented commercial sector; iv) national food and nutritional security aimed at providing adequate nutritional levels and targeting the most vulnerable groups; v) sustainable farm development aiming at increasing and sustaining agricultural production and productivity growth; and vi) GNAIP co-ordination, monitoring and evaluation. In addition to GNAIP, the government is enhancing structural changes within the sector by offering grants to small farmers, facilitating access to credit to finance agricultural equipment, and modernising the fishing and agro-industry. In a controversial move to encourage people to “return to the land”, the president has reduced the work week to four days. It is a decision that has not been well received by Gambians due to the absence of popular consultation prior to the announcement. Gambia
  • 79. Ghana 2013 www.africaneconomicoutlook.org Pa Lamin Beyai / pa-lamin.beyai@undp.org Gregory De Paepe / gregory.depaepe@oecd.org Eline Okudzeto / e.okudzeto@afdb.org
  • 80. Ghana Sections GDP growth for 2012 is estimated at 7.1%, driven by oil revenues, the services sector and the strong export performance of cocoa and gold. Ghana’s medium-term growth outlook remains positive, thanks to large investments in the extractive industries, public infrastructure and commercial agriculture. The successful inauguration of President John Mahama in January 2013, following the death of incumbent John Evans Atta Mills in July 2012, indicates further consolidation of democracy. The depth and maturity of the country’s democracy are being further tested by the New Patriotic Party case in the Supreme Court contesting the election results. Despite significant progress towards most of the Millennium Development Goals (MDGs), the country continues to be challenged by MDG 4, reduce child mortality; MDG 5, improve maternal health; and the sanitation component of MDG 7. Overview Gross domestic product (GDP) growth decelerated from 14.4% in 2011 to 7.1% in 2012. The economic growth peak in 2011 was due to the start-up of oil production in the last quarter of 2010. The growth performance in 2012 was achieved despite lower cocoa and oil production. Ghana’s medium-term outlook remains healthy, with projected GDP growth of 8.0% (6.5% non-oil) in 2013 and 8.7% (8.9% non-oil) in 2014, well above the average annual growth rate of 6.5% for the period since 2000. Investments in the oil and gas sectors, public infrastructure and commercial agriculture are expected to drive this growth. Improved macroeconomic management and enduring political stability have not significantly transformed the structure of Ghana’s economy over time. Mining and construction have sustained the industrial sector, while manufacturing has been declining as a share of GDP over the past 20 years. The country needs to develop new, labour-intensive economic sectors such as manufacturing and agro-processing in order to tackle the employment challenge and provide economic opportunities to rural areas. This will require coherent public policies to raise agricultural yields, improve the competitiveness of the economy and overcome land tenure issues. Decisions on how to spend the country’s increasing oil revenue, projected at several billion US dollars (USD) over the next two decades, will be crucial to future economic transformation. The increased oil revenue and foreign direct investment (FDI) inflows may result in strong upward pressure on the exchange rate and threaten prospects for industrialisation. In 2010, Ghana enacted a legal framework for sound management of its oil wealth, and thus far its programme of hedging oil imports and exports has succeeded in maintaining macroeconomic stability. The successful inauguration of President John Mahama on 7 January 2013, following the death of incumbent John Evans Atta Mills in July 2012 and the elections in December 2012, is considered an indication of further strengthening of democracy in Ghana. International observers noted that the elections had been relatively free and fair. However, the New Patriotic Party (NPP) has contested the election results and petitioned the Supreme Court for redress. This issue has divided the country on political lines rather than ethnic lines. The slight risk of political destabilisation of the country would be greatly reduced by an early resolution to the court case. Although Ghana has been classified as a low middle-income country by the World Bank since 2010, its development indicators compare poorly with those of most countries in this category. Ghana has made significant progress towards attaining the MDGs. It is likely to attain the MDGs on the eradication of extreme poverty, universal primary education, promotion of gender equality, empowerment of women, and combating HIV/AIDS, malaria and other diseases. Ghana continues to be challenged by slow progress on reduction of under-5 mortality, improvement of maternal health and environmental sustainability. Ghana Sections GDP growth for 2012 is estimated at 7.1%, driven by oil revenues, the services sector and the strong export performance of cocoa and gold. Ghana’s medium-term growth outlook remains positive, thanks to large investments in the extractive industries, public infrastructure and commercial agriculture. The successful inauguration of President John Mahama in January 2013, following the death of incumbent John Evans Atta Mills in July 2012, indicates further consolidation of democracy. The depth and maturity of the country’s democracy are being further tested by the New Patriotic Party case in the Supreme Court contesting the election results. Despite significant progress towards most of the Millennium Development Goals (MDGs), the country continues to be challenged by MDG 4, reduce child mortality; MDG 5, improve maternal health; and the sanitation component of MDG 7. Overview Gross domestic product (GDP) growth decelerated from 14.4% in 2011 to 7.1% in 2012. The economic growth peak in 2011 was due to the start-up of oil production in the last quarter of 2010. The growth performance in 2012 was achieved despite lower cocoa and oil production. Ghana’s medium-term outlook remains healthy, with projected GDP growth of 8.0% (6.5% non-oil) in 2013 and 8.7% (8.9% non-oil) in 2014, well above the average annual growth rate of 6.5% for the period since 2000. Investments in the oil and gas sectors, public infrastructure and commercial agriculture are expected to drive this growth. Improved macroeconomic management and enduring political stability have not significantly transformed the structure of Ghana’s economy over time. Mining and construction have sustained the industrial sector, while manufacturing has been declining as a share of GDP over the past 20 years. The country needs to develop new, labour-intensive economic sectors such as manufacturing and agro-processing in order to tackle the employment challenge and provide economic opportunities to rural areas. This will require coherent public policies to raise agricultural yields, improve the competitiveness of the economy and overcome land tenure issues. Decisions on how to spend the country’s increasing oil revenue, projected at several billion US dollars (USD) over the next two decades, will be crucial to future economic transformation. The increased oil revenue and foreign direct investment (FDI) inflows may result in strong upward pressure on the exchange rate and threaten prospects for industrialisation. In 2010, Ghana enacted a legal framework for sound management of its oil wealth, and thus far its programme of hedging oil imports and exports has succeeded in maintaining macroeconomic stability. The successful inauguration of President John Mahama on 7 January 2013, following the death of incumbent John Evans Atta Mills in July 2012 and the elections in December 2012, is considered an indication of further strengthening of democracy in Ghana. International observers noted that the elections had been relatively free and fair. However, the New Patriotic Party (NPP) has contested the election results and petitioned the Supreme Court for redress. This issue has divided the country on political lines rather than ethnic lines. The slight risk of political destabilisation of the country would be greatly reduced by an early resolution to the court case. Although Ghana has been classified as a low middle-income country by the World Bank since 2010, its development indicators compare poorly with those of most countries in this category. Ghana has made significant progress towards attaining the MDGs. It is likely to attain the MDGs on the eradication of extreme poverty, universal primary education, promotion of gender equality, empowerment of women, and combating HIV/AIDS, malaria and other diseases. Ghana continues to be challenged by slow progress on reduction of under-5 mortality, improvement of maternal health and environmental sustainability. 82 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 81. 83African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 14.4 7.1 8 8.7 Real GDP per capita growth 12.1 4.8 5.7 8.7 CPI inflation 8.7 9.2 8.9 8.5 Budget balance % GDP -3.9 -4.9 -3.5 -3 Current account % GDP -9.6 -11.2 -14.4 -14.9 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% RealGDPGrowth(%) Ghana
  • 82. http://dx.doi.org/10.1787/888932809298 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 29 25.6 Construction 7.2 9.2 Electricity, gas and water 1.6 1.4 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 8.1 9.1 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 9.1 6.7 Mining 2.8 8.5 Other services 9.1 9.4 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 5.9 6.4 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 15.4 11.9 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 11.7 11.7 Wholesale, retail trade and real estate ownership - - GDP growth declined from 14.4% in 2011 to an estimated 7.1% in 2012. The economy was jump-started in 2011 by the start-up of oil production and by strong mining and cocoa output. Economic growth is projected to remain robust in 2013 as oil production increases to peak levels and gas production begins. The economy should grow by 8% in 2013 and 8.7% in 2014, with non-oil sector growth projected at 6.5% in 2013 and 8.9% in 2014. The largest contributor to growth in 2012 was the services sector, which grew by 8.8%, contributing about half (49.3%) of GDP. The strongest performance came from hotels and restaurants, transport and storage, financial intermediation, information and communications, and business services, with growth rates exceeding 10%. There were sharp increases in the contributions from the hotels and restaurants sector and from transport and storage, whose growth more than doubled as compared to 2011. Financial intermediation rebounded from 1.0% growth in 2011 to 11.4% in 2012. Credit to the private sector in 2012 expanded by 31.4%, as compared to 15.8% in 2011. The growth in this sector can also be attributed to several successful bond issuances, all of which were oversubscribed, with substantial participation by foreign investors in the five-year issue. The industrial sector contributed 27.6% of GDP and grew by 7%, a sharp decline from the 41.1% growth 84 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 83. 85African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 recorded in 2011. The drastic reduction of growth in the sector can be attributed to lower crude oil production than projected and slow growth in manufacturing and in the water and sewerage sub-sector. Gold production remained robust, with an estimated half-year increase of 6%. Oil production from the Jubilee field fell below the budget projection of 90 000 barrels per day (bpd) due to technical difficulties. Production ranged from 53 000 to 64 000 bpd in 2012, well below the estimated peak of 120 000 bpd, but it was expected to increase in the fourth quarter after desalination of the Jubilee field. For the first three quarters of the year, petroleum receipts accruing to the government amounted to USD 340 million. Prospects for the oil sector remain strong with the discovery of 16 new wells following the Jubilee field discovery. A gas processing plant is under construction; when completed in 2013, it will enable gas production from the Jubilee field, further increasing the growth potential of the sector and spurring the development of the industrial sector. The provision of cheap energy based on gas could benefit manufacturing and agriculture. The manufacturing sector faces many challenges, which reduced its growth from 13.0% in 2011 to 4.3% in 2012. The shutdown of the West African Gas Pipeline led to power rationing through most of the second half of 2012. The competitiveness of local manufacturing companies has suffered from intense import competition, high utility prices, low research and development efforts, the high cost of inputs and raw materials, and an increase in tax rates. The government’s industrialisation strategy aims to accelerate the sector by building on the oil and gas industry to transform Ghana’s economy through infrastructure development and power generation. The agriculture sector recorded the lowest sectoral growth rate in 2012 (2.6%), but this was still an improvement over the 0.8% growth achieved in 2011. The crops sub-sector was the largest contributor to GDP with 17.7%; the other sub-sectors contributed less than 4%. The cocoa sector performed poorly in 2012, with production falling from the record 1 million tonnes achieved in 2011 to an estimated 820 000 tonnes. The drop in production was due to unseasonably cold weather during the harvest season. The government needs to address the sharp decline in the growth of the forestry sector, which is attributed to the slowdown in the reforestation programme. The slowdown in the agricultural sector, which is estimated to be the country’s largest employer, poses a challenge in terms of setting priorities for poverty reduction. On the demand side, consumption is the key driver of growth, with private sector consumption being the largest contributor. Investment is projected to increase in 2013, however, owing to increasing private sector confidence in the economy, investments for oil-related activities and drawdowns on loans from China for selected infrastructure projects. Export growth is estimated to have increased slightly between 2011 and 2012, but is projected to fall in 2013 as oil production stabilises. Gold performance continues to be robust, with a half-year reported increase of 6% due to two new mining operations. As at end-September 2012, gold and cocoa exports accounted for 40.6% and 18.8% of export receipts respectively and crude oil exports for 20.7%. Crude oil is currently the second-largest export earner after gold, but has the potential to surpass gold exports if production can be increased to the peak level of 120 000 bpd. Mineral royalties contribute up to 80% of mining revenues and up to 15% of corporate taxes. In order to increase tax collection from the mining sector, the government has announced several revisions to the tax code since 2010, including windfall taxes and review of stability agreements. In compliance with the Petroleum Revenue Management Act, the Bank of Ghana, the Ministry of Finance and the Public Interest Accountability Committee (PIAC) published reports on the utilisation of oil revenues, the Stabilization Fund and the Heritage Fund in 2011. The failure to provide budgetary resources to the PIAC, which has relied on donor funds for its operations, undermines the committee’s independence. There were sharp increases in the contributions from the hotels and restaurants sector and from transport and storage, whose growth more than doubled as compared to 2011. Financial intermediation rebounded from 1.0% growth in 2011 to 11.4% in 2012. Credit to the private sector in 2012 expanded by 31.4%, as compared to 15.8% in 2011. The growth in this sector can also be attributed to several successful bond issuances, all of which were oversubscribed, with substantial participation by foreign investors in the five-year issue. The industrial sector contributed 27.6% of GDP and grew by 7%, a sharp decline from the 41.1% growth Ghana
  • 84. Macroeconomic Policy Fiscal Policy The fiscal deficit on a commitment basis is estimated to have risen from 3.9% of GDP in 2011 to 4.9% in 2012, and should fall to 3.5% in 2013 and 3% in 2014 as the government implements policies to correct the fiscal imbalance of 2012. Key challenges to the implementation of fiscal policy within the year include a larger than budgeted wage increase and energy subsidies. Although the government maintained that it would observe fiscal prudence by resisting pre-election spending pressures, there are concerns about the maintenance of fiscal discipline in an election year. In order to forestall election-related excesses, the government is being urged to pass the fiscal responsibility law. Despite the implementation of commitment controls and an arrears clearance strategy, arrears management continues to be a challenge to fiscal policy. The government tightened fiscal policy in 2011 to achieve the IMF fiscal deficit target, but this entailed accumulation of new arrears of GHS 1.9 billion (Ghana cedi). From 2009 to November 2012, total payments made to liquidate arrears amounted to about GHS 3.8 billion. Despite the arrears clearance and the subsequent positive impact on banks’ non-performing loans, uncertainty regarding the timing and amount of arrears clearance has a negative impact on the economy and constrains private sector activity. The 2012 budget announced several new revenue-enhancing measures, following on from the 2009 Ghana Revenue Authority reforms. The measures include an increase in the corporate tax rate from 25% to 35% and review of several mining taxes, although the government needs to conclude its negotiations with mining companies on the new taxes before the earning from these policies begins to accrue. Tax receipts performed above projection, at an estimated 6.5% of GDP over the first five months of 2012. The tax-to-GDP ratio is estimated to have increased from 12.3% of non-oil GDP in 2011 to 16.3% in 2012 and is projected to reach 18% by end-2013. Oil receipts have performed below budget, mainly because the Jubilee field is producing below capacity. The 2012 budget estimated 90 000 bpd, but actual production ranged from 53 000 to 64 000 bpd. This affected the funding of the annual budget, so that total oil receipts accrued to the budget with nothing set aside into the Heritage Fund or Stabilization Fund. It also has implications for the sustainability of the Ghana Petroleum Fund’s holdings. The government projects that the sector will reach full capacity of 120 000 bpd in 2013, which should boost fiscal revenue. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 18.5 19.1 21.9 22.2 21.4 20.1 Tax revenue 11.1 12.1 14.6 14.5 14.1 13.1 Oil revenue 2 2 2.2 2.9 2.9 2.7 Grants - - - - - - Total expenditure and net lending (a) 24.3 26.5 25.9 27.2 24.9 23.1 Current expenditure 17.2 19 19.6 19.5 18 16.5 Excluding interest 14.4 15.8 16.9 16 14.8 13.5 Wages and salaries 6.8 6.9 7.7 6.9 6.3 5.7 Interest 2.8 3.1 2.7 3.5 3.2 3 Primary balance -3 -4.3 -1.2 -1.4 -0.3 0 Overall balance -5.8 -7.4 -3.9 -4.9 -3.5 -3 Figures for 2012 are estimates; for 2013 and later are projections. 86 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 85. 87African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Monetary Policy Monetary policy implementation in 2012 was challenging due to the sharp (17.5%) depreciation of the cedi between January and August 2012. In response, monetary policy was tightened to mop up excess liquidity. The Bank of Ghana raised the policy rate three times by a total of 250 basis points to 15%, announced new exchange rate measures and injected foreign reserves of USD 1 billion to help stabilise the currency. The cedi subsequently strengthened, appreciating by 0.1% in September and 0.5% in October against the US dollar. Inflation averaged 9.14% over first three quarters of 2012 and remained in single digits throughout that period, although the downward trajectory observed in 2011 has undergone a gradual reversal since February 2012. The low inflation rate was attributable to ample rainfall and a good harvest. Inflation was expected to end the year around 11.5%, slightly above the target range of 6.5-10.5%, before easing in the first quarter of 2013. Key inflationary risks include the underlying pressures on government expenditure, mainly as a result of arrears management and payments, including those from the implementation of the Single Spine Salary Structure (SSS); energy subsidies (GHS 60 million monthly); higher than budgeted spending on wages; and foreign exchange depreciation. From December 2011, there was a reversal of the downward trajectory of interest rates across all maturities. As of May 2012, the average savings deposit rate had increased by 45 basis points to 5.5%, while banks’ average base rate had declined from 22.4% to 20.6%. Credit to the private sector nonetheless grew by 31.4%, compared to 15.8% in 2011. The government undertook two issuances of three-year bonds and one of five-year bonds. All were oversubscribed, with significant participation by foreign investors in the five-year issuance. Economic Cooperation, Regional Integration & Trade The deterioration of Ghana’s external position observed in 2011 continued in 2012. Despite higher receipts from exports of gold, cocoa and crude oil, the current-account deficit including official transfers widened from USD 1.7 billion in 2011 to USD 4 billion as of September 2012. The deterioration in the current account is attributable to the trade deficit of USD 3.2 billion, the services trade deficit and income outflows (mainly repatriation of profits). By end-September 2012, the balance of payments showed a deficit of USD 2.3 billion, and gross international reserves had declined from 3.1 months of import cover at year-end 2011 to 2.9 months. The balance of payments came under further pressure towards the end of 2012, mainly on account of lower projected cocoa production, lower oil production and portfolio investment outflows due to election-related fears. Ghana’s trade, which continues to be dominated by primary commodities, suffered in 2012 from a drop in cocoa production, due to unseasonably cold weather during the harvest season, and from lower oil production. As at end-September 2012, exports of gold (USD 4.1 billion), crude oil (USD 2.1 billion) and cocoa (USD 1.9 billion) accounted respectively for 40.6%, 20.7% and 18.8% of export receipts. Crude oil is currently the second-largest export earner after gold, but it has the potential to surpass gold if production from the Jubilee field can be increased to the estimated peak level of 120 000 bpd (owing to technical difficulties, actual production in 2012 ranged from 53 000 to 64 000 bpd). The trade deficit thus increased to 9.7% of GDP in 2012 from 8.3% in 2011. Imports rose from 41.7% of GDP in 2011 to 45.3%, driven by strong consumption growth, oil imports and rising investment activity, especially in the oil sector. In 2013, imports are expected to remain stable at 45.2% of GDP before slowing to 44.7% in 2014. The current account deficit is projected to widen from 11.2% in 2012 to 14.4% in 2013. Foreign direct investment (FDI) has been robust, with significant inflows in earlier years. The Ghana Investment Promotion Centre estimates FDI inflows in the first three quarters of 2012 at USD 4.97 billion, with a substantial share flowing to the services and manufacturing sectors. The investments originated from both traditional and non-traditional countries, including China, India, Lebanon and Nigeria. Ghana ranks among the top ten recipients of official development assistance (ODA), but with the GDP rebased in 2009 and the expected oil inflows, ODA decreased as a percentage of GDP and of the national budget.1 In July 2012, the government of Ghana and development partners signed a ten-year pact to propel the economy to the higher levels of economic growth and sustainable development attained by other middle-income countries. Ghana
  • 86. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -11 -8.6 -9.2 -8.3 -9.7 -12.6 -13.7 Exports of goods (f.o.b.) 18.7 22.9 24.8 33.4 35.6 32.7 31 Imports of goods (f.o.b.) 29.8 31.5 34 41.7 45.3 45.2 44.7 Services -2.5 -4.6 -5 -4.9 -9.1 -8.2 -7.1 Factor income -1.4 -1.5 -1.7 -3.2 -0.5 -0.6 0 Current transfers 10.9 8.1 7.2 6.8 8 7 6 Current account balance -3.9 -6.6 -8.6 -9.6 -11.2 -14.4 -14.9 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Ghana continues to make progress in enhancing its debt management skills and policies, following the organisational reforms under way in the Aid and Debt Management Unit since 2010. In December 2011, the unit released its 2012-14 Medium Term Debt Management Strategy, aimed at ensuring prudent levels of risk, maintaining the public debt at sustainable levels over the medium to long term and developing the domestic debt market. The strategy paper reviews the 2010 strategy and highlights its achievements and the challenges faced, including the inability to reduce the maturity profile of the public debt portfolio. The new strategy includes measures to address this challenge. The total external debt stock declined marginally from USD 7.8 billion in December 2011 to USD 7.7 billion at the end of July 2012. The total public debt at end-July 2012 was USD 14.77 billion, equivalent to 44.4% of GDP, up from 42.6% GDP at end-December 2011. This amount is within the debt sustainability threshold of 60% of GDP laid down in the Medium Term Debt Management Strategy. Although the government developed an arrears management strategy in 2011 to regularise payment arrears and established a comprehensive database to facilitate monitoring of contract arrears, arrears management continues to be a constraint on fiscal policy. In 2011, the government projected arrears accumulation of 2.4% of GDP, but by the end of the year it had accumulated new arrears of GHS 1.9 billion above the projection. It paid off GHS 1.8 billion in 2011 and GHS 2.0 billion in the first five months of 2012 for clearance of arrears (including arrears incurred for implementation of the SSS) and liquidation of commitments carried over from previous years. Ghana’s Debt Sustainability Assessment (DSA), updated in November 2011, concurred with the May 2011 DSA in assessing the country’s level of debt stress as moderate, with the possibility of improving to low debt stress if fiscal consolidation can be achieved. The main vulnerabilities noted were a high debt service-to-revenue ratio and continuing risks to the fiscal outlook. 88 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 87. 89African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 50% 60% 70% Percentage Ghana
  • 88. Economic & Political Governance Private Sector The government continues to implement policies and programmes to promote private sector development. However, these policies lack coherence and continue to have mixed results. Ghana is currently implementing a number of policies, including the Industrial Policy, the Private Sector Development Strategy (PSDS II), the Financial Sector Strategic Plan II, Ghana Revenue Authority reforms and energy sector reform. The mixed results of these reforms, their lack of coherence and implementation delays are evident in the World Bank report Doing Business 2013, where Ghana dropped slightly from 63rd to 64th place, after improving steadily from 106th in 2006 to 60th in 2011. Within the overall ranking, improvements were registered for getting electricity, getting credit and resolving insolvency, but there were sharp falls in several other indicators, notably in paying taxes, starting a business and registering property. Key challenges to private sector activity in 2012 include the sharp depreciation of the cedi between January to August, power rationing through most of the second half of the year and election-related fears, which led to some short-term capital outflows and slowed business activity. Power generation is expected to improve in 2013, when the West African Gas Pipeline comes back on stream and construction is scheduled to be completed on the Bui Dam, a gas-processing facility to fuel thermal power generation and two private power generation plants. The government urgently needs to complete its Public Investment Program (PIP), which is to serve as the basis for the Public-Private Partnership Policy (PPP) approved in 2011. Furthermore, the development of a national infrastructure master plan would underpin the implementation of the PPP. Several initiatives have been announced to develop key infrastructure, such as the rehabilitation of the Takoradi port as well as three major airports. Completion of the PIP would help to guide future private and public sector investment activities. Financial Sector Progress was made regarding the recapitalisation of banks under the Bank of Ghana regulation that all deposit banks have a minimum stated capital of GHS 60 million. At the end of the first quarter of 2013, all banks except one had met this criterion. In July 2011, the Bank of Ghana began the registration of micro-finance institutions and issued guidelines and regulations to clarify their responsibilities. Ghana was blacklisted in August 2012 by the Financial Action Task Force for its monitoring of money laundering, an action that underscores the difficulty of ensuring the stability and integrity of the country’s financial system. It was subsequently removed from the blacklist in November 2012 after initiatives were taken to address the money laundering and terrorism finance offences, including strengthening of institutions and reviewing several items of legislation that cover money laundering. In 2012, the government continued to make payments on outstanding arrears that had been hurting the financial sector. The non-performing loans ratio declined from 16.4% in July 2011 to 13.4% in July 2012, while the capital adequacy ratio declined from 17% in July 2011 to 15.5% in July 2012, remaining above the statutory minimum of 10%. In the first half of 2012, the Bank of Ghana undertook two issuances of three-year bonds and one of five-year bonds. All were oversubscribed, with significant participation by foreign investors in the five-year bond. These issuances have helped to extend the yield curve and boost the stability of the cedi. Progress was also made in implementing some of the recommendations outlined in the Financial Sector Strategic Plan II approved in 2011. Despite these reforms, however, Ghana’s financial system remains relatively underdeveloped and still lacks most of the sophisticated financial products that are available in the world’s financial markets. Although Ghana’s stock market performed well, the equities market remains small and illiquid, while the bond market is undersized and dominated by government securities, making it difficult for companies to diversify their capital-raising methods. Public Sector Management, Institutions & Reform Ghana continues to implement its public sector reforms to make delivery of public services more efficient. In 2012, the government completed the biometric registration of government workers and pensioners, to eliminate ghost names from the payroll. By November, 98.79% of government workers had been migrated to the SSS. As in prior years, the process was not entirely smooth, as various workers’ groups embarked on strikes to demand higher pay and backdating of effective dates. The wage bill was about 12% of GDP in 2011 and is estimated to have risen significantly in 2012, owing to the full implementation of the SSS. The wage bill continues to constitute a constraint on government expenditure, as the share of wages and salaries (estimated at 60% of revenue) surpassed capital expenditure. Implementation of the decentralisation policy continued with the amendment of the Local Government Act, 1993 (Act 462), and the creation of 42 new districts increased the number of metropolitan, municipal and district assemblies (MMDAs) to 212. The local government service has been fully decoupled from the national civil90 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 89. 91African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 at 60% of revenue) surpassed capital expenditure. Implementation of the decentralisation policy continued with the amendment of the Local Government Act, 1993 (Act 462), and the creation of 42 new districts increased the number of metropolitan, municipal and district assemblies (MMDAs) to 212. The local government service has been fully decoupled from the national civil service and 30 000 workers transferred from the latter to the former. According to this new arrangement, ministries, departments and agencies will be limited to their core mandate of policy formulation, monitoring and evaluation, while MMDAs concentrate on policy implementation. The government continued to implement its public financial management reforms. The Ghana Integrated Financial Management Information System, an electronic platform, has been rolled out to all ministries, and some modules are already being used for government transactions. Revenue reforms under the Ghana Revenue Authority are in progress. The 2012 budget announced several new tax measures affecting the mining sector, including an increase in the corporate tax rate from 25% to 35% and adoption of OECD guidelines for transfer pricing. Natural Resource Management & Environment Ghana suffers from environmental degradation, which is affecting livelihoods in rural and urban areas and increasing vulnerability to human and natural disasters. The loss of environmental resources and deforestation threatens environmental sustainability (MDG 7). Ghana has signed a voluntary partnership agreement with the Forest Law Enforcement, Governance and Trade (FLEGT) action plan of the European Union (EU), which will enter into effect in March 2013. Through a licensing scheme, the FLEGT ensures that only legally harvested timber from Ghana is imported into the EU. Ghana achieved compliant status under the Extractive Industries Transparency Initiative (EITI) in 2010 and currently aims to include the forestry sector in this initiative. In compliance with the Petroleum Revenue Management Act, the Bank of Ghana, the Ministry of Finance and the Public Interest Accountability Committee (PIAC) have published reports on the utilisation of oil revenues, the Stabilization Fund and the Heritage Fund. Failure to provide budgetary resources to the PIAC, which has relied on donor funds for its operations, undermines the committee’s independence. The pressing challenge now is to improve regulation of artisanal and small-scale mining, which accounted for one-third of the 3.6 million ounces of gold mined in 2011. Illegal small-scale miners, or galamsey, are responsible for an estimated 70% of such mining activity and contribute nothing to state revenues. Their use of mercury for gold mining represents an ecological threat. The high price of gold attracts foreigners who collude with local chiefs to engage in illegal semi-industrial mining operations. This undermines local authority, encroaches on legal mining concessions and can threaten national security, as shown by some recent deadly clashes. Political Context The 2012 presidential elections (7 December 2012) and the successful inauguration of President John Mahama (7 January 2013), following the death of incumbent John Evans Atta Mills on 24 July 2012 in Accra, consolidated Ghana’s reputation as an increasingly mature democracy. The 2012 general election was the sixth since 1992, and voter turnout was high at 80.15%, an indication that most Ghanaians have embraced the electoral system. On 9 December 2012, the Electoral Commission declared John Mahama of the National Democratic Congress (NDC) as the winner of the presidential election with 5 574 761 votes (50.70%). Nana Akufo-Addo of the NPP received 5 248 898 votes (47.74%). Despite some technical glitches in the new biometric registration system, international observers considered the elections to have been relatively free and fair. The NPP, however, has alleged that over 1 million votes were wrongly counted and has petitioned the Supreme Court for redress. Ghana’s macroeconomic governance and structural reforms have been observed to suffer from political budget cycles: the 1996, 2000 and 2008 elections were noted for high unplanned expenditures by governing parties to renew their mandate, which put fiscal consolidation at risk. This has led to the expectation of an election cycle impact on the economy, requiring an adjustment in the years preceding an election in order to maintain macroeconomic stability. Both the president and the finance minister gave assurances that they would keep the fiscal deficit under control in 2012, despite its being an election year. The issue of control over and use of future oil revenues raised the election stakes and dominated the political debate preceding the elections. Ghana
  • 90. Social Context & Human Development Building Human Resources The human development situation can be described as mixed. Ghana’s latest Human Development Index ranking is 135th out of 183 countries, compared to 136th in 2010. This places the country at the lower end of the medium human development category. Ghana is doing well in terms of attaining MDG 1 on eradication of extreme poverty, MDG 2 on attainment of universal primary education, MDG 3 on promotion of gender equality and empowerment of women, and MDG 6 on combating HIV/AIDS, malaria and other diseases. It has made less progress, however, towards MDG 4 on reduction of under-five mortality, MDG 5 on improvement of maternal health and MDG 7 on ensuring environmental sustainability. The net school enrolment rate increased from 59% in 2001/02 to 81.7% in 2011/12, despite a slight decline to 77.8% in 2010/11 (Education Management Information System, 2012). This performance is attributable to many factors, including the introduction of social protection programmes that encourage school enrolment. On the supply side, teachers have benefited from a 15% increment in basic salaries through the SSS introduced in 2011. Human development indicators show disparities between rural and urban settings, between northern and southern Ghana, and between men and women. Inadequate school infrastructure, mainly in rural areas, compounds the gaps in educational quality between rural and urban primary schools. Although under-five mortality fell from 111 to 78 per thousand live births between 2003 and 2011, the current trend indicates that Ghana is unlikely to achieve the MDG on child mortality without focused interventions. The institutional maternal mortality ratio declined from 206 to 164 per one hundred thousand live births between 1990 and 2010 (Ghana MDG Report, 2012). Although maternal health has generally improved, the ratio is unlikely to reach the target of 50 per one hundred thousand live births by 2015 without significant intervention. In 2011, the United Nations system supported the development of the Ghana MDG Acceleration Framework for MDG 5. It mobilised EUR 52 million from the European Union in support of the attainment of MDG 5 and other lagging MDGs. According to the annual HIV sentinel surveys conducted among antenatal attendants, the HIV prevalence rate in Ghana is generally showing a downward trend. It fell from 3.2% in 2006 to 2.2% in 2008, and after a slight increase to 2.9% in 2009, declined further to 2.0% in 2010 and 2.1% in 2011 (Ghana Sentinel Survey Report, 2006-11). Malaria continues to be a major cause of death in Ghana, despite malaria control strategies and initiatives such as distribution of insecticide-treated nets, intermittent preventive treatment in infants and distribution of artemisinin-based combination treatments. It is estimated that 3.5 million Ghanaians contract malaria annually and that approximately 20 000 children die of the disease each year (UNICEF Ghana Fact Sheet, Malaria, 2007). In 2009, malaria accounted for about 32.5% of all outpatient attendance, with most of the consultations being for children under 5 years of age. Although new data are not yet available, the trend is likely to remain the same in 2013. Poverty Reduction, Social Protection & Labour Ghana’s strong economic performance has to some extent translated into poverty reduction. Average GDP growth exceeding 5% over the 1991-2006 period halved the incidence of extreme poverty from 52% in 1991 to 28.3% in 2006 and reduced the proportion of people below the national upper poverty line (Ghana MDG Report, 2012). Although this places Ghana on course to halving the poverty rate, there remain regional disparities in poverty rates between southern Ghana and the three northern regions, as well as rural/urban and occupational disparities. Poverty is endemic among rural dwellers, women and food-crop farmers. The priorities of the Ghana Shared Growth and Development Agenda (GSGDA) for 2010-13 cover macroeconomic stability; private sector competitiveness; agricultural modernisation and natural resource management; oil and gas development; infrastructure and human settlements development; human development, productivity and employment; and transparent and accountable governance. These policies have direct and indirect effects on poverty reduction. In terms of resource allocation, over four years of implementing GSGDA, 3.8% of the total cost has gone to agriculture, 39.4% to infrastructure and human settlements, 25.2% to human development and 15.07% to the oil and gas sectors. Poverty diagnosis normally precedes the formulation of any medium-term development framework, but there are problems in aligning expenditure with strategy, since the National Development Planning Commission is responsible for planning, while the budget is controlled by the Ministry of Finance and Economic Planning. Better co-ordination of these two institutions may be helpful in achieving better alignment. The level of pro-poor spending increased from 5.5% of GSGDA expenditure in 2011 to an estimated 23.7% in 2012. In 2011, the number of households provided with cash grants under the Livelihood Empowerment against Poverty Programme increased by 20%, from 50 000 to 60 000. The country continues to implement several 92 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 91. 93African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 other social safety nets, including the National Health Insurance Scheme and the National Youth Employment Scheme. Actions taken to curb unemployment, especially among youth, include the launch of Jobs and Enterprises Centres and the Local Enterprise and Skill Development Programme. The efficiency and effectiveness of poverty reduction and social services are undermined by poor benefit incidence analysis and targeting. It is estimated that at least 30% of the beneficiaries of these programmes are not the intended targets. Although Ghana monitors progress on GSGDA priorities through the Annual Programme Report, inadequate data at the regional and district levels affects the quality of information in the report. Gender Equality Despite the enactment of gender policies, gender inequality remains a problem. Gender disparities exist with respect to access to credit, health, education and land, as well as participation in decision-making. In the 2012 parliamentary elections, 29 seats out of a total of 275 (10.5%) went to women. Although this represents a slight increase over 2008 (8.7%), the proportion remains low, considering that women made up 51.3% of the population in the 2012 census. According to the Human Development Report 2011, the Gender Inequality Index in Ghana is low, with an index rating of 0.598. This ranks the country in 122nd place out of 187 countries. Ghana lags behind other middle-income countries in sub-Saharan Africa, such as Swaziland and Senegal. The Gender Parity Index (GPI) for primary school, which measures the ratio of females to males in primary schools, increased from 0.96 in 2009/10 to 0.97 in 2011/12. The GPI for junior secondary school also showed a marginal increase, from 0.92 in 2009/10 to 0.94 in 2011/12 (Education Management Information System, 2012). Equal protection and access to justice, particularly for women in the three northern regions, have not improved much despite the establishment of various means of addressing gender-related disputes, including the newly established gender-based courts (Institute of Local Government Studies, 2012). Ghana
  • 92. Thematic analysis: Structural transformation and natural resources Ghana is richly endowed with mineral resources. It one of the world’s top ten gold producers and the second- largest in Africa, and its mineral potential includes diamonds, bauxite and manganese. In 2004, Ghana discovered offshore oil and gas,2 and commercial oil production started in 2010. Ghana is the world’s second- largest cocoa producer and has extensive arable land, forests, fishing and hydroelectric potential. The government aims to diversify its minerals base into limestone, aggregates, clay and base metals. Ghana has experienced less structural transformation than would be expected given its sustained average annual economic growth of 5% since 1990. Agriculture, although its contribution to growth has declined, still accounts for over 20% of GDP and 50% of total employment. The industrial sector has remained stable at around 25% of GDP for the past 15 years. However, the share of manufacturing in industrial GDP has declined from 36% to below 30%. Construction, driven by an urban housing boom and infrastructure development, is now the largest sub-sector. Services compensated for the slight decrease in agriculture’s share and became the largest contributor to GDP. Growth in services is driven by Ghana’s emerging middle class. Oil and gas discoveries and their potential for power generation, coupled with the government’s industrial development strategy, could drive structural change in the near future. Economic transformation is hampered by the weak transformation of the agricultural sector. Land tenure issues deter investments in more productive commercial agriculture that could provide competitive inputs for developing local agro-processing. As a result, domestic demand is met through cheaper imports of processed food, rice and meat. Gradual diversification into non-traditional exports, such as palm oil, cotton, rubber and fruit, has slowly driven agricultural transformation. The government’s disease and pest control programmes and fertiliser use tripled cocoa production from 340 000 tonnes in 2002 to 1 024 000 tonnes in 2011. A second set of constraints on the development of manufacturing activities consists of high labour and electricity costs, expensive raw materials, low access to finance and obsolete machinery. These structural problems are compounded by strong upward pressure on the exchange rate due to commodity exports (cocoa, gold and oil), large development assistance inflows and remittances. The high cost of finance, small tracts of land and stringent labour regulation further deter competitiveness. Agriculture-related activities such as food, wood processing and textiles account for about two-thirds of total manufacturing in Ghana. The government’s new industrialisation strategy builds on the oil and gas industry to transform Ghana’s economy. The gas sector is likely to provide cheap energy to the future benefit of manufacturing and agriculture and to serve as an input for fertiliser production. Oil revenues should finance public investment in infrastructure, although these revenues were disappointing in 2012 due to technical difficulties that lowered production. The Ghana National Petroleum Corporation (GNPC), responsible for the commercial exploitation and exploration of Ghana’s oil resources, aims at becoming an operator and owning a full oil block in the long term. According to the GNPC, the government intends to keep minority equity stakes ranging from 5% to 10% in all exploration activities. However, the country’s shallow financial markets limit GNPC’s ability to raise its stakes in the national oil industry quickly without resorting to foreign capital. GNPC estimates that 40% of Ghana’s oil is onshore, but exploration of these resources is currently not planned. Ghana’s Petroleum Revenue Management Act (2010) is considered strong and transparent by international observers. It provides for the creation of a Stabilization Fund and a Heritage Fund. The former cushions the impact of potential oil revenue shortfalls, while the latter provides an endowment to support the welfare of future generations. In addition, since 2011 Ghana’s Ministry of Finance has been successfully hedging oil imports and exports against volatile oil prices in order to preserve macroeconomic stability. The PIAC was inaugurated on 15 September 2012 with a mandate to monitor and evaluate the management of oil revenues. The committee faces funding constraints, and its reports are not properly embedded in parliamentary processes to ensure the follow-up of its audits and recommendations. Oil contracts are still not published, except for that of Tullow Oil. The government plans to use a competitive bidding process for future licensing rounds. Mining in Ghana has the reputation of an “enclave industry”, attracting substantial FDI but not generating many employment opportunities for Ghanaians. However, recent research (Bloch and Owusu, “Linkages in Ghana’s gold mining industry: Challenging the enclave thesis”, Resources Policy, 2012) indicates the emergence of Ghanaian component manufacturers and input providers servicing the mining industry, most of which are located close to the headquarters of the large mining companies in Accra and Tema. They provide local manufactures and intermediate inputs in the following areas: metals, chemicals and plastics, civil engineering, business services and logistics. Local companies increasingly engage in services such as construction, maintenance, catering, landscaping, haulage, transportation and security. These emerging clusters may increasingly service West Africa’s growing regional gold industry. The government’s Local Content Bill, submitted to parliament in October 2012, aims at mainstreaming local supply and service provision in mining companies’ procurement policies. Employment and training requirements, among others, will increase in line with the country’s capacity to meet the mining industries’94 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Ghana
  • 93. 95African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 increasingly service West Africa’s growing regional gold industry. The government’s Local Content Bill, submitted to parliament in October 2012, aims at mainstreaming local supply and service provision in mining companies’ procurement policies. Employment and training requirements, among others, will increase in line with the country’s capacity to meet the mining industries’ procurement and staff requirements. By 2020, the country aims to provide 90% of mining inputs locally. The bill includes a “mining community development scheme” financed through the proceeds from mining companies’ royalty payments and development funds. In addition, the Ghana Chamber of Mines identified 27 product categories with “import substitution potential”, ranging from clothing and wood products to chemicals and explosives, plastics and metal products. Weak human capital and low productivity of local small- and medium- sized enterprises (SMEs) continue to constrain local economic development around mining areas. The 2010 revision of the mining code is likely to increase the government’s tax take. Key revisions include the renegotiation of stability agreements, a 5% flat-rate royalty (compared to the current 3-6% range), an increase in corporate tax from 25% to 35% and a 10% windfall tax on mining profits (this proposal was announced in the 2012 budget but had not yet received parliamentary approval at the end of the first quarter of 2013). Mineral royalties currently contribute up to 80% of mining revenues, compared to 15% for corporate taxes. Mining companies can opt for accelerated depreciation and the carry forward of losses, which limits the potential for corporate tax revenue3. Implementation of a more balanced fiscal framework is hindered by capacity constraints in the Ghana Revenue Authority and asymmetrical information. The industry has warned, however, that the increasing tax burden may deter future exploration investments. Notes 1. ODA as a percentage of GDP declined from 8.8% in 2000 to 5.2% in 2010. As a percentage of revenue and grants, it fell from 44.6% in 2010 to 11.4% in 2012 (author’s calculations). 2. As at December 2012, the Ghana National Petroleum Company had announced 16 additional offshore oil and gas discoveries. 3. The oil companies operating in the Jubilee field have not paid corporate taxes since 2010 due to this provision. The Ministry of Finance and Economic Planning has set up a committee to work with the industry to resolve this issue. Ghana
  • 94. Guinea 2013 www.africaneconomicoutlook.org Idrissa Diagne / idrissa.diagne@undp.org Olivier Manlan / o.manlan@afdb.org
  • 95. Guinea Sections The country made a significant start on reforms in 2011, paving the way to reaching completion point of the Highly Indebted Poor Countries (HIPC) Initiative and establishing the post-HIPC agenda at the centre of political debate, a process that needs to be deepened and speeded up in a context of budgetary constraints and weak capacity. Poverty persists and needs to be structurally reduced by means of a vigorous policy of sustainable, inclusive and environmentally friendly growth at a time when the socio-political and institutional environment is unpredictable and requires continuing dialogue. Guinea has great mining potential, and if it is properly exploited in a calmer political context and healthier business climate, it could foster economic diversification, the backbone of the emerging Guinea that its citizens so long for. Overview The socio-economic situation in 2012 was characterised by persistent poverty (with a 55.2% poverty incidence) even though reforms aimed at reviving economic and social development were implemented and the HIPC Initiative completion point was reached at the end of September 2012. The country benefited from external debt relief worth USD 2.1 billion. After more than 50 years of independence and bad governance Guinea is ranked 178th out of 187 countries on the Human Development Index (HDI) of the United Nations Development Programme (UNDP). Infrastructure and services are inadequate, administration is weak and the private sector embryonic. Economic growth is estimated at 4.2% in 2012, versus 3.9% in 2011, driven chiefly by higher agricultural production and the good performance of the secondary sector. In 2012 fiscal receipts as a proportion of gross domestic product (GDP) rose from 15.6% to 19.9% mainly thanks to higher revenues from oil-related products through the special tax on petroleum products, TSPP (Taxe spéciale sur les produits pétroliers), and to income from international trade. Spending rose from 16% of GDP in 2011 to 18.7% in 2012 as a result of pay increases and investment in energy and agriculture. The budget deficit is estimated to have been 1.4% of GDP in 2012 compared with 0.3% in 2011. The rate of inflation is put at 13.1% in 2012, compared with 21.4% in 2011. Normalisation of the country’s development context was combined with stricter monetary and foreign-exchange management. As a result, the gap between the black-market rate and the official rate shrank from 10% at the end of 2010 to 0.5% and it was possible to rebuild the reserves, with coverage of 4.6 months of imports at the end of 2011 compared with 0.7 months in 2009 and 2010. Even so, financial conditions remain difficult. The trade deficit worsened in 2012, rising to 16.5% of GDP in 2012, compared with 14% in 2011. The political scene has long been conspicuous for inadequate dialogue between the protagonists, in particular in respect of the conditions of the organisation of the forthcoming parliamentary elections. Tensions have however eased, relatively speaking, with the government taking into account some of the opposition’s demands, such as suspension of the process of revising the electoral register and recomposition of the independent national electoral commission (CENI) on a basis of parity. But as was shown by recent events at the beginning of March 2013, a crisis of confidence still prevails between the different actors in political life. Action undertaken by the government has not made it possible to reduce poverty, although an improvement in the literacy and school enrolment rates can be observed, as can a rise in attendance rates at health centres. Gender is still an issue in inclusive development in Guinea. Initiation of the reforms made it possible to reach completion point of the HITP initiative, but Guinea still faces three major challenges: i) finalising the political transition process; i i ) stimulating economic and social development by getting full value from the country’s huge natural potential; and iii) meeting the social demands of the country’s people. Guinea Sections The country made a significant start on reforms in 2011, paving the way to reaching completion point of the Highly Indebted Poor Countries (HIPC) Initiative and establishing the post-HIPC agenda at the centre of political debate, a process that needs to be deepened and speeded up in a context of budgetary constraints and weak capacity. Poverty persists and needs to be structurally reduced by means of a vigorous policy of sustainable, inclusive and environmentally friendly growth at a time when the socio-political and institutional environment is unpredictable and requires continuing dialogue. Guinea has great mining potential, and if it is properly exploited in a calmer political context and healthier business climate, it could foster economic diversification, the backbone of the emerging Guinea that its citizens so long for. Overview The socio-economic situation in 2012 was characterised by persistent poverty (with a 55.2% poverty incidence) even though reforms aimed at reviving economic and social development were implemented and the HIPC Initiative completion point was reached at the end of September 2012. The country benefited from external debt relief worth USD 2.1 billion. After more than 50 years of independence and bad governance Guinea is ranked 178th out of 187 countries on the Human Development Index (HDI) of the United Nations Development Programme (UNDP). Infrastructure and services are inadequate, administration is weak and the private sector embryonic. Economic growth is estimated at 4.2% in 2012, versus 3.9% in 2011, driven chiefly by higher agricultural production and the good performance of the secondary sector. In 2012 fiscal receipts as a proportion of gross domestic product (GDP) rose from 15.6% to 19.9% mainly thanks to higher revenues from oil-related products through the special tax on petroleum products, TSPP (Taxe spéciale sur les produits pétroliers), and to income from international trade. Spending rose from 16% of GDP in 2011 to 18.7% in 2012 as a result of pay increases and investment in energy and agriculture. The budget deficit is estimated to have been 1.4% of GDP in 2012 compared with 0.3% in 2011. The rate of inflation is put at 13.1% in 2012, compared with 21.4% in 2011. Normalisation of the country’s development context was combined with stricter monetary and foreign-exchange management. As a result, the gap between the black-market rate and the official rate shrank from 10% at the end of 2010 to 0.5% and it was possible to rebuild the reserves, with coverage of 4.6 months of imports at the end of 2011 compared with 0.7 months in 2009 and 2010. Even so, financial conditions remain difficult. The trade deficit worsened in 2012, rising to 16.5% of GDP in 2012, compared with 14% in 2011. The political scene has long been conspicuous for inadequate dialogue between the protagonists, in particular in respect of the conditions of the organisation of the forthcoming parliamentary elections. Tensions have however eased, relatively speaking, with the government taking into account some of the opposition’s demands, such as suspension of the process of revising the electoral register and recomposition of the independent national electoral commission (CENI) on a basis of parity. But as was shown by recent events at the beginning of March 2013, a crisis of confidence still prevails between the different actors in political life. Action undertaken by the government has not made it possible to reduce poverty, although an improvement in the literacy and school enrolment rates can be observed, as can a rise in attendance rates at health centres. Gender is still an issue in inclusive development in Guinea. Initiation of the reforms made it possible to reach completion point of the HITP initiative, but Guinea still faces three major challenges: i) finalising the political transition process; i i ) stimulating economic and social development by getting full value from the country’s huge natural potential; and iii) meeting the social demands of the country’s people. 98 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 96. 99African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 3.9 4.2 4.8 5.6 Real GDP per capita growth 1.5 1.7 2.2 3 CPI inflation 21.4 13.1 10.6 8.5 Budget balance % GDP -0.3 -1.4 -0.6 -0.3 Current account % GDP -24.2 -25.4 -25 -28.7 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2% 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) Guinea
  • 97. http://dx.doi.org/10.1787/888932809317 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 25.3 21.2 Construction 10.9 12.4 Electricity, gas and water 0.4 0.5 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 0 0 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 7 7.4 Mining 21.2 21.6 Other services 2.7 3.6 Public Administration & Personal Services 8 5.5 Public Administration, Education, Health & Social Work, Community, Social & Personal Services - - Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 18.2 21.9 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 6.2 5.8 Wholesale, retail trade and real estate ownership - - Forecasts for growth in 2012 have been revised downwards from the 4.8% initially projected by the government to 4.2%, compared with 3.9% in 2011. This drop was chiefly the result of a poor performance by the mining sector, symbolised by the mid-year closing of the Friguia aluminium refinery. Growth in 2013 should be of the order of 4.8%, rising to an average of 5.6% in 2014. The primary sector is estimated to have grown by 4.6% in 2012, compared with a target of 4.9%, because of a fall in coffee and cacao production. Growth in the secondary sector was not as strong as projected and has been estimated at 4% in 2012, compared with an objective of 5.1%. This outcome was due to the poor performance of the mining sector, where the growth rate was 0.9% versus a target of 2%, and a slowdown in building activity, where the growth rate was 7% (versus a target of 8.7%). Growth in the tertiary sector is put at 3.3% in 2012, compared with 3.2% in 2011. The different sub-sectors showed no great change. Analysis of value added by sector reveals that the tertiary sector accounts for the largest part of GDP (39.8%) followed by the secondary (36.3%) and the primary (23.9%) sectors. This shows the problems Guinea is having 100 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 98. 101African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 in generating a growth dynamic based on getting full value from its huge natural potential, in spite of the efforts made to promote the mining sector and improve productivity in the rural sector. Rice production is estimated to have risen by 8.67% in 2012 thanks to good rainfall and a good harvest distinguished by the launch of a government support fund and the distribution of agricultural inputs and equipment in the production areas. Crops varied between 2 and 4.5 tonnes a hectare. Production of maize and fonio is estimated to have risen by 4.5% and 6.4%, respectively, mainly because of an increase in the area under cultivation, while production of millet and sorghum is estimated to have dropped by 5.63% and that of tuber crops by 7.03%. Manufacturing production is estimated to have grown by 5.1% in 2012, thanks in particular to improvements in the water and energy sectors, compared with 4.5% in 2011. The fact that some businesses are now generating their own electricity needs is a major element in higher costs and limits on the production of industrial units. Government action to deal with problem is not very effective and usually undertaken as an emergency and in a disorganised manner. Private consumption dropped because household incomes fell and it is believed that overall demand increased more slowly in 2012 than in 2011, at 8.3% compared with 17.7%. In 2011 final public consumption fell by 9.1% because of measures to limit government spending but is estimated to have grown by 27.5% in 2012. This trend should continue in the medium term because of planned improvements in the situation and working conditions of public-sector employees. Growth in public investment is estimated to have more than doubled in 2012 compared with a fall of 38.8% in 2011, helped by the development of transport infrastructure, measures to support rural development, investment in the energy sector to repair and develop production capacities, the renovation of a large number of urban roads and the development of the interurban network. Private investment rose by 14.5% in 2012, as against 93.9% in 2011. The rise in the 2011 figure can be explained by investment in the mining sector, which increased by 75.7%. Public investment is expected to grow by 43.4% in 2013 and private investment by 15.8%. Guinea
  • 99. Macroeconomic Policy Fiscal Policy Fiscal receipts in 2012 rose to 19.9% as a proportion of GDP from 15.6% in 2011, boosted mainly by the growth in revenues from oil-related products (TSPP: Taxe spéciale sur les produits pétroliers) and income from foreign trade. If internal revenues are to be increased, fraud and the weakness of the institutional capacities of the tax and customs administrations are constraints to be overcome. It is estimated that current government expenditure accounted for 18.7% of GDP in 2012, versus 16% in 2011. Current expenditure should remain relatively high, in part because of the pay rises that the government and trade unions agreed upon after long negotiations in 2012. Greater attention to monitoring of expenditure and efforts to increase revenues helped keep the overall budget deficit under control (0.3% of GDP in 2011 and 1.4% in 2012). It is projected to be 0.6% in 2013. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 15.8 15.7 20.5 26.7 26.7 26.9 Tax revenue 14.9 14.7 15.6 19.9 18.6 18.5 Oil revenue - - - - - - Grants 0.4 0.4 3.5 5.4 6.6 7 Total expenditure and net lending (a) 23.7 29.7 20.8 28.1 27.3 27.3 Current expenditure 16.5 20.5 16 18.7 18.4 17.9 Excluding interest 14.4 18.5 14.3 16.9 16.4 16 Wages and salaries 5 5.7 5.3 6 5.7 5.6 Interest 2.1 2 1.7 1.8 1.9 1.9 Primary balance -5.8 -12 1.4 0.3 1.3 1.6 Overall balance -7.9 -14 -0.3 -1.4 -0.6 -0.3 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Monetary policy was tightened by the raising of the reserve requirement ratio from 9.5% to 17% and then to 22%, and of base rates from 16% to 22%, making it possible to sterilise excess liquidity in the form of non- interest bearing deposits with the country’s central bank, the BCRG (Banque centrale de la république de Guinée). Stricter currency management, a halt to deficit financing by money creation and improvement in food crops helped contain inflation, which has continued to fall, from 21.4% in 2011, an estimated 13.1% in 2012 and a projected 10.6% in 2013. The inadequate response of the productive system to demand pressures was, nonetheless, a source of inflationary tensions in respect of some consumer goods such as rice, oil, sugar and milk. Stabilisation of the economy, investment in mining and building, and lower inflation were reflected in the growth of credit to the economy with growth of more than 10% in 2011 and more than 20% in 2012. Short- term credits accounted for 72% of total credit extended to the economy by the banking sector in 2011, compared with 1% for long-term credits. The long term credits are essentially extended to bank staff and multinational companies. Introduction of more rigour into money and foreign-exchange management cut the differential between the 102 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 100. 103African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 black-market and the official-market rates from 10% at the end of 2010 to 0.5%. With the banking of exceptional revenues of USD 750 million from Rio Tinto it became possible to rebuild the reserves to 4.6 months’ cover of imports at the end of 2011 against 0.7 of a month in 2010. They are estimated at 4 months of coverage in 2012. In 2013 the BCRG will pursue its aim of getting inflation under control and limiting the inflationary pressures that could be produced by the completion of mining projects, by limiting the growth of the monetary base and by levies on excessive liquidity. Economic Cooperation, Regional Integration & Trade Guinea belongs to the Economic Community of West African States (ECOWAS) and has had a customs tariff in line with the West African Economic and Monetary Union Common External Tariff since 2006, which has two aims: i) to integrate the sub-region’s economies through a customs union to face the challenges of globalisation and ii) to build inside ECOWAS an integrated economic bloc taking advantage of the opportunities afforded by partnership agreements. At the bilateral level only the agreement between Guinea and Morocco is mutually preferential. Guinea is eligible to benefit from non-reciprocal trade preferences in the framework of the workings of the Generalised System of Preferences and/or Less Advanced Countries schemes of several members of the World Trade Organization, the Cotonou Agreement with the European Union (EU) and the US Africa Growth and Opportunity Act programme. The country takes part in all the statuary ECOWAS meetings and has cut by 27% its backlog of payments to the international organisations to which it belongs. The trade balance is estimated to have deteriorated in 2102 to reach 16.5% of GDP against 14% in 2011 under the influence of a growth in imports of 12%, which was greater than that of exports (up 5%), and this was related to the mining and building projects. The current-account deficit will remain high at more than 20% of GDP, compared with 24.2% in 2011, an estimated 25.1% in 2012 and a projected 25% in 2013. Guinea depends on imports to cover 25% of its food needs. Except for rice from countries in Asia, the EU remains the main supplier. Exports of agricultural produce are fairly limited and consist mostly of coffee and cacao. Exports to neighbouring countries consist chiefly of livestock, palm oil and potatoes. Coffee exports for the most part go to Morocco and the EU and amounted to 2 500 tonnes in 2011 and 1 950 tonnes in 2012. The country also exports pineapples and mangos to the EU and other countries in the sub-region, but the outlet that these two markets represents remains little exploited. If plans to give a new impetus to the country’s exports are to become a reality these two markets should be the subject of special attention in the talks over trade liberalisation with the EU under the Economic Partnership Agreements. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance 2.5 -0.2 1.4 -14 -16.5 -16.3 -17.5 Exports of goods (f.o.b.) 21.1 23.6 30.8 29.9 24.1 20.5 18.4 Imports of goods (f.o.b.) 18.6 23.8 29.4 43.9 40.6 36.8 35.9 Services -7.2 -5.8 -7 -10.3 -6.9 -6.6 -6.6 Factor income -1.7 -3.8 -1.6 -2.8 -2.5 -2.5 -2.5 Current transfers 0.4 0.8 0.4 2.9 0.7 0.5 0.5 Current account balance -5.9 -9.1 -6.8 -24.2 -25.1 -25 -26.2 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Stabilisation of the economy, investment in mining and building, and lower inflation were reflected in the growth of credit to the economy with growth of more than 10% in 2011 and more than 20% in 2012. Short- term credits accounted for 72% of total credit extended to the economy by the banking sector in 2011, compared with 1% for long-term credits. The long term credits are essentially extended to bank staff and multinational companies. Introduction of more rigour into money and foreign-exchange management cut the differential between the Guinea
  • 101. At the end of 2011 external public debt stood at USD 3.193 trillion, or 62% of GDP. It was not sustainable, with a net added value (NAV) of debt relative to exports of 194% and relative to receipts of 312%. On 11 April 2012 Guinea agreed with its Paris Club creditors to reschedule its debt under Cologne Terms. At the end of September 2012 the boards of the International Monetary Fund (IMF) and the World Bank agreed that the country had reached the HIPC Initiative completion point. This translated into debt relief of USD 2.1 billion, which aims gradually to reduce the 194% NAV ratio relative to exports before the HIPC/Multilateral Debt Relief Initiative (MDRI) to around 33% in 2012 and 24% in 2032, after the aid. On 25 October 2012 the Paris Club creditors undertook to cancel USD 655.9 million, amounting to normal relief of USD 356.3 million (the cancellation relief generally expected of the Paris Club) and supplementary relief of USD 299.6 million. This amounts to a cancellation of 99.2% of the debt owed by Guinea to its Paris Club creditors. In addition, the country has undertaken to seek the same level of debt relief from its other creditors. The board of the African Development Bank (AfDB) agreed in November 2012 to cancel Guinea’s debt in the amount of USD 175 million under the HIPC Initiative specifically, and of USD 274.7 million under the MDRI. This will allow the country to make a budgetary savings of around USD 304.9 million and will amount to a cut of more than 90% in Guinea’s obligations towards servicing its debt to the AfDB Group. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 25% 50% 75% 100% 125% Percentage Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy 104 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 102. 105African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Economic & Political Governance Private Sector Informality predominates in the private sector, which is hampered by a poor business climate and equally poor transport and energy infrastructure. The tax burden is not properly shared because the country’s formal economic base is so narrow. The World Bank report Doing Business 2013 ranks Guinea 178th out of 185 countries because of its poor governance, corruption, bureaucratic lethargy, a low level of investor protection and difficulties in getting access to credit. The investment code has been revised several times to provide greater incentives for investment but its rules governing the establishment of businesses are poorly applied. The weakness of the financial fabric and the high cost of credit limit the opportunities to create businesses. Political, legal and administrative changes in recent years have not made it possible to improve the business climate in Guinea. Public instruments to support and nurture businesses are inadequate. There have been timid initiatives, but there has been no real strategy and concerted action to promote small- and medium-sized enterprises (SMEs), not to mention that those that are legally established must face competition from the informal sector. Ignorance about export markets and the absence of any quality control of exported goods are amongst the main obstacles facing the trade sector. Guinean exports are not very competitive because the costs of the production factors (transport, packaging, electricity grid etc.) are so high. The country has major and varied tourist attractions (beaches, the hills and cliffs of Central Guinea, etc.) but the tourist industry is still in its infancy with about 40 000 to 50 000 tourists arriving from abroad each year. The sector faces constraints in the form of insufficient basic infrastructure (hotels, access to tourist sites, etc.), the high cost of such services as international transport and hotels, and the low level of the qualifications of human resources. In 2013, the government will need to intensify the reforms that have been embarked upon in the fields of justice, the investment code, the overall tax code, the customs code, the mining- and oil-industry codes, etc. The agency to promote private investment (Agence de promotion de l’investissement privé) set up by decree in June 2011 will need to strengthen its operational capacities. Financial Sector In 2012 Guinea had 16 registered commercial banks, 14 of which were operational. One was placed under provisional administration in December 2011 because of bad management and failure to observe banking regulations. All the other banks respected the regulatory standard of 10% solvency. Some have ratios well above the standard. Only some have fully respected the minimum liquidity standard. The prudential regulation requires the banks to cover 60% of their assets by permanent and long-term resources. All the banks had transformation coefficients in excess of 60% in 2012. Very few banks failed to respect regulations governing limits on foreign- exchange risks. Local investors face problems in meeting bank demands in terms of equity and guarantees. High interest rates, above 20%, and the required collateral make it hard to access credit. The complexity and cost of the necessary formalities as well as the legal risks involved weigh on the application of legal measures in respect of guarantees. Draft legislation aimed at strengthening banking oversight and financial intermediation in favour of SMEs and small- and medium-sized industries (SMIs) was prepared in 2012 and submitted to the national transition council, the CNT (Conseil national de transition). The business climate and the limited nature of banking portfolios are not favourable to the development of SMEs and SMIs. The non-banking financial sector is made up of 13 registered microfinance institutions and 9 insurance companies, 8 of which are active. In the microfinance sector, financial products are chiefly current accounts and short-term loans. Some microfinance institutions also deal with money transfers. Public Sector Management, Institutions & Reform The government has drawn up new general regulations on public accounting and a guide to overseeing activities with a financial impact in a bid to strengthen the management of public finances. It has computerised stock-account data to integrate it into the spending chain. It has also revised the decree that categorises Guinea
  • 103. supporting documentation in public expenditure. The government has continued to reform the public tendering process by relaunching the journal of public contracts and producing a buyer’s guide. The CNT has adopted a budget-related organic law as part of its structural reforms. The accounting statements for the budgets between 2005 and 2011 have also been adjusted with a view to preparing remedial legislation on finance settlement and the adoption of a new finance law. The freeze on public contracts signed in 2009 and 2010 and their auditing, commenced in 2011, and the effective application of the code governing public contracts continued in 2012 but were not completed. The same is true of the abolition of non-budgeted spending operations, the suppression of ad hoc exemptions from customs duties without a basis in regulations, the requirement for companies and public bodies to pay back to the Treasury receipts generated on its behalf and the strengthening of the fight against tax fraud and evasion. The government has set up periodic meetings between the finance ministry and the BCRG to strengthen the co- ordination of macroeconomic policies. The two parties have agreed on an account-management convention. To strengthen the co-ordination and monitoring of its actions, the government has established arrangements for their review and evaluation. This requires all ministerial departments to file with the office of the prime minister periodic reports on the state of progress and implementation of their respective schedules of activity and of cabinet decisions. The process of purging the general register of state employees continued and was extended in 2012, with 1 436 full-time staff and workers on permanent contracts being sent into retirement and the names of 5 956 others removed. The process also made it possible to eliminate the names of 542 staff that were either deceased or had abandoned their posts. Another 516 employees were found to be in an irregular situation and were removed from the register, and 771 were suspended with their pay frozen because they had given up their jobs or were double-counted. An investigation into student scholarships resulted in discovering 39 000 bogus students. With a view to giving the public sector a younger and more female dimension, the government signed an agreement with the French government for the training of 1 200 public-sector employees and young graduates at a rate of 400 a year. In 2012, 393 people were selected for this programme. A minimum salary of GNF 440 000 (Guinea francs) was introduced for the first time in the country. These various measures are part of the implementation of the programme of state reform and modernisation of the administration developed and adopted by the government in 2012. Studies were conducted in 2012 with a view to reforming local governments and clarifying their relationships with their supervisory administrations in order to put decentralisation on a firmer footing. A decree on the adoption and piloting of the national political document on decentralisation and local development was signed and published in March 2012. The process of reform peaked in 2012, but 2013 has seen a slowing of the implementation of the reforms caused by capacity constraints in the area of reform co-ordination, budgetary limitations, and the negative impact of the political and institutional tensions raised by the organisation of parliamentary elections intended to mark the end of the transition. Natural Resource Management & Environment The quality of Guinea’s environment has been progressively deteriorating, including destruction of the plant cover under the impact of clearance for farming, timber felling, brush fires and mining. The rate of deforestation is put at 502 500 hectares a year. The ecosystem has been most damaged in areas of poverty and extreme poverty. According to 2012 data, almost 68% of the population have access to drinking water (compared with 74.1% in 2007) while the share of people using running water is lower still: 11.6% in 2012, against 8.4% in 2011. About 31% of people have access to hygienic lavatories, and 9.8% of households could dispose of household waste hygienically in 2012. It is unlikely that the targets of the Millennium Development Goals (MDGs) relating to a sustainable environment will be achieved by 2015. In 2012, the government drew up a plan to combat the discharge of hydrocarbons into the sea. It compiled an inventory of the amount of timber felled before 2010 and launched a community-led total sanitation plan. Some 2 000 forest wardens were given military and technical training. Revenue from taxes and licences amounted to GNF 20 billion compared with an projected GNF 65 billion between 2008 (when the environmental protection fund was set up) and 2012. Political Context 106 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 104. 107African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 The electoral process continued in 2012 with the revival of technical discussions between the political parties, technical and financial partners, the CENI and the CNT, to determine how, in practical terms, the parliamentary elections could be organised and financed. In September 2012, the CNT adopted legislation relating to the recomposition on a basis of equal representation in the CENI with the appointment of ten members of the presidential circle, ten members of the opposition, three representatives of civil society and two members of the administration. A new CENI was established with a new elected chairman, who gave details of a timetable for parliamentary elections in May 2013. All those involved in political life have spoken of the need for a dialogue to set up the conditions for organising parliamentary elections that are credible, free, transparent and accepted by all. Accordingly, after recent demonstrations organised by the opposition parties, which resulted in the deaths of nine people and major material damages, a framework of inclusive political dialogue was established which brings together all political and civil-society points of view. The election date might be postponed after these discussions. A ministerial reshuffle took place in October 2012, marking the departure from the government of the military. A ministry of human rights and public freedom was instituted to demonstrate the government's determination to take a positive role in strengthening the democratic process. In the light of the crisis in Mali the government set up a monitoring centre and declared its solidarity with any decision that might be taken by ECOWAS, the African Union and the United Nations. In 2012, the government drew up a plan to combat the discharge of hydrocarbons into the sea. It compiled an inventory of the amount of timber felled before 2010 and launched a community-led total sanitation plan. Some 2 000 forest wardens were given military and technical training. Revenue from taxes and licences amounted to GNF 20 billion compared with an projected GNF 65 billion between 2008 (when the environmental protection fund was set up) and 2012. Political Context Guinea
  • 105. Social Context & Human Development Building Human Resources Results of a 2012 survey into the prevalence of poverty (ELEP-2012) showed that the great majority of the population (72.2%) were uneducated. Slightly more than 10% had completed primary or secondary schooling. Only 8% had completed university or professional training. The literacy rate among those over 15 was 34% in 2012, compared with 32.9% in 2007. Only one person in three over 15 years old is literate, and twice as many men than women are literate. The gross rate of school enrolment amongst children aged between 7 and 12 rose from 56% in 2007 to 59.5% in 2012. The level of enrolment among the 13-to-16 age group was 21.7% in 2012 compared with 21.2% in 2007. The comparative figures for the 17-to-19 age group were 13.1% in 2012 and 10.9% in 2007. In respect of health policy, government policy is based on strengthening prevention, combatting priority diseases and improving access to essential health services for the poor. In 2012, 61.4% of people attended modern health centres compared with 58.2% in 2007. The rate of admission at health services was 8 per thousand against a target of 15 per thousand and the occupancy rate of hospital beds was 61%. The gross mortality rate in 2012 was 14.6 per thousand. Data from the population and health survey show that the rate of maternal mortality increased between 1992 and 1999, rising from 666 per one hundred thousand live births to 980 per one hundred thousand live births. On the other hand the rate of infant mortality dropped sharply to reach 67 per thousand between 2008 and 2012 compared with 86 per thousand between 2003 and 2007. The rate of child mortality fell from 145 per thousand between 2003 and 2007 to 122 per thousand for the period between 2008 and 2012. To cut maternal and infant mortality rates, the government has intensified its campaign for free caesarean sections, of which there were 8 770 for a total of 43 996 deliveries. The rate of vaccination was 86% for poliomyelitis and 91% for measles. In the area of targeted illnesses, 23 016 people infected with HIV/AIDS or affected by it were treated (or 60% of those living with HIV/AIDS) compared with 58.24% in 2011. A total of 1 987 345 cases of malaria were treated, as were 11 576 cases of tuberculosis, 557 cases of leprosy and 7 227 cases of cholera. The government provided GNF 19 billion in 2012, as against GNF 2 billion in 2010, towards increasing the number of centres seeking to prevent transmission from mother to child, which rose from 89 in 2011 to 159 in 2012. The money also helped lower the prevalence among high-risk groups: 16% in 2012 against 34% in 2005 amongst sex workers, 5.6% against 6.5% in the military and 5.4% against 5.5% amongst lorry drivers. The national committee to fight AIDS calculates that HIV/AIDS in 2012 was more common amongst women aged between 15 and 24 (with a 0.74% incidence) than men in the same age group (0.29%) and that the rate amongst children was 0.25%. Poverty Reduction, Social Protection & Labour Poverty increased between 2002/03 and 2007, rising from 49.1% to 53%, then to 55.2% in 2012. Some 6.2 million people were estimated to be poor in 2012. To combat poverty, in 2012 the government provided people with basic foodstuffs to the amount of 130 000 tonnes of imported rice and 15 000 tonnes of sugar, corresponding to a subsidy of GNF 54 billion, or around 0.6% of revenues. It also banned the re-export of basic foodstuffs, purchased and stored 2 208 tonnes of husked rice and 942 tonnes of paddy rice, which were surplus production by farmers and producer groups, and sold 27 200 tonnes of fish. Reduction of poverty through a revival of growth and control of inflation is a major issue for the government. The adoption of relatively strict fiscal and monetary policies seeks to contain the erosion of real household incomes, attract private investment and generate more productive jobs, but unless these policies are matched by a significant upturn in the productive sectors, they will have little effect. To cut poverty, the government also plans to reverse fertility trends, better match education policies to the stated needs of the labour market, rehabilitate and build marketing infrastructure, improve basic services and develop promising sectors. Most household income comes from work. Less income from work means greater poverty. Analysis of the labour market shows that in recent years there has been a shift in the structure of employment towards less productive jobs such as employment in micro-businesses, household work and caregivers. This has undoubtedly been helped by the expansion of the informal sector and more widespread underemployment. It is accordingly important that the measures to be taken to foster the expansion of employment be accompanied by steps to increase workers’ productivity. 108 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 106. 109African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Between 2002 and 2010, the unemployment rate rose from 10.2% to15% in Conakry, but dropped from 6.7% to 3.2% in towns in the country’s interior. The fall can be better explained by migration to the capital than by an increase in job opportunities. The government has instituted a framework of dialogue and concertation on issues relating to youth employment and in August 2012 launched a plan to help the socio-economic inclusion of young people and women at risk through operations seeking to soak up youth and female joblessness. It also continued initiatives to help young people enter active life through construction work on infrastructure to recycle plastic and organic waste. The authorities have started to promote microenterprises in partnership with several non-governmental institutions with a view to providing training in the entrepreneurial spirit and in starting up businesses: 155 business plans out of 300 were financed in favour of young people. In 2013, it plans to improve the circulation of news about the jobs market by using both modern and traditional communication channels. These measures should continue and become more operational and better co-ordinated, which is a challenge in a political environment that alters according to the tensions linked to the transition to democracy and which is limited by a cash-based management of public finances that has problems in dealing with the implementation of sustainable and sizeable socio-economic projects. Gender Equality In the urban areas, the literacy rate among those aged over 15 is 72.3% for males and 46.1% for females. In the countryside the proportions are 31.8% and 11%, respectively. The school enrolment rate in the 7-to-12 age group is 88.1% for boys in urban areas and 85% for girls. The gap is wider in the countryside where the proportions are 52.1% and 44.8%, respectively. At the secondary level, in urban areas 73.4% of boys aged between 13 and 19 are enrolled and 57.9% of girls, but in the countryside the proportions are 24.3% and 13.6%, respectively. The differentials can be explained by the fact that girls end their schooling prematurely or because they do not succeed, or because there are no schools for them to attend. Girls make up 20.7% of those admitted to higher education. Men earn one-and-a-half times more than women. Women account for 22.58% of the the CNT, or 35 of the 155 members of parliament. There are 5 women and 30 men in the government. The country’s children’s parliament has 52 boys and 62 girls. In the central administration, women occupy 23% of jobs, 12% of which are decision-making positions. The economic and social council has 21% female membership and women hold 36% of positions in the judiciary and 8% in research and at university. There are no women prefects in the decentralised services, but two women occupy positions as special delegation presidents, equivalent to mayors. In the political parties, women tend to play a supporting and social role rather than being decision makers. Women’s groups are heavily involved in income-generating activities. They make up 47% of the clients of microfinance institutions and receive 54% of credits granted per business sector. It is believed that women are less present in the jobs market than men because of their household duties and low level of education and/or of qualifications compared with men. Guinea
  • 107. Thematic analysis: Structural transformation and natural resources Guinea’s main mining resources of economic interest are bauxite, iron ore, gold and diamonds. While iron ore has only recently been exploited, bauxite, gold and diamonds make up almost 88% of exports of goods and produce 20.57% of internal revenues. Local added value is put at 14.2%. The sector is the main destination of foreign direct investment (FDI) and is made up of semi-private companies, which have run into difficulties in the past ten years because equipment and infrastructure have become antiquated and as a result of competition in world markets. There are estimated to be more than 9.4 billion tonnes of iron ore deposits with 350 million tonnes at Mount Nimba with a 66.5% content, but bauxite is the major mineral with proven and probable reserves of more than 20 billion tonnes, or two-thirds of world reserves. The mining sector has a limited impact on economic activity, both upstream and downstream. The goods and equipment used to extract bauxite and to process it are not produced in Guinea. Any rise in mine production or exports does not stimulate production in other sectors but increases imports. The downstream impact depends on the degree to which mining products can be processed locally, but apart from the case of the Rusal alumina plant, there are no local mineral processing industries, which are generally regarded as sources of substantial added value, on which increased production could have an impact. In addition mining exploitation and exports are highly capital-intensive. The two activities use a large amount of capital but relatively little labour, with the result that the sector’s ability to create jobs and induce structural change, even at a time of growth, is necessarily limited. It becomes clear, accordingly, that the modern mining sector has not helped act as a driver of inclusive growth or substantially reduce poverty, two essential conditions for carrying out deep structural change. The weak involvement of mining activities with the rest of the economy has not produced knock-on effects that could generate major structural changes in the country over the past 30 years. The problems of governance linked to the management of the sector have contributed substantially to this state of affairs. One of the conclusions concerning the mining sector that emerged at the Guinea economic forum in September 2012 was that there are no close ties between it and the other sectors of the economy, a point of view confirmed by its especially outward-looking character. A greater integration of the mining sector into the rest of the economy could have a more intensive ripple effect on the other sectors as investment in mining increases. In tax terms, until the institution of the Second Republic, the mining sector used to be the greatest contributor to the public purse (82.4% of revenues in 1986) thanks to the increase in bauxite exports and high prices on the world market. A change in conditions on the world market for aluminium saw a sharp drop in public revenues, to 24.7% in 2000 and 20.6% in 2012. The implementation of a policy to diversify non-mining fiscal resources led to a change in the structure of taxation. Guinea devised measures to confer on certain businesses tax exemptions under the October 1984 investment code, which was revised in 1995, specific tax and customs regimes, special conventions and so on. Until quite recently, the mining sector benefited from exemptions in respect of the ordinary tax provisions. The 1995 mining code abolished value added tax (VAT) on mining exports and cut import and export duties because of their negative effect on the competitiveness of the mining industry. In 2012 the government instituted a standard mining convention, to which all existing and future conventions will be adapted. It has also decided to take a stake in all mining programmes. The “fair value”, or share of production that the country gets back, is the indicator used to calculate the fiscal revenues from the mining sector. The mining companies keep 65% to 85% of their export earnings in foreign accounts. Those operating under a concession-contract regime do not repatriate their foreign-exchange earnings and pay instead a tax in foreign exchange to the BCRG. The licence fees and financial contributions benefiting communities where mining companies are based have risen by around an average of 3% over the last 20 years. Surveys of poverty and inequality conducted in 2012 showed that the Boké and Kindia regions, the main areas where bauxite-producing companies operate, are among those hardest hit by poverty with rates of 58.9% and 62.5%, respectively. The regions of Kindia and N’zérékoré are the greatest contributors to overall poverty: respectively 18% and 21.4%. The resurgence of poverty and the lack of infrastructure in these places indicate that the use of local resources has little impact on the economies and well-being of local populations. The government is relying on strengthening its relationships with partners to be able to develop the country’s potential, the strategy being to enhance the role of the private sector and ensure that market forces are respected. In 2012 it undertook a review of the 1995 mining code to encourage more investment in the sector and tried to improve the law relating to mining, which needs variously to be clarified, completed or adapted. It restricted the mining tax rate and base to make the sector more attractive and hopes to see an increase in the level of revenues. 110 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea
  • 108. 111African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 respected. In 2012 it undertook a review of the 1995 mining code to encourage more investment in the sector and tried to improve the law relating to mining, which needs variously to be clarified, completed or adapted. It restricted the mining tax rate and base to make the sector more attractive and hopes to see an increase in the level of revenues. The government is aware of the major importance of the mining sector, regarded as the chief source of the resources needed to restructure the economy and accelerate growth. One of the aims of the mining code is to expand and diversify in the long term the exploration, exploitation and processing of mineral resources. The government acts as a guarantor of mining exploitation and exploration as long as regulations are respected and has made support for the private sector a basic element of its mining policy. Its role is restricted to setting the policy framework, in particular in regard to imports, licences, titles, jobs, the environment, and extracting value from resources, as well as ensuring that the steps implemented are monitored and the necessary support forthcoming. The process of deriving real, major and supervised value of the country’s mining potential will make it possible, in the long run, to make the sector the engine of economic growth on condition that future investment has implications and impacts in respect of the other sectors of the economy. It is possible to imagine investment of USD 70 billion in the mining sector in the years to come with a resulting perceptible rise in GDP and the direct or indirect creation of 600 000 jobs. The plan to build an alumina plant at Kabatade should generate 3 000 jobs during construction and 1 000 in exploitation. The integrated project at Dian-Dian with a capacity of 15 million tonnes a year of bauxite and 2.8 million tonnes of alumina should produce 7 000 construction jobs and 2 000 operational jobs. The alumina project at Sangarédi with a capacity of 3.2 million to 5.6 million tonnes should generate 7 000 to 10 000 jobs in the building phase and 1 500 when it becomes operational. According to the department responsible for prospective studies at the ministry in charge of mining “the CBG (Compagnie des bauxites de Guinée), with exports of 12.5 million tonnes of bauxite and a turnover of around USD 300 million would earn almost USD 2 billion if it processed it into alumina and around USD 5 billion if it processed it into aluminium”. The Bellzone Kalia project with a capacity of 50 million tonnes of iron ore could generate 9 000 construction jobs and 3 500 operational jobs and it is worth noting the iron-deposit exploitation project at Simandou, which should lead to the building of a trans-Guinean railway and of a deep-water seaport at Benty. Building these installations will require more energy. The development of a potential estimated at 6 000 megawatts (MW) has begun with the forthcoming construction of a dam at Kaléta, which should produce 200 MW and for which the government plans to train 1 000 young people. These huge projects are of vital importance for the economic and social future of the country, but if they are to be realised there has to be an improvement in Guinea’s business climate, in particular in terms of security of investments, and an upturn in the global economy. If circumstances are less favourable, in the medium term the country could remain at its current pace of development with annual growth rates of between 4% and 5% and only a limited impact on the social dimension. Guinea
  • 109. Guinea-Bissau 2013 www.africaneconomicoutlook.org Toussaint Houeninvo / t.houeninvo@afdb.org Inacio Ie / iinacio.ie@undp.org Luca Monge Roffarello / luca.monge.roffarello@undp.org
  • 110. Guinea-Bissau Sections The economy shrank by an estimated 1.5% in 2012 (after expanding by 5.3% in 2011) due to lower production and world prices of cashew nuts and problems after the April 2012 coup d’état. Growth is expected to be 4.2% in 2013 and 3.5% in 2014. The budget showed a deficit equal to 2.3% of GDP in 2012 (down from a 0.7% surplus in 2011), but deficits are expected to contract to only 0.8% in 2013 and 1.0% in 2014, assuming there is an improvement in economic activity. Potentially substantial bauxite and phosphate reserves were discovered in the 1970s but have never been mined for lack of infrastructure. Overview The country’s macroeconomic situation was affected by a coup d’état on 12 April 2012, and the economy is estimated to have contracted by 1.5% of gross domestic product (GDP) that year after having grown by 5.3% in 2011. The slowdown was mainly due to lower production and world prices of cashew nuts, which account for some 30% of the added value in the primary sector. The average price of cashew nuts fell from USD 1 350 (US dollars) a tonne in 2011 to USD 1 081 in 2012. Real GDP growth is expected to recover to 4.2% in 2013 and 3.5% in 2014. Inflation, which was 5.0% in 2011 due to higher import prices, should ease, thanks to expected macroeconomic evolutions, to 2.1% in 2012 (with 3.3% in 2013 and 2.5% in 2014) as the economy slowly recovers and domestic markets are adequately supplied. The budget showed a deficit of 2.3% of GDP in 2012 after a 0.7% surplus in 2011. Thanks to budgetary discipline and better revenue collection, it is expected to shrink to a deficit of 0.8% in 2013 and of 1.0% in 2014. The current-account deficit worsened to 6.3% of GDP in 2012 but should improve to a deficit of 4.7% of GDP in 2013 and of 4.3% in 2014. Food imports should decline with an expected 5% increase in production and export of cashew nuts in 2013 and a satisfactory 2012/13 crop season. The social situation is still precarious. Guinea-Bissau has a very low score (0.364) on the worldwide Human Development Index (HDI) and ranks 176th out of 185 countries surveyed in the 2013 report. Per capita GDP was USD 614 in 2010, and more than two-thirds of the population was living on less than USD 2 a day and 33% on less than one dollar a day. The country showed an HDI average annual growth between 2000 and 2010 of 0.9%, compared with 2.1% for sub-Saharan Africa and 1.68% for very low-ranking countries. This bad score was due to widespread poverty, very low incomes because of lack of jobs and a life expectancy of only 48.6 years aggravated by difficult access to good healthcare. Mineral and oil resources have not been developed, except for some quarrying and small alluvial gold mining operations. Concessions have however been granted in recent years to mine bauxite (2007) and phosphates (1997). Several offshore oil discoveries have been made but their commercial viability is uncertain. Guinea-Bissau Sections The economy shrank by an estimated 1.5% in 2012 (after expanding by 5.3% in 2011) due to lower production and world prices of cashew nuts and problems after the April 2012 coup d’état. Growth is expected to be 4.2% in 2013 and 3.5% in 2014. The budget showed a deficit equal to 2.3% of GDP in 2012 (down from a 0.7% surplus in 2011), but deficits are expected to contract to only 0.8% in 2013 and 1.0% in 2014, assuming there is an improvement in economic activity. Potentially substantial bauxite and phosphate reserves were discovered in the 1970s but have never been mined for lack of infrastructure. Overview The country’s macroeconomic situation was affected by a coup d’état on 12 April 2012, and the economy is estimated to have contracted by 1.5% of gross domestic product (GDP) that year after having grown by 5.3% in 2011. The slowdown was mainly due to lower production and world prices of cashew nuts, which account for some 30% of the added value in the primary sector. The average price of cashew nuts fell from USD 1 350 (US dollars) a tonne in 2011 to USD 1 081 in 2012. Real GDP growth is expected to recover to 4.2% in 2013 and 3.5% in 2014. Inflation, which was 5.0% in 2011 due to higher import prices, should ease, thanks to expected macroeconomic evolutions, to 2.1% in 2012 (with 3.3% in 2013 and 2.5% in 2014) as the economy slowly recovers and domestic markets are adequately supplied. The budget showed a deficit of 2.3% of GDP in 2012 after a 0.7% surplus in 2011. Thanks to budgetary discipline and better revenue collection, it is expected to shrink to a deficit of 0.8% in 2013 and of 1.0% in 2014. The current-account deficit worsened to 6.3% of GDP in 2012 but should improve to a deficit of 4.7% of GDP in 2013 and of 4.3% in 2014. Food imports should decline with an expected 5% increase in production and export of cashew nuts in 2013 and a satisfactory 2012/13 crop season. The social situation is still precarious. Guinea-Bissau has a very low score (0.364) on the worldwide Human Development Index (HDI) and ranks 176th out of 185 countries surveyed in the 2013 report. Per capita GDP was USD 614 in 2010, and more than two-thirds of the population was living on less than USD 2 a day and 33% on less than one dollar a day. The country showed an HDI average annual growth between 2000 and 2010 of 0.9%, compared with 2.1% for sub-Saharan Africa and 1.68% for very low-ranking countries. This bad score was due to widespread poverty, very low incomes because of lack of jobs and a life expectancy of only 48.6 years aggravated by difficult access to good healthcare. Mineral and oil resources have not been developed, except for some quarrying and small alluvial gold mining operations. Concessions have however been granted in recent years to mine bauxite (2007) and phosphates (1997). Several offshore oil discoveries have been made but their commercial viability is uncertain. 114 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 111. 115African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 5.3 -1.5 4.2 3.5 Real GDP per capita growth 3.2 -3.6 2.1 1.5 CPI inflation 5 2.1 3.3 2.5 Budget balance % GDP 0.7 -2.3 -0.8 -1 Current account % GDP -1.6 -6.3 -4.7 -4.3 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2% 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) Guinea-Bissau
  • 112. http://dx.doi.org/10.1787/888932809336 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2010 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 44.8 47.3 Construction 1.4 1.3 Electricity, gas and water 0.4 - Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 4.8 3.9 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 11.8 12 Mining - - Other services - - Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 10.8 11.5 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 4.4 4.9 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 21.8 19.2 Wholesale, retail trade and real estate ownership - - Agriculture, forestry, fisheries and livestock contributed 45.1% of GDP in 2012. The secondary sector, which includes extractive industries, manufacturing and crafts, electricity, gas and water, as well as construction, accounted for 12.4%, and the tertiary sector, mainly commerce, 42.5%. Despite the country’s great economic potential due to its natural resources and very low level of development of some fairly attractive sectors, recurring political instability hampers progress in this direction. Agriculture and fisheries, which employ about 72.4% of the working population, are little developed and mainly use rudimentary technology, according to the 2010 light survey for poverty assessment (ILAP 2). Mining and tourism are promising sectors, but government efforts since 1997 to sign contracts with foreign and local firms to develop them have made little progress due to systematic contract violation by the firms, weak legal institutions and, since 1998, social and political unrest. Agriculture has great potential because of the climate and soil, mostly with cash crops (cashews, groundnuts and cotton), fruit, vegetables and tubers. The country also has more than 300 000 hectares of land suitable for rice- growing, but remains dependent on food imports for having insufficiently developed these resources. Rice 116 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 113. 117African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 production in 2010 only met half the country’s needs. The economy is not very diversified and relies mainly on cashew nuts, which in 2012 were 87.7% – XOF 74.3 billion (CFA franc BCEAO) – of total exports of XOF 84.7 billion. The agriculture ministry has reported a good 2012/13 harvest, with, compared to the previous season, 15.3% higher gross cereals output of an estimated 248 781 tonnes (net production is expected to be 161 837 tonnes). Local markets are well stocked with food staples such as rice, sugar, wheat flour and cooking oil, but the very poor have difficult access to food because of low incomes and high prices throughout the country. The economy shrank an estimated 1.5% in 2012 (after expanding 5.3% in 2011), mainly due to lower production and exports of cashew nuts, which account for some 30% of the primary sector. The average price of cashews fell from USD 1 350 per tonne in 2011 to USD 1 081 in 2012. Suspension of a large part of foreign aid also reduced the level of investment. Prospects for 2013 very much depend on the social and political climate, especially on presidential and parliamentary elections to be held during the year. Economic activity should be driven by the primary sector provided that sales of cashews are good, with expected 5% higher production as well as export of stocks remaining from the 2012 harvest. Gradual resumption of public projects funded by the country’s development partners should also help and growth is projected at 4.2% in 2013 and 3.5% in 2014. Economic diversification requires a stronger democratic process and tackling the repeated military intervention in politics, which undermines the economic recovery begun in 2008 and could even threaten the policies and reforms set out in the poverty-reduction strategy paper (DENARP II). Other challenges to diversification are weak institutions, the economy’s vulnerability to external shocks through lack of diversification, inadequate infrastructure, especially in energy, and poor public-finance management. Also important is to continue efforts to make financial bodies more efficient and curb recurrent spending by better internal monitoring of public bodies and using banks to pay civil-servant salaries and pay for services to the government. This includes strict application of tax and customs regulations, broadening the tax base (including property and land taxes), curbing and monitoring tax and customs exemptions, securing revenue by centralising collection at the main tax office, and developing faster means and procedures to introduce VAT. Spending needs to be internally monitored and also externally by the court of auditors. This is in the context of a strong informal sector. Such reforms are needed to remove regulatory restraints and create conditions for sustainable economic growth. Guinea-Bissau
  • 114. Macroeconomic Policy Fiscal Policy Efforts to consolidate the budget in the past four years, backed by the Bretton Woods institutions, have focused on reorganising public finances, notably through modernisation, and by collecting revenue and controlling current expenditure. The government faced new budget challenges in 2012 after the 12 April coup d’état, when scheduled budget support (1.3% of GDP), mainly from the African Development Bank (AfDB) and the World Bank, was suspended. A revised budget in September set budget revenue at 10.6% of GDP, down from a projected 12.8% in 2012 and collection equivalent to 11.6% of GDP in 2011. Total expenditure was 3.5 percentage points of GDP less as a result of this revised budget but current expenditure increased 2 percentage points to 13.7% (11.7% in 2011), because of spending caused by the death of President Malam Bacai Sanhá, security measures during elections and the fight against drug trafficking. Total expenditure and net loans were 21.0% of GDP in 2012 (20.2% in 2011) and total spending was projected to be 20.6% in 2013 and 20.7% in 2014. The budget fell into a deficit of 2.3% of GDP in 2012, down from a 0.7% surplus in 2011. Normalisation of social and political conditions, resumed co-operation with foreign donors and continued reforms in public administration and in the defence and security sector should make for appreciably smaller deficits in 2013 (0.8% of GDP) and 2014 (1.0%). The government’s 2012 priority programme included better tax collection and management, and tighter management of civil servants by paying salaries through banks. The tax burden is projected at 8.9% of GDP in 2013 and 8.8% in 2014. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 25.2 21.5 20.8 18.7 19.8 19.7 Tax revenue 6.8 7.8 8.6 8.9 8.9 8.8 Oil revenue - - - - - - Grants 16.2 11 9.6 7.1 8.3 8.3 Total expenditure and net lending (a) 20.9 20.3 20.2 21 20.6 20.7 Current expenditure 11.7 11.8 11.6 11.3 11.2 10.9 Excluding interest 11.4 11.5 11.6 11.2 10.9 10.6 Wages and salaries 5.1 6.2 6.1 5.1 5 4.8 Interest 0.3 0.3 0 0.1 0.3 0.3 Primary balance 4.6 1.5 0.7 -2.2 -0.5 -0.6 Overall balance 4.3 1.3 0.7 -2.3 -0.8 -1 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Guinea-Bissau’s monetary policy is in the hands of the Central Bank of West African States (CBWAS), as with other member states of the West African Economic and Monetary Union (WAEMU). Recent monetary changes include a drop in 25 base points in CBWAS bank intervention rates on 16 June 2012, which reduced the minimum interest rate for liquidity auction bids from 3.25% to 3%. The minimum bank reserve requirement has been 5% since 16 March 2012. Banking conditions have improved in the past eight years with the arrival of new banks, but interest on overdrafts is still high (around 10% in 2012) and out of line with the lowered intervention rates of the central bank and rates in the money markets.118 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 115. 119African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 been 5% since 16 March 2012. Banking conditions have improved in the past eight years with the arrival of new banks, but interest on overdrafts is still high (around 10% in 2012) and out of line with the lowered intervention rates of the central bank and rates in the money markets. The country’s membership of the franc zone, with its tight budget rules and limited access to monetary means to make up deficits, has kept prices stable. Average year-on-year inflation at the end of December 2012 was 2.1% (5.0% a year earlier), which showed greater control of its causes, including fewer food-price increases in 2012. Inflation, measured by the harmonised consumer price index, should be 3.3% in 2013 and lower in 2014 (2.5%) if world food and oil prices are stable. Economic Cooperation, Regional Integration & Trade Guinea-Bissau’s trade policies come under the WAEMU and the Economic Community of West African States (ECOWAS). Its tariff regime conforms with the WAEMU common external tariff (CET). Exports in 2012 were 23.6% of GDP and imports 27.8%, making a trade deficit of 4.2% of GDP. This is projected to improve slightly to ‑4.1% in 2013 and ‑3.1% in 2014, with higher exports (especially greater cashew production and demand) than imports. Nearly all the country’s unprocessed cashews are bought by India. The euro area remains the chief source of Guinea-Bissau's imports (an average 45.5% between 2005 and 2011), with Portugal the source of about 30% between 2000 and 2011. Foreign direct investment (FDI) increased 84% in 2006-07 to XOF 42.3 billion, mostly from Portugal (32.6%), Senegal (26.4%) and Lebanon (22.9%), according to a 2010 CBWAS survey. The country is very dependent on foreign aid, especially to fund public investment. Grants were almost 44% of the entire budget in 2011. The country adhered to the Paris Declaration in August 2010 and took part in the 2011 survey on the Paris Declaration and fragile states, and also the December 2011 Busan Conference on aid effectiveness, which launched the New Deal for Engagement in Fragile States. The current-account deficit worsened in 2012 to 6.3% of GDP (down from -1.6% in 2011) but is projected to improve in 2013 to ‑4.7% and in 2014 to ‑4.3%. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -1.3 -9.8 -8.2 -1.2 -4.2 -4.1 -3.1 Exports of goods (f.o.b.) 14.3 14.7 14.8 24.3 23.6 23.4 24.3 Imports of goods (f.o.b.) 15.6 24.5 23 25.4 27.8 27.5 27.4 Services -6.9 -6.5 -6.9 -6.8 -7 -7.1 -6.9 Factor income -1.8 -1.3 -0.3 -1.3 -0.8 -0.5 -0.8 Current transfers 12.7 11.8 7 7.7 5.7 7 6.6 Current account balance 2.6 -5.7 -8.3 -1.6 -6.3 -4.7 -4.3 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Relief obtained under the Heavily Indebted Poor Countries (HIPC) Initiative on 31 December 2010 reduced the country’s nominal public debt to 43.7% of GDP in 2011 (including arrears), 17.5% of which was external and 26.2% internal. It should fall further in 2012 (to 42.1% of GDP) and 2013 (to 39.8%). The internal debt should drop from 24.3% of GDP in 2012 to 22.1% in 2013. The net present value of the external debt, in terms of exports, fell from 53.4% of GDP at the end of 2010 to 37.4% in 2012. Guinea-Bissau
  • 116. Support from the AfDB and the United Nations Development Programme (UNDP) helped strengthen and monitor the government’s debt-management unit through the computerised debt management and financial analysis system (DMFAS) supplied by the UN Conference on Trade and Development (UNCTAD), and operations are being brought up to date, with bilateral negotiations under way for this. The government plans to maintain a sustainable debt level and if need be only seek soft loans. The government will continue its medium- and long-term repayment of pre-1999 internal arrears. Technical- assistance missions arrived in November 2012 so the debt-management unit now has the means to produce reports on the public debt. The government has also begun a diplomatic campaign aimed at its financial partners to obtain all the debt relief agreed on after the country reached the HIPC Initiative completion point. Arab funding bodies lobbied in 2012 included the Islamic Development Bank (IsDB), the Arab Bank for Economic Development in Africa (ABEDA), the Kuwait Fund and the Saudi Fund. Agreements were signed with the ABEDA and the Kuwait and Saudi funds, and talks are still on-going with the IsDB. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 200% 400% 600% 800% Percentage 120 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 117. 121African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Economic & Political Governance Private Sector Guinea-Bissau joined WAEMU in 1997. Member countries of the union, which is pegged monetarily to the euro, have adopted a free-trade policy to encourage trade competition within the union and internationally. A 2010 CBWAS survey showed that labour, market access and government policies were key factors in attracting FDI to Guinea-Bissau. Frequent coups have however prevented the government from establishing effective economic and legal conditions to boost the private sector. Political instability, a dysfunctional legal system and corruption all keep investors away. Progress since 2011 in improving institutions and setting up a one-stop shop (funded by the AfDB, UNDP and the World Bank) has greatly helped reduce the time needed to start a business. The one-stop shop has all services in one place and is properly staffed. This and a more attractive investment law encouraged the creation of businesses in 2012. The national water and electricity company, EAGB, also began introducing prepaid meters to make customer billing more transparent. New mining laws opened possibilities to develop the sector and XOF 46.1 billion of new local and foreign private investment was recorded in 2012, up from 16.0 billion in 2011, according to the economy ministry. This was not enough, however, for Guinea-Bissau to improve its performance rankings in the World Bank report Doing Business 2013, where it fell to 179th place (from 178th in 2012) out of 185 countries. The government has promised to continue private sector reforms, including setting up a private-investment promotion agency embracing all the sector’s support structures, drafting a policy framework for the cashew nuts sub-sector, and boosting the sector’s efficiency and improving the business climate by passing and implementing a new investment code. Financial Sector The financial sector has only four banks, two insurance companies and 18 officially registered decentralised financial services (DFS) institutions. Sector stability is ensured through supervision and monitoring by CBWAS, which is in charge of WAEMU’s monetary and financial policy, and through the WAEMU Banking Commission. The major role of the informal economy means the banks have excess liquidity as very few firms are able to supply the data and guarantees needed for getting bank loans (under the West African Accounting System known as SYSCOA), so banks have few lending opportunities and cannot play their full role in the private sector. Excess liquidity also shows the inadequate legal framework, which makes it hard to raise mortgages and provide security for credit. Loans to the private sector were thus only 13.2% of GDP in 2012 (10.9% in 2011) with a projected 12.3% in 2013. Bank-account penetration is still low (about 4%), but efforts by the central bank and recent measures such as paying salaries of more than XOF 50 000 through bank accounts should improve things. The ratio of the money supply to GDP was 0.33 at the end of December 2012 (0.37 in 2011) and the market-preferred liquidity ratio rose to 0.52 (0.49 in 2011). Microfinance is still in its early stages, with more than 150 microfinance institutions part of the DFS, but despite the strong growth of microfinance institutions in recent years, only 18 of them are legal and only 6 report their accounts to the supervisory financial authority, the Cellule d’appui au développement de l’économie solidaire, épargne et crédit. Five are affiliated to the sector’s professional body AP‑SFD‑GB (though only two help to keep it going). These bodies need serious institutional support to ensure their development. The government has firmly committed itself to developing microfinance with various measures and the central bank has established a microfinance department to help them. Public Sector Management, Institutions & Reform The major obstacles faced by government services in Guinea-Bissau are lack of institutions, an inadequate legal and regulatory framework, untrained or unsuitable staff, low motivation amongst civil servants and lack of a career-advancement plans. Their efficiency is also hampered by poor use of administrative systems and procedures and incompetent personnel. Rules for recruiting, paying and promoting civil servants are vague and this greatly harms transparency. The social-security and pensions system is not strong enough to reassure either military or civilian officials, who have to fight for their pensions. Guinea-Bissau
  • 118. Lack of material and financial means, contradictory bureaucracy, inadequate handling of cases and little interest by civil servants in private-sector concerns and ordinary citizens do not create conditions for long-term economic development or provide efficient public services. The defence and security sector is also plagued by overstaffing, with no control over the number of retired soldiers and how much they are paid. The government has taken steps for a gradual improvement, modernisation and strengthening of public institutions, administration and services to make them more effective and more responsive to the public. It approved a road map in March 2011 to reform the defence and security sector, drafted with support from ECOWAS, the Community of Portuguese Speaking Countries (CPLP, Comunidade dos Paises de Lingua Portuguesa), the European Union (EU) and Angola, but after the April 2012 military coup, the EU, CPLP and Angola suspended their backing. Only ECOWAS remained, announcing in November 2012 a grant of USD 63 million to implement the programme. Natural Resource Management & Environment Guinea-Bissau has great biodiversity, with vast hydraulic resources, more than 2 million hectares of forests and very diverse fauna and ecosystems. The government is aware that it needs to develop a legal and regulatory framework to open up this economic potential while minimising damage to the environment. A series of environmental laws were passed in 2011, including one on forests (Law No. 5/2011) for sustainable resource management, and another (Decree-Law No. 5A/2011) updating the framework measure about protected areas, for viable and community-based development and use of biological natural resources. The government set up an Institute for Biodiversity and Protected Areas in September 2010 with World Bank support and continues efforts to raise awareness amongst local communities about sensible use of natural resources. Laws on climate change were approved in early 2011. With social and political normalisation, the government aims to resume drafting a minerals development plan with the support of UN agencies. Laws were passed in 2012 governing oil, minerals and quarry extraction. A national plan to develop natural resources is being prepared at the request of the Extractive Industries Transparency Initiative (EITI) in compliance with its transparency requisites. Political Context President Malam Bacai Sanhá died on 9 January 2012 and early presidential elections were held as the national constitution required. The result was rejected by the five of the candidates.1 The army seized power on 12 April, splitting the political class and the country, and the international community condemned the coup unanimously. ECOWAS mediation produced a political agreement and transition accord, signed in Bissau on 16 May. The Angolan military mission (Missang), in the country since 2011, was replaced by an ECOWAS peacekeeping mission, ECOMIB. The majority African Party for the Independence of Guinea and Cape Verde (PAIGC) refused to join a transitional government put together mostly by parties with no parliamentary base. After lengthy negotiations, PAIGC members of parliament resumed their posts in November 2012, normalising the social and political situation and the work of parliament. An 11-member PAIGC-led parliamentary commission was formed to draft a new transition charter. The supreme court organised an election to renew the judiciary bodies in November 2012. An ECOWAS summit voted on 17 November to extend ECOMIB’s mandate for another six months. A new and more inclusive agreement was signed by all political parties on 17 January 2013, opening the way for a peaceful transition. Social Context & Human Development Building Human Resources Social and human development is fragile in Guinea-Bissau, which had one of the lowest scores (0.364) in the UNDP’s 2013 Human Development Index report, ranking 176th out of 187 countries, with an estimated per capita income of USD 1 097. The report said the country had average annual growth of 0.9% between 2000 and 2010, when the sub- Saharan average was 2.1%, and that of very low-scoring countries 1.68%. This bad score was due to widespread poverty, very low incomes from lack of income-earning opportunities and a life expectancy of only 48.6 years, aggravated by difficult access to good health care (especially for infants and mothers). Gross primary enrolment has increased satisfactorily, to 67.4% in 2010 (from 41% in 2000 and 53.7% in 2006) according to the 2010 MICS4 multiple indicators survey, and 62% of children completed five or six years of schooling (up from 44% in 2000). Progress was however slowed by poor-quality teaching and also teachers' strikes throughout 2012. Despite budget restraints because of suspended external budget support, the government continued preventive 122 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 119. 123African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 The report said the country had average annual growth of 0.9% between 2000 and 2010, when the sub- Saharan average was 2.1%, and that of very low-scoring countries 1.68%. This bad score was due to widespread poverty, very low incomes from lack of income-earning opportunities and a life expectancy of only 48.6 years, aggravated by difficult access to good health care (especially for infants and mothers). Gross primary enrolment has increased satisfactorily, to 67.4% in 2010 (from 41% in 2000 and 53.7% in 2006) according to the 2010 MICS4 multiple indicators survey, and 62% of children completed five or six years of schooling (up from 44% in 2000). Progress was however slowed by poor-quality teaching and also teachers' strikes throughout 2012. Despite budget restraints because of suspended external budget support, the government continued preventive and essential health treatment in 2012, including the fight against HIV/AIDS, malaria and tuberculosis. The health sector too was disrupted by strikes, however. Suspension of funding for Bissau’s main hospital also drove down the social indicators. Social expenditure was 21.7% of the 2012 budget (8.6% for health and 10.3% for education), in line with the previous years. The "Trends in Maternal Mortality: 1990 to 2010" report published by the World Health Organization estimated that maternal mortality in Guinea-Bissau had worsened during this period by 26% (an average annual rate of 1.7%), from 1 100 to 790 per one hundred thousand live births. Poverty Reduction, Social Protection & Labour Poverty has increased, both extreme poverty (people living on less than USD 1 a day) and overall poverty (those living on less than USD 2 a day). The 2010 ILAP 2 survey for poverty assessment indicated that extreme poverty had risen to 33% in 2010 (from 20.8% in 2002), while absolute poverty had increased to 69.3% (from 65% in 2002). Absolute poverty was unchanged in Bissau (51%) but rose everywhere else, to 75.6% from 69.7% in 2002. Extreme poverty was up in both Bissau (to 13.2% from 9.3%) and elsewhere (to 39.8%, from 24.8%). Women were poorer than men in both categories but not significantly so. Widespread poverty had a direct and very visible effect on children, according to the survey. About 80% of poor people were aged between 15 and 35, and poverty was more likely in large families. The risk was however less if the family head had schooling, secondary education being a means to escape poverty. The government has no unemployment data, but DENARP II says 10.6% of youths between 15 and 24 and 4.6% of women were jobless in 2009. The overall rate is probably about 30% when youth unemployment under- employment is included. Social-protection facilities are few due to lack of money and technical means. The government recognises the importance of community involvement in development and has set up small programmes with the support of foreign partners in recent years. A law against child trafficking was passed in 2012. The government’s priorities are guided by the poverty reduction strategy paper (DENARP), which was drawn up with the participation of all sectors of society in identifying problems, priorities and aspirations, seeking solutions and devising strategy, but delays in drafting the key documents – the priority action plan and the public investment plan – combined with the April 2012 military coup have so far prevented its official publication and implementation. Apart from government fragility, there is no big obstacle to applying labour laws. The country has a social- security body for civil servants and employees of big private-sector firms. Gender Equality The country has ratified most international declarations, conventions and resolutions on the protection of women. The national gender equality policy and a law banning female genital mutilation were approved by parliament in 2011, but their application remains a big problem. Gender disparities and lack of opportunities for women can be seen in every sector, and women score below average in health and education (school attendance, literacy and pay) and face higher unemployment and more difficult access to basic social services. Compared to men, extremely few women use the courts to claim their rights. Women occupied one-fifth of the seats in parliament in the 1990s, but this had fallen to 10% by 2009. A quota (40%) has been introduced to boost the number of female members of parliament and thus ensure continued women's leadership training and their participation in public life. Guinea-Bissau
  • 120. Thematic analysis: Structural transformation and natural resources Guinea-Bissau’s economy is mainly agricultural and dominated by cashew-nut cash crops, its chief source of foreign exchange. It is not very diversified and industrial processing is very basic. Minerals and oil have not yet been extracted, except for quarries and a few small alluvial gold mining operations. Potentially large reserves of bauxite and phosphates were discovered in the 1970s but have never been mined for lack of infrastructure, and because of low world prices and persistent political instability. In recent years, however, mining concessions have been granted for bauxite (2007) and phosphates (1997). Phosphate reserves were discovered in 1978 by a UNDP survey, and pre-viability studies seven years later by the firm Sofremines confirmed their presence at Farim, in the north. Exploration in 1997 by a Canadian firm, Champion, showed an estimated 100 million tonnes of high-grade clay and 400 million tonnes of low-grade limestone, but government efforts since then to sign national or international contracts to mine these reserves have not been very successful due to systematic violation of contracts and social and political unrest since 1998. High-grade mineral extraction could last some 40 years and lower-grade minerals 200 years. Bauxite was found by the Dutch in the early 1950s and then by the Soviet Union in the late 1970s. Five reserves were discovered at Boé, in the southwest, and surveys showed reserves of 113 million tonnes (44.9% of which of alumina and 3.7% of silica). Little progress was made in mining until 2007, when the government signed a concession with the Angolan firm Bauxite Angola, which announced it would invest USD 321 million in the region, including USD 200 million for roads and ports before it began operations. The mine is owned by Bauxite Angola (70%), the Angolan government (20%) and Guinea-Bissau (10%). After the April 2012 coup, work stopped and the parties are renegotiating how to share the resources. The opening of these two mining centres (Farim and Boé) is likely to have significant effects on the country’s economy. Even if 86% of the goods and services needed come from abroad, the projects could generate 20 000 direct jobs, in addition to the spinoffs linked to upgrading the related infrastructure, and produce annual tax revenue of USD 40 million, according to the World Bank. The country could count on USD 70-80 million in export earnings (equivalent to 60-70% of current exports) and a GDP volume increase from USD 90 million to 170 million USD (or from 11% to 21% of estimated 2010 GDP). Oil has been discovered in several places offshore, but no assessment of its commercial viability has been announced. The north and south of the country could also have oil reserves, shared with neighbouring Senegal. Several oil firms, including Italy’s Eni, Britain’s Sterling Energy and Malaysia’s Marmore, have test-bored in the north. Large reserves of oil have been found, but more tests are needed to determine their commercial worth before they are exploited. Several foreign companies have become involved in the oil sector in recent years through joint ventures with the local firm Petroquim. Some industry experts think Guinea-Bissau could produce between 30 000 and 60 000 barrels a day. The only extractive industries in the country at present are small firms quarrying for construction materials such as limestone, clay and sand. Instability and lack of political will mostly account for delays in developing all Guinea-Bissau’s mineral resources. Political stability, a strategic vision, strong institutions and viable programmes are needed to develop the sector better and ensure social and economic benefits for the country. In the late 1980s, the government launched a programme that set up an institutional framework with the directorate of geology and mining (DGGM), provided an inventory of 12 minerals, produced a mining policy and trained local managers. The government also instituted an environmental-impact assessment body the Cellule d'évaluation de l'impact environnemental – initially under the prime minister but then transferred to the environment ministry – to require or conduct impact studies previous to any prospection or mining. Its structure is however flimsy. Neither does civil society play much of a role, though it did demand that the government halt operations at the Saliquinhé (Farim) phosphate mine until measures were taken to protect local inhabitants and offer them resettlement. A law governing mining, quarrying, oil and oil derivatives was recently passed, and the authorities also want to work with the EITI to improve good practices and management in the sector. Recommendations have also been made to set up a mining fund, boost tax collection from mining companies, continue development of the Boé bauxite reserves jointly with neighbouring Guinea, develop mineral resources for construction (quartzite and dolerite) and continue prospecting for diamonds and gold. Unfortunately, political instability has so far prevented all this. Notes 1. These were former President Kumba Yalá (backed by the Partido da Renovação Social), Manuel Serifo Nhamadjo (first vice-president of the Assemblea Nacional Popular, the country's legislative body, running as an independent), former President Henrique Perreira Rosa (independent), Afonso Té (backed by the Partido Republicano para Independência e Desenvolvimento) and Serifo Baldé (Partido Jovem). 124 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Guinea-Bissau
  • 121. Liberia 2013 www.africaneconomicoutlook.org Patrick Hettinger / p.hettinger@afdb.org
  • 122. Liberia Sections Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and strong performance in the service sector, but these positive trends are subject to fluctuations in commodity prices, FDI, and overseas development assistance. President Sirleaf’s government passed its FY 2012/13 budget as part of an Open Budget Initiative, but it faces mounting pressure to increase employment, improve services, tackle corruption and address governance issues in the forestry, palm oil, and oil sectors. The poverty rate has decreased from 64% to 56% between 2007 and 2010, but some 78% of the population remains engaged in vulnerable employment, and Liberia ranks close to the bottom of countries in the Human Development Index (174th out of 187). Overview Liberia’s post-war economic growth was sustained in 2012, with estimated real gross domestic product (GDP) growth of 8.9%, led by the first full year of post-conflict iron ore exports, buoyant construction, and strong performance in services. Real GDP is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by further iron ore expansion and concession-related foreign direct investment (FDI). Liberia’s economic outlook remains vulnerable to fluctuations in commodity prices, particularly for its key exports, rubber and iron ore. Potential declines in FDI and overseas development assistance, including the partial drawdown of the substantial UNMIL force, could also affect economic performance. Consumer price inflation moderated to 6.9% in 2012, thanks to lower international food and fuel prices, and is expected to further slow to 5.1% in 2013. In December 2012, Liberia launched the Agenda for Transformation (AfT), its second poverty reduction strategy. The AfT intends to remove key infrastructure constraints in energy, roads, and ports, and to support youth and capacity building. The government has secured financing to rehabilitate the Mount Coffee Hydropower plant, which could come online at end of 2015 and would help address the country’s substantial energy shortage. The government prepared its FY 2012/13 budget in a three-year Medium Term Expenditure Framework (MTEF). However, despite substantial progress in public financial management (PFM) and transparency, substantial challenges remain, and pay reform will be necessary to improve public sector capacity. Natural resources continue to play a leading role in Liberia’s economy. Iron ore, rubber, and timber dominate exports, and the oil and palm oil sectors offer much potential. The management of these resources has come under scrutiny in the past year. The abuse of Private Use Permits in the forestry sector has resulted in a quarter of Liberia’s land being contracted out to foreign companies with little oversight. Land access disputes have also slowed planting in the palm oil sector, and oil discoveries have been overshadowed by the need to reform the sector’s institutions. Investments in power and transportation should foster linkages between Liberia’s private sector and its natural resources sector, while increasing productivity and market access for the majority of households in rural areas that are engaged in small-scale agriculture. Infrastructure will take years to develop, however, and poor access to credit will continue to constrain growth. Concession agreements could create up to 100 000 local jobs over 10 years, but this will make limited impact on the 50 000 youth joining the labour force every year. Increased employment creation would help decrease the risk of instability. Liberia Sections Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and strong performance in the service sector, but these positive trends are subject to fluctuations in commodity prices, FDI, and overseas development assistance. President Sirleaf’s government passed its FY 2012/13 budget as part of an Open Budget Initiative, but it faces mounting pressure to increase employment, improve services, tackle corruption and address governance issues in the forestry, palm oil, and oil sectors. The poverty rate has decreased from 64% to 56% between 2007 and 2010, but some 78% of the population remains engaged in vulnerable employment, and Liberia ranks close to the bottom of countries in the Human Development Index (174th out of 187). Overview Liberia’s post-war economic growth was sustained in 2012, with estimated real gross domestic product (GDP) growth of 8.9%, led by the first full year of post-conflict iron ore exports, buoyant construction, and strong performance in services. Real GDP is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by further iron ore expansion and concession-related foreign direct investment (FDI). Liberia’s economic outlook remains vulnerable to fluctuations in commodity prices, particularly for its key exports, rubber and iron ore. Potential declines in FDI and overseas development assistance, including the partial drawdown of the substantial UNMIL force, could also affect economic performance. Consumer price inflation moderated to 6.9% in 2012, thanks to lower international food and fuel prices, and is expected to further slow to 5.1% in 2013. In December 2012, Liberia launched the Agenda for Transformation (AfT), its second poverty reduction strategy. The AfT intends to remove key infrastructure constraints in energy, roads, and ports, and to support youth and capacity building. The government has secured financing to rehabilitate the Mount Coffee Hydropower plant, which could come online at end of 2015 and would help address the country’s substantial energy shortage. The government prepared its FY 2012/13 budget in a three-year Medium Term Expenditure Framework (MTEF). However, despite substantial progress in public financial management (PFM) and transparency, substantial challenges remain, and pay reform will be necessary to improve public sector capacity. Natural resources continue to play a leading role in Liberia’s economy. Iron ore, rubber, and timber dominate exports, and the oil and palm oil sectors offer much potential. The management of these resources has come under scrutiny in the past year. The abuse of Private Use Permits in the forestry sector has resulted in a quarter of Liberia’s land being contracted out to foreign companies with little oversight. Land access disputes have also slowed planting in the palm oil sector, and oil discoveries have been overshadowed by the need to reform the sector’s institutions. Investments in power and transportation should foster linkages between Liberia’s private sector and its natural resources sector, while increasing productivity and market access for the majority of households in rural areas that are engaged in small-scale agriculture. Infrastructure will take years to develop, however, and poor access to credit will continue to constrain growth. Concession agreements could create up to 100 000 local jobs over 10 years, but this will make limited impact on the 50 000 youth joining the labour force every year. Increased employment creation would help decrease the risk of instability. 126 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 123. 127African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 8.2 8.9 7.7 5.4 Real GDP per capita growth 4.9 6.1 5.2 3 CPI inflation 8.3 6.9 5.1 4.9 Budget balance % GDP -2 -4.7 -6.4 -6.6 Current account % GDP -34 -52.4 -65.6 -72 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2.5% 5% 7.5% 10% 12.5% 15% RealGDPGrowth(%) Liberia
  • 124. http://dx.doi.org/10.1787/888932809393 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2008 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 71.7 73.3 Construction 3 2.7 Electricity, gas and water 0.8 0.7 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 1.1 1 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 6.8 6 Mining 1.1 2.4 Other services 2.3 2.1 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 4 3.7 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 3.1 2.4 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 6 5.7 Wholesale, retail trade and real estate ownership - - Liberia’s post-war economic growth was sustained in 2012, led by the first full year of iron ore exports, construction, and a strong performance in the service sector. Real GDP is estimated to have grown by 8.9% in 2012, and is projected to expand by 7.7% in 2013 and 5.4% in 2014, supported by iron ore production and concession-related foreign direct investment (FDI). This outlook, however, remains vulnerable to commodity price fluctuations, particularly for iron ore and rubber, FDI, and overseas development assistance (ODA), including the partial withdrawal of the substantial United Nations Mission in Liberia force (UNMIL). Disputes regarding concession agreements, particularly in the forestry, palm oil, and oil sectors, also constitute substantial risks. Faster job creation will be necessary to ensure stability. Consumer price inflation moderated to 6.9% in 2012, reflecting lower international food and fuel prices. Inflation is expected to slow down to 5.1% in 2013. Agriculture, fisheries, and forestry represented about 36% of GDP in 2012, which should retreat slightly in the coming years as iron-ore production increases. Rubber production declined by more than 30% in 2012, due to lower international prices and reduced output by a major producer. While round log production nearly doubled 128 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 125. 129African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 compared to 2011, sawn timber production fell about 25%. Timber production is expected to decline in 2013, due to the moratorium on the Private Use Permits (PUPs), which cover an estimated 40% of Liberia’s rainforest and 23% of its land area. The government is investigating fraud allegations in PUP contracts. If these issues are resolved, forestry activities could expand further once transportation links are improved and the Greenville port is fully operational. Palm oil concession investments have slowed due to disputes over land access, but the sector has a high potential for employment creation. The agriculture sector, while it is a large component of income and comprises about half of employment in Liberia, suffers from low productivity and largely comprises subsistence agriculture. The industrial and manufacturing sector expanded substantially in 2012, thanks to the first full year of iron ore production from the Yekepa mine run by Arcelor Mittal. The sector accounted for about 21% of GDP in 2012, but only employed about 8% of the labour force. This share could increase since investments in iron ore production from global companies like China Union and BHP Billiton are expected to come online by 2015. Further expansion, however, could be hampered by lower iron ore prices. Oil exploration continues. One company, African Petroleum, is determining the commercial viability of discoveries made in February 2012. The awarding of additional offshore blocks has been suspended, however, while the petroleum policy is reviewed. Potential production would not commence for several years. Manufacturing — primarily of cement, beverages, woodwork, printing, and various consumer goods — will continue to have a limited impact on output and growth. The sector suffers from an insufficient and prohibitively expensive electricity supply, a shortage of skilled labour, the high cost of inputs, and a limited production capacity. The services sector contributed around 43% of GDP in 2012. Main activities include trade and hotels, government services, real estate, transport and communication, and construction. The sector is supported by one of the highest levels of per capita overseas development assistance in the world. Services are expected to grow steadily in 2013, although the phased partial withdrawal of the United Nations Mission (UNMIL) through 2015 may reduce demand. Considerable obstacles continue to impede Liberia’s economic growth. Electricity reaches less than 5% of the population, and its cost is among the highest in the world, at USD 54 cents per kWh, which renders manufacturing prohibitively expensive. The road network is in severe disrepair. Only about 45% of households have access to an all-season road within 5 km and much of the country’s interior is cut off from the capital during the rainy season. This reduces access to government services and to markets for agricultural production. Access to finance, particularly long term, is limited. Land rights remain problematic and unclear, and the judicial system is ineffective. Finally, both the public and private sectors suffer from severe capacity constraints. The country faces further challenges due to its susceptibility to external factors. Liberia’s undiversified economy depends heavily on exports such as iron ore, rubber, and timber, which are reliant on fluctuating international prices and demand. The major staple food, rice, is imported, increasing vulnerability to external prices. Overseas development assistance, which provides substantial support, will be susceptible to austerity measures in advanced economies. The drawdown from 8 000 UN troops to 4 000 by 2015 may pose security risks. It will also require the government to divert expenditure to the security sector, and will reduce consumption of local services. The security situation in neighbouring states could also pose a risk. Internal stability will depend on the ability to generate jobs to offset the 78% of the labour force in vulnerable employment. The USD 16 billion worth of FDI commitments recorded since 2006 are expected to produce only 100 000 jobs over 10 years, although 50 000 youth join the labour force annually. Meanwhile, these concession agreements have, in some cases, led to resentment that the government is auctioning off land to foreign companies, with limited local consultation and little benefit to Liberians. In December 2012, the government launched a strategy to address these challenges over the next five years, the Agenda for Transformation (AfT). This is its second poverty-reduction strategy, and the first step towards its Vision 2030 of turning Liberia into an inclusive middle-income country by 2030. The AfT will attempt to remove structural development obstacles through an estimated USD 3.2 billion programme, more than half of which is planned for roads and energy. It also includes programmes to improve social inclusion, particularly among the youth, and improve governance and public institutions. As a first major step, the government has secured financing to rehabilitate the Mount Coffee Hydropower Plant. The plant is expected to provide more than 64 MW of power to Monrovia, a substantial increase over the current 23 MW. Generation should start at the end of 2015. Liberia
  • 126. Macroeconomic Policy Fiscal Policy Government budgets have more than doubled since 2008, as government service provision has expanded with the economy. Until last year, budgets were broadly balanced, with primary deficits below 2% of GDP. In FY 2011/12, however, overspending on operating activities resulted in an estimated 5.8% deficit, which was partially financed by the Central Bank. The primary balance deficit is projected between 5% and 6.6% of GDP through FY 2014/15, to be financed by concessional lending for capital projects. Tax revenue has improved by 15-20% every year since 2008. The FY 2012/13 Budget of USD 672 million, approved by the Legislature in September, was a 30% increase over the previous year. It was prepared for the first time as a Medium Term Expenditure Framework (MTEF), covering the current year’s budget and estimates for the next two years, with expenditure aligned with the Agenda for Transformation. The new budget separated out recurrent and project spending, which allows for an increased focus reducing recurrent spending to allow for increased investment. Recurrent spending was reduced over the previous year, from 27.0% of GDP in FY 2011/12 to a projected 25.6% in FY 2012/13 to allow for more investment in key infrastructure projects, including energy, roads, and ports. As a result, capital expenditure is expected to increase from 4.1% to 7.8% of GDP. Implementation of investment projects has been slowed by capacity constraints, a shallow private sector, and slow procurement processes, however, and some of this capital expenditure is likely to be pushed to the next fiscal year. Fiscal rules were proposed to maintain capital spending at or above 25% of budget and constrain wage costs to no more than 34%. Expenditure is monitored by quarterly fiscal outturn reports, which include analysis of expenditure by economic and functional classifications, but the publication of the final quarterly outturn for FY 2011/12 has been delayed by more than 8 months. Reporting by state-owned enterprises (SOEs) is incomplete, and a consolidated annual report on SOE performance and potential fiscal risks has yet to be introduced. Significant donor funding is not included in the budget, although improvements were made with the FY 2012/13 budget. The establishment of a semi-autonomous Liberia Revenue Authority is expected in mid-2013, which should help reduce distortions in the tax and customs services and improve remuneration and capacity building. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 22.6 25.7 27.1 27.4 28.2 28.9 Tax revenue 16.8 18 19.8 19.9 19 19.2 Oil revenue - - - - - - Grants 1.6 2.1 2.2 2.1 2.4 2.1 Total expenditure and net lending (a) 23 25.7 29 32 34.5 35.5 Current expenditure 20.2 21.7 24.5 26 25 24.4 Excluding interest 19.6 21.4 24.2 25.7 24.7 24 Wages and salaries 8.9 9.8 10.5 11.1 10.9 10.8 Interest 0.5 0.3 0.3 0.3 0.4 0.4 Primary balance 0.2 0.2 -1.7 -4.3 -6 -6.2 Overall balance -0.4 -0.1 -2 -4.7 -6.4 -6.6 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy 130 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 127. 131African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Liberia’s economy is highly dollarised, with the US dollar (USD) making up some 75% of the money supply, which limits the scope of monetary policy for the Central Bank of Liberia (CBL). As such, the CBL’s policy stance is to control inflation by maintaining broad exchange rate stability, which it affects through weekly foreign exchange auctions. The exchange rate against the USD has traded in a relatively narrow band since 2010, between LBD 70 and 76 (Liberian dollars) per USD. After increasing for several years, foreign exchange reserves showed limited improvement in 2012. They have been drawn down for the construction of a new CBL building and foreign exchange interventions. Reserves stood at USD 335.4 million at the end of 2012, around 2.7 months of imports, an increase of USD 12.2 million over 2011. Weekly foreign exchange auctions are currently the CBL’s sole instrument to influence Liberian dollar (LBD) liquidity. The central bank also plans to introduce Liberian dollar treasury bills in 2013, which will reduce liquidity, encourage savings, and promote the use of the local currency. There are plans to promote the use of the Liberian dollar, for example by requiring that civil servant salaries and tax payments be denominated in local currency. Consumer price inflation largely reflects international food and fuel prices and is also affected by domestic transportation constraints. Headline inflation decreased from an annual average of 8.3% in 2011 to 6.9% in December 2012. Inflation is expected to moderate to around 5.1% in 2013. Average lending rates were level in 2012, at 13.8%. Over that period, the average rates on personal loans increased from 11.0% to 13.4%, while the average mortgage rate decreased from 14.0% to 12.0%. Average rates on time deposits decreased from 3.7% to 2.6%. The CBL has launched various initiatives totalling more than USD 20 million through commercial banks to increase access to finance at below-market rates, especially for the medium to longer terms. These programmes target Liberian-owned SMEs, agriculture, mortgages, and microfinance. While these initiatives may help improve access to finance in the short term, they could lead to market distortions, expose the CBL to a potential loss of reserves, and compromise the CBL’s role as a neutral arbiter. The CBL’s moral suasion to maintain low lending rates could also be counterproductive by limiting commercial banks’ ability to lend for longer terms and increasing the concentration of the sector. Economic Cooperation, Regional Integration & Trade Despite increasing exports, Liberia runs a large structural current account deficit. Iron ore exports increased from USD 22 million in 2011 to USD 117 million in 2012 — 26% of total exports — as Arcelor Mittal carried out its first full year of operations. However, rubber remained the lead export, accounting for 32% of the total. Round logs (11%) and gold (6%) also made significant contributions. Yet imports related to the activity of the UN Mission in Liberia (UNMIL), the large donor presence, and FDI will continue to outweigh exports. These imports contribute to a large current-account deficit, estimated at 52% of GDP in 2012, and projected to widen to 66% in 2013. A large portion of transfers to Liberia is due to UNMIL, whose funding was USD 450 million in 2012. In addition, remittances have increased over time, to around USD 35 million per month. FDI was estimated at USD 279 million in 2012, and is expected to increase to USD 328 million in 2013, thanks to investments in mining, oil exploration, as well as rubber and palm oil concessions. Liberia receives some of the highest levels of donor funding in the world, at an estimated USD 355 per capita in 2010. Liberia maintains strong trade ties with the United States and Europe (for the export of natural resources, particularly rubber) and Asian countries including Thailand, Vietnam, and Pakistan for rice imports. The government maintains its ambition to join the World Trade Organization (WTO), and completed the first working group meeting in early 2012, although accession will take several years. The Economic Community of West African States (ECOWAS) — including Liberia — has agreed to a series of Common External Tariffs (CET) for traded items, and the bound rates agreed with the WTO would have to reflect this agreement. Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Liberia
  • 128. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -28.4 -36.5 -35.5 -40.7 -49.5 -53.5 -52 Exports of goods (f.o.b.) 18 13.2 16.6 24.7 26.7 28.1 28.5 Imports of goods (f.o.b.) 46.4 49.7 52.2 65.4 76.2 81.6 80.5 Services -98 -64.1 -62.3 -51.7 -41.4 -36.8 -32 Factor income -27 -12.6 -15.5 -10.4 -14.8 -17.2 -19.4 Current transfers 128.6 84 80.6 68.7 53.4 41.9 31.5 Current account balance -24.7 -29.2 -32.7 -34 -52.4 -65.6 -72 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Liberia’s debt outlook has been positive since reaching the Heavily Indebted Poor Countries (HIPC) Initiative completion point in June 2010, which unlocked USD 4.7 billion of debt relief. Preliminary estimates of public external debt are 10.0% of GDP at the end of FY 2011/12, a significant drop from 137.3% in FY 2009/10, but an increase over the previous year’s 8.0%. Central government domestic debt was estimated at 17.6% of GDP at the end of FY 2011/12, although this included borrowing USD 20 million (1.2% of GDP) from the Central Bank at the end of the fiscal year. The government plans to borrow to invest in capital projects with high economic returns as part of its Agenda for Transformation. In January 2013, it signed a EUR 50 million loan agreement with the European Investment Bank to partly finance the rehabilitation of the Mount Coffee Hydropower Plant. While several loan agreements have been signed in the past year with multilaterals, including the World Bank and African Development Bank (AfDB), the projects are still awaiting ratification by the Legislature and have not become operational. In 2011/12 the government took out a USD 7.5 million bridge loan from the CBL. The government is still reconciling the final accounts for FY 2011/12. Government debt operates under a series of rules, set out both in the Public Financial Management (PFM) Act and as part of the IMF Extended Credit Facility (ECF) Programme. These include maintaining annual borrowing below 4% of GDP on an NPV basis and keeping the debt stock under 60% of GDP. While most future borrowing is expected to be concessional, the government may also seek non-concessional debt for specific projects, with IMF agreement, if unable to secure sufficient concessional funding. The HIPC debt restructuring negotiations have concluded with all but one sovereign lender (Taiwan). The government plans to introduce Treasury Bills denominated in the Liberian dollar in early 2013 for cash management purposes. The introduction has been delayed while other cash management concerns are addressed. 132 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 129. 133African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 1000% 250% 500% 750% 1250% Percentage Liberia
  • 130. Economic & Political Governance Private Sector Private-sector development outside of enclave sectors continues to be severely constrained by poor infrastructure. The dilapidated road network is largely impassable in the rainy season, especially outside of Monrovia, and port facilities are inadequate. Electricity costs are among the highest in the world at over USD 54 cents per kWh, and less than 5% of the population is connected to the grid. Labour is poorly skilled, as the conflict created a “lost generation” who could neither access education nor develop vocational skills, and pushed many of the most qualified workers to emigrate. The World Bank report Doing Business 2013 ranked Liberia 149th of 185 countries for the overall ease of doing business, an improvement of five places from 2012. Starting a business has become easier, as reflected in the 38th ranking in 2013, following the introduction of a “one-stop shop” for business registration. The government still imposes a number of restrictions on business ownership, however, including de jure restrictions on foreign involvement in certain business areas. Liberia’s ranking on taxes has improved from 98th in 2012 to 45th in 2013. This is partly due to lower tax rates, which, combined with the expansion of tax allowances for both commercial and personal income tax, contributed to the effective commercial tax rate falling from 43.7% to 27.4%. Access to finance, particularly longer term, continues to be a challenge, as highlighted by the 104th ranking (see monetary policy and financial sector sections). Reforms in investment incentives and the commercial code, and the establishment of a commercial court in 2011, should support private sector development. Yet the judiciary suffers from serious shortcomings in terms of capacity, infrastructure, and the ability to enforce decisions. Challenges in the legal environment are reflected by poor scores in areas dealing with the protection of investors (150th), resolving insolvency (159th) and enforcing contracts (163rd). Liberia ranks poorly, at 178th, in property registration. Unclear land rights remain problematic, with ownership records destroyed during the war. Land concession agreements have been problematic for some large investors in the palm oil sector, where planting has slowed due to local disputes. Financial Sector The financial sector remains well capitalised and liquid, but non-performing loans (NPLs) and low profitability continue to be a challenge. The private sector faces high operational costs, banks have a limited capacity to assess credit risk, no collateral registry exists, property rights are weak, and there are few legal means to enforce debt repayment. Nonetheless, lending expanded by 18.9% from December 2011 to November 2012. The largest share of loans (42%) went to the trade, hotel, and restaurant sector, followed by 33% to the “other” sector, which includes mainly individuals and service-related institutions. Loans are largely short term or overdrafts and private sector lending and demand deposits are highly concentrated in two of the nine banks. Average lending rates were 13.8% in November 2012. The CBL uses moral suasion to maintain lower rates and also has several targeted facilities with commercial banks that lend at below-market rates to targeted groups. These policies could limit the profitability and competitiveness of smaller banks and the supply of longer-term financing, as well as posing balance sheet risks to the CBL. With no domestic fixed-income securities market providing low-risk investment, average time deposit rates are low at 2.6% in November 2012. NPLs have accounted for about 20% of total loans in recent years, and stood at 22.2% in October 2012. Non-interest income is high, contributing 55% of total revenue. Banks’ profit pressures are reflected in the poor return on assets (0.12%) and on equity (0.9%) as of October 2012. Profits remain low due to high NPLs and significant uninvested liquidity at banks. The capital adequacy ratio (CAR) stood at 20.9% in October 2012, well above the required minimum of 10%. Similarly, the liquidity ratio was at 43.6% in October, substantially higher than the required 15%. The CBL is working to recapitalise banks that have inadequate capital. It also plans to submit a new Insurance Act to the Legislature in 2013. The introduction of a collateral registry at the CBL is expected in 2013 and the credit registry should be expanded. The new Commercial Code has eased collateral requirements by broadening the assets that can be used, including future assets. Public Sector Management, Institutions & Reform The government undertook a Public Expenditure and Financial Accountability (PEFA) Assessment in 2012. The exercise highlighted progress in 12 of 30 indicators since 2007, particularly in revenue administration, arrears, debt management, procurement, and accounts reconciliation. Yet 16 indicators were rated “D” or “D+”. The Civil Service Management (CSM) module should be introduced once the government has finished removing ghost names and duplicate entries from the payroll, although previous exercises faced difficulties and were incomplete. The share of Liberia’s wage bill in GDP and budget is amongst the highest in Africa, as the 134 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 131. 135African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 incomplete. The share of Liberia’s wage bill in GDP and budget is amongst the highest in Africa, as the government plays a key role in employment. The government introduced rules in the FY 2012/13 budget to limit the share of personnel costs to no more than 34% of the budget. Pay reform will be necessary to improve public sector capacity. The government plans to introduce a Treasury Single Account (TSA) in 2013 to help with cash management. Audit capacity has strengthened considerably. The number and scope of GAC audits has improved, although there has still not been an audit of government financial statements. The new Internal Audit Secretariat has grown in importance and relevance, but is not backed by substantive legislation or a fully constituted Governance Board. This constrains the general effectiveness of the unit, as well as the implementation of its recommendations. The majority of State Owned Enterprises (SOEs) have not been complying with reporting requirements of the Public Financial Management (PFM) Act. To increase compliance, the government plans to introduce an office in the Ministry of Finance to monitor submission of SOE financial reports. A Project Management Office (PMO) should also be introduced in 2013 in the Ministry of Finance to oversee the implementation of the government’s priority investment projects. Liberia’s improved PFM systems have contributed to its ranking of 75th of 186 countries on Transparency International's 2012 Corruption Perceptions index, a marked improvement over its 150th place in 2007, although significant challenges remain. Natural Resource Management & Environment The government has outlined plans to develop a comprehensive natural resource management policy, and it was the first in Africa and second worldwide to meet the requirements of the Extractive Industries Transparency Initiative (EITI). The expansion of hydropower will help reduce both the costs of power generation and its environmental impact. Nonetheless, Liberia lacks strong oversight to protect the environment and suffers from weak co-operation between different agencies on land-use issues. Liberia has operating concessions in iron ore, rubber plantations, logging, and palm oil. Palm oil activities have faced disputes over land rights, following criticism from local advocacy groups claiming they did not have free, clear and informed consent on the operations before they began. Abuse of Private Use Permits (PUPs) — logging permits granted by private landowners — in the forestry sector has led the government to suspend their use, pending further investigation, and to dismiss the head and Board of the Forestry Development Association. Commercial logging companies were caught circumventing sustainability regulations by using the PUPs to access some 40% of Liberia’s rainforest and 23% of its national territory, often using forged land titles and signatures. The government’s Social Development Funds (SDFs), designed to ensure that affected local communities benefit from natural resource revenue, have struggled since their inception to foster consensus among various local interests on how to spend the funds. The government plans to overhaul the process in 2013, following the suspension of payments from the funds while audits are conducted. The proportion of population with access to improved water sources has increased steadily from 61% in 2005 to 75% in 2009. Liberia is likely to reach the Millennium Development Goal (MDG) 7 target of 77.5% in 2015. The share of people with improved access to sanitation, on the other hand, has improved slowly from 27% in 2005 to 44% in 2009, and the MDG 7 target of 69.5% is unlikely to be met. Coastal areas are being damaged by rising sea levels. The 2012 Ibrahim Index of African Governance ranked Liberia 11th out of 53 countries on environmental policies, a marked improvement from 37 in 2006 and 22 in 2008. It ranked 33rd in environmental sustainability. Political Context President Ellen Johnson Sirleaf was re-elected for a second six-year term of office in November 2011. The opposition boycotted the second round amidst some violence, however, and her Unity Party holds a minority in the Legislature. The President established a Peace and Reconciliation Commission after the elections, with the 2011 co-Nobel Laureate, Leymah Gbowee, as its head. But Ms Gbowee resigned in October 2012, criticising the President for nepotism and for not putting sufficient emphasis on tackling growing inequality. George Weah, the popular ex-footballer and the opposition’s Vice Presidential candidate in 2011, was appointed to head the Commission in December 2012. Charles Taylor was convicted of war crimes by the Special Court for Sierra Leone at the Hague in April 2012, and was sentenced in May to 50 years in prison. In December 2012, the government held a conference to adopt its Vision 2030, whose objective is for Liberia to Liberia
  • 132. become an inclusive, middle-income country by 2030. It also launched the Agenda for Transformation, its 2012- 17 development plan, and the Truth and Reconciliation Roadmap. The administration faces increasing pressure to deliver on its rhetoric to increase employment, tackle perceptions of corruption, and increase government services. The United Nations (UN) peacekeeping force of more than 8 000 soldiers and police plans to halve its personnel between end-2012 and 2015. This will test the capacity of Liberia’s police force and army, and also require the government to ramp up security spending. In October 2012, the Governments of Liberia and Côte d’Ivoire agreed to work together to promote peace and security along their common borders. After the 2011 election conflict in Côte d’Ivoire, more than 200 000 refugees fled to Liberia, and more than 60 000 remain as of January 2013. the popular ex-footballer and the opposition’s Vice Presidential candidate in 2011, was appointed to head the Commission in December 2012. Charles Taylor was convicted of war crimes by the Special Court for Sierra Leone at the Hague in April 2012, and was sentenced in May to 50 years in prison. In December 2012, the government held a conference to adopt its Vision 2030, whose objective is for Liberia to 136 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 133. 137African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources The government is committed to free primary education nationwide, increasing transition rates between primary and secondary levels, and improving access to vocational education. The education budget has increased by more than one-third in the last three years. Gross enrolment ratios improved between 2009 and 2011 across all levels and were higher than 100% for primary education, but primary net enrolment ratios were only 44%. Gross enrolment ratios were still very low at the high school level, increasing from 30% to 35%. The number of teachers also increased from 45 746 to 52 843 during the period, with trained teachers increasing from 22 123 to 28 254. Liberia continues to make progress toward achieving the MDG 2 goal of universal primary education, but it is unlikely to reach the goal by 2015, although the youth literacy target should be reached, already at 79% in 2010, just short of the target of 80%. Government spending for healthcare has nearly doubled in the last three years. Between 2008 and 2011, the number of functional health facilities increased by 64%, from 354 to 550, and facilities offering the Basic Package of Health Services (BPHS) increased from 36% in 2008 to 84% in 2011. Liberia’s child mortality has retreated sharply, from an under-five mortality rate of 194 per thousand births in 2000 to 114 in 2009. Yet the country is unlikely to reach the MDG 4 goal of 64 by 2015. Progress towards reducing maternal mortality (MDG 5) has been limited. The maternal mortality rate in 2010 was 770 per one hundred thousand births, far from the 2015 target of 145. The proportion of births attended by skilled health personnel scarcely improved during this period, from 51% in 2000 to 46% in 2007, well below the 2015 target of 97. Progress has been recorded in the prevention and treatment of infectious diseases, and Liberia could reach MDG 6. Treatment for malaria has improved with 67% of febrile children less than five years old using antimalarials, compared to 59% in 2007. HIV prevalence for people aged 15 to 49 has retreated from 3.3% in 2000 to 1.5% in 2009, and Liberia could reach the MDG goal of 0.75% by 2015. Antiretroviral therapy coverage increased from 10% in 2006 to 14% in 2009. Child immunisation rates against tuberculosis and measles were, respectively, 92% and 95% in 2009, exceeding the average rates for Africa. Poverty Reduction, Social Protection & Labour Liberia ranks 174th out of 187 countries on the 2012 Human Development Index, highlighting the immense poverty and social development needs of the country. According to the 2010 Core Welfare Indicator Surveys (CWIQ), poverty levels decreased from 64% in 2007 to 56% in 2010. The Agenda for Transformation (AfT) sets out the government’s plans to reduce poverty, from increased spending on rural education to establishing a more comprehensive social safety net. The AfT sets out a more comprehensive study of groups lacking basic services, access to necessary foodstuffs or healthcare, and those earning low incomes or in vulnerable employment. The government plans to assist a number of these groups by improving road connections, which will improve access to markets and to services, and by creating jobs. The AfT plans to increase secure employment by supporting micro-, small- and medium-sized enterprises (MSMEs) through better access to electricity and infrastructure, as well as by developing community forestry and small-scale mining. The widening of social protection is meant to include the poorest and most vulnerable to exploitation and trafficking; currently little social protection is provided in the budget (aside from a pension for civil servants); however there is a National Social Security Fund (NASSCORP), which provides pension and healthcare coverage, and the government has plans to expand this to cover welfare as well. The government in 2012 set up a social protection secretariat, which is due to report on its national policy and strategy. Authorities also plan to expand and adopt donor-operated schemes; for example, to pay school fees or continue cash transfer pilot programmes, should the current efforts be successful. President Sirleaf is a co-chair of the panel for the post-2015 MDG development framework. The performance of Liberia under the MDGs, however, has been set back as a result of the long period of poor governance and the devastating conflict. The government set up a youth employment scheme in 2012 with a commitment to create an additional 5 000 temporary youth jobs, but ended up generating 6 900. The FY 2012/13 budget set aside a USD 15 million fund for youth projects, including technical and vocational education and a young entrepreneurs’ development fund. Gender Equality The Ministry of Gender Development (MoGD) is responsible for the government’s gender policy and gender awareness programmes. The three-year pilot programme for the Empowerment of Adolescent Girls and Young Women (EPAG) ended in 2012. In its last year, it assisted over 1 000 girls who had completed training in business development skills to find employment. The Ministry also provided direct support to local Civil Society Liberia
  • 134. Organisations (CSOs) working on women’s empowerment issues. Authorities are committed to improving the gender balance in civil service by 2017. The government has also been running a number of schemes with the UN to develop women’s skills. The Gender Equality and Women’s Economic Empowerment (GEWEE) programme, for instance, focused on improving women’s literacy and organising female traders into associations. The Food Security and Nutrition programme also helped train women in the growing and processing of food. Gender disparities in education are decreasing, although they remain greater at higher levels of education. The ratio of girls to boys is 0.88 at the primary level, while decreasing to 0.74 at the secondary level and 0.59 at the tertiary level. Literacy rates for females are lower than males: 49% compared to 66%. The 2010 Labour Force Survey shows that women make up 53% of the eligible population (age 15+), but only 24% of the paid employment. Thematic analysis: Structural transformation and natural resources Natural resources have played a critical role in the Liberian economy, both before and after the conflict. In 1980, GDP per capita reached USD 1 765, nearing middle income status, with growth led by commodity exports from concessions, largely ore and rubber, and contributions from timber and palm oil. However, little of this led to development benefits for the general population. Since the end of hostilities in 2003, the retail and services sectors have boomed, largely due to a sizeable donor presence, and the concessions sector is also gradually resuming its activity. Otherwise, much of the rest of the economy, including manufacturing, has seen little growth. The Liberian economy has moved partially towards its pre-war state, with the economy of Monrovia tied very closely to government activities, and the rest of the economy dominated by enclave, largely capital- intensive industries and low-productivity agriculture. Liberia has significant mineral wealth, with iron ore reserves estimated between 2 to 5 billion metric tonnes. The first post-war iron ore production was exported in late 2011. Three more mines are expected to come online by 2015, at which point, the sector should contribute up to 20% of GDP and employ about 10 000 people. Rubber was still the largest export earner in 2012, led by a Firestone Rubber plantation that has been in operation for almost 90 years. Moreover, Liberia has the largest rainforest in West Africa, which supports significant logging. The government has also leased several offshore oil blocks, and a number of exploratory wells have found deposits that could be commercially viable. Smaller-scale operations in diamonds and gold could employ 30 000 to 45 000 workers. Agriculture includes food crops such as rice and cassava, as well as cash crops such as cocoa and coffee. Palm-oil investments with high employment potential will also gradually come online. Several constraints limit Liberia’s ability to take full advantage of its natural resources to enable structural change. Foremost amongst these is a substantial infrastructure deficit. Severely deficient roads, ports, and rails deprive Liberia of the ability to fully exploit its resources. While iron ore concessions have built or rehabilitated rail lines to facilitate their exports, less capital-intensive industries with higher employment potential, such as smallholder agriculture, timber, and rubber, need appropriate infrastructure. Feeder and primary roads are essential for smallholders to access markets, trade across borders, and for value chains to develop. Drying, storage and processing infrastructure is also necessary. Timber exports will benefit from the Greenville port once it is fully operational. Finally, the high price of power, which costs over USD 54 cents per kWh — more than three times the African average — does not allow for product processing or the development of a manufacturing sector. Some key institutional frameworks are already in place. They include a Minerals Management Law (2000) and a Public Procurement and Concessions Act (2006) that regulates the bidding process for concessions. Led by the National Investment Commission (NIC), concession contract negotiations have improved over time and now include stronger provisions for infrastructure development and local employment. Tax regimes, however, still need to be harmonised and made more progressive. Institutional and audit capacity also needs to be strengthened to ensure compliance with regulatory and fiscal regimes. The Liberia Extractive Industry Transparency Initiative (LEITI) was established in May 2008 to promote proper use of revenues from mining and forestry. LEITI published its third report in December 2011 and contracts are available online. The newly established National Bureau of Concessions is intended to monitor concessionaires’ compliance with their fiscal and non-fiscal obligations and to encourage the development of linkages with the local economy. Part of this measure will focus on improving social development funds (SDFs), which are managed by local communities to fund development projects in affected areas but have suffered from mismanagement. Several high-profile incidents in the past year have highlighted persistent institutional weaknesses. Planting by major international palm oil concessionaires has been delayed by local disputes over access to the land they were granted. Investigations revealed that local communities were often unaware of the concession agreements until that had already been signed with the government. In the forestry sector, widespread abuse of Private Use Permits (PUPs) came to light in late 2012: some 25% of Liberia’s land has been contracted for logging, often 138 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Liberia
  • 135. 139African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 available online. The newly established National Bureau of Concessions is intended to monitor concessionaires’ compliance with their fiscal and non-fiscal obligations and to encourage the development of linkages with the local economy. Part of this measure will focus on improving social development funds (SDFs), which are managed by local communities to fund development projects in affected areas but have suffered from mismanagement. Several high-profile incidents in the past year have highlighted persistent institutional weaknesses. Planting by major international palm oil concessionaires has been delayed by local disputes over access to the land they were granted. Investigations revealed that local communities were often unaware of the concession agreements until that had already been signed with the government. In the forestry sector, widespread abuse of Private Use Permits (PUPs) came to light in late 2012: some 25% of Liberia’s land has been contracted for logging, often with falsified deeds, without the knowledge of local communities, and sidestepping environmental regulations that were intended to ensure sustainable management. A moratorium was placed on the use of PUPs, and the head and Board of the Forestry Development Authority were suspended. In the oil sector, a watchdog has claimed that the National Oil Corporation of Liberia is corrupt and needs reform, particularly as it holds conflicting roles as a policy developer, regulator, and commercial operator. New concession agreements are on hold pending a new oil policy. The government has launched its Agenda for Transformation (AfT), which plans to address road, port, and energy constraints, as well as improve youth employment and education. It has aligned its FY 2012/13 budget with AfT priorities, but will face substantial funding gaps to finance its desired infrastructure investments. Concessionaire investment plans will have to be fully leveraged to close the infrastructure gap. Mining companies are investing some USD 8 billion in Liberia, USD 5 billion of which are for power and transport infrastructure. Concession agreements promote third-party access for surplus power, roads, port, and rail facilities. Improved co-ordination will be critical to better leverage these resources. Liberia
  • 136. Mali 2013 www.africaneconomicoutlook.org Mamadou Diagne / m.diagne@afdb.org Hamarice Dicko / h.a.dicko@afdb.org
  • 137. Mali Sections The Malian economy was in recession in 2012, with negative growth of -1.5%, compared to the initial forecast of +5.6%. It is forecast to rebound to +5.4% in 2013 thanks to the dynamism of the agriculture and gold sectors, plus the resumption of international aid. The poverty rate increased from 41.7% in 2011 to 42.7% in 2012 as a result of the food, political and security crises. While natural resources – in particular gold and cotton – play a vital role in the economy, the textile and gold-refining industries need to be developed. Overview In addition to the food crisis that began in 2011, the 22 March 2012 coup d’état marked the beginning of a serious political crisis, with armed groups occupying the three northern regions (two-thirds of the national territory) between April 2012 and January 2013. An African and French military intervention was carried out against these groups in January 2013. Consequently, the economy largely ground to a halt in 2012, and international co‑operation was suspended. Real GDP growth was -1.5% in 2012 due to the weak performance of the secondary (-2.2%) and tertiary (-8.8%) sectors. For its part, the primary sector grew by 8.1%. Despite the recession and the suspension of international aid, the government pursued a policy of fiscal discipline in 2012. It restored its relations with the International Monetary Fund (IMF) in January 2013 and obtained a Rapid Credit Facility (RCF) of USD 18 million. The economy is forecast to come out of recession, with growth projected at 5.4% in 2013 and 5.1% in 2014. This growth will be driven by rice, cotton and gold production, as well as by the creation of a third mobile network operator. That said, political instability, economic crisis and war in the north of the country still pose downside risks for 2013 and 2014. The food, security and political crises have all exacerbated poverty. The poverty rate increased from 41.7% in 2011 to 42.7% in 2012. A serious humanitarian crisis began in January 2012, with 237 000 displaced persons, 410 000 refugees and at least 4.6 million Malians at risk of food insecurity. The government honoured its spending commitments on education, health and social protection, which made up 33.45% of total expenditure. Social indicators have improved in recent years, but progress towards achieving the Millennium Development Goals (MDGs) by 2015 remains mixed. Mali is on track to achieve universal primary education (goal 2), combat HIV/AIDS, malaria and other diseases (goal 6) and ensure environmental sustainability (goal 7), including the provision of drinking water. It will almost certainly fail to achieve the other goals, however. The Islamist groups that occupied the northern regions for nine months pillaged healthcare centres, pharmacies and schools, putting a significant dent in progress made. Earnings from gold production represent about 25% of GDP and 75% of export revenue. Gold’s place in the economy has continued to grow over the past twenty years. Despite this, there has been no endogenous creation of added value through beneficiation. Development of the mining sector (7.6% of GDP) has also not led to the creation of national operators and service providers. Cotton makes up about 1% of GDP and 15% of export revenue. Following the crisis that began in the 1997/98 season, the sector is doing relatively well. The government subsidises material inputs, guarantees prices for producers and provides support and advice to producer organisations. Among other positive factors are the restructuring of the Malian textile development company (Compagnie malienne de développement du textile, CMDT) and stable global cotton prices. The increase in production has not however been accompanied by the development of a local cotton processing industry. Mali Sections The Malian economy was in recession in 2012, with negative growth of -1.5%, compared to the initial forecast of +5.6%. It is forecast to rebound to +5.4% in 2013 thanks to the dynamism of the agriculture and gold sectors, plus the resumption of international aid. The poverty rate increased from 41.7% in 2011 to 42.7% in 2012 as a result of the food, political and security crises. While natural resources – in particular gold and cotton – play a vital role in the economy, the textile and gold-refining industries need to be developed. Overview In addition to the food crisis that began in 2011, the 22 March 2012 coup d’état marked the beginning of a serious political crisis, with armed groups occupying the three northern regions (two-thirds of the national territory) between April 2012 and January 2013. An African and French military intervention was carried out against these groups in January 2013. Consequently, the economy largely ground to a halt in 2012, and international co‑operation was suspended. Real GDP growth was -1.5% in 2012 due to the weak performance of the secondary (-2.2%) and tertiary (-8.8%) sectors. For its part, the primary sector grew by 8.1%. Despite the recession and the suspension of international aid, the government pursued a policy of fiscal discipline in 2012. It restored its relations with the International Monetary Fund (IMF) in January 2013 and obtained a Rapid Credit Facility (RCF) of USD 18 million. The economy is forecast to come out of recession, with growth projected at 5.4% in 2013 and 5.1% in 2014. This growth will be driven by rice, cotton and gold production, as well as by the creation of a third mobile network operator. That said, political instability, economic crisis and war in the north of the country still pose downside risks for 2013 and 2014. The food, security and political crises have all exacerbated poverty. The poverty rate increased from 41.7% in 2011 to 42.7% in 2012. A serious humanitarian crisis began in January 2012, with 237 000 displaced persons, 410 000 refugees and at least 4.6 million Malians at risk of food insecurity. The government honoured its spending commitments on education, health and social protection, which made up 33.45% of total expenditure. Social indicators have improved in recent years, but progress towards achieving the Millennium Development Goals (MDGs) by 2015 remains mixed. Mali is on track to achieve universal primary education (goal 2), combat HIV/AIDS, malaria and other diseases (goal 6) and ensure environmental sustainability (goal 7), including the provision of drinking water. It will almost certainly fail to achieve the other goals, however. The Islamist groups that occupied the northern regions for nine months pillaged healthcare centres, pharmacies and schools, putting a significant dent in progress made. Earnings from gold production represent about 25% of GDP and 75% of export revenue. Gold’s place in the economy has continued to grow over the past twenty years. Despite this, there has been no endogenous creation of added value through beneficiation. Development of the mining sector (7.6% of GDP) has also not led to the creation of national operators and service providers. Cotton makes up about 1% of GDP and 15% of export revenue. Following the crisis that began in the 1997/98 season, the sector is doing relatively well. The government subsidises material inputs, guarantees prices for producers and provides support and advice to producer organisations. Among other positive factors are the restructuring of the Malian textile development company (Compagnie malienne de développement du textile, CMDT) and stable global cotton prices. The increase in production has not however been accompanied by the development of a local cotton processing industry. 142 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 138. 143African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 2.7 -1.5 5.4 5.1 Real GDP per capita growth 0.6 -2.6 4.3 4.1 CPI inflation 3 5.3 2.9 3.3 Budget balance % GDP -3.3 -6.4 -5.8 -4 Current account % GDP -10 -0.8 -6.8 -9.9 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2% 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) Mali
  • 139. http://dx.doi.org/10.1787/888932809469 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 36.2 42.1 Construction 5.5 5 Electricity, gas and water 2.1 2.1 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 8.1 6.2 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 7.6 7.1 Mining 7.4 8.9 Other services 0 0 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 10.8 8.6 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 6.2 5.9 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 15.9 14.1 Wholesale, retail trade and real estate ownership - - Growth for the Malian economy is estimated at -1.5% in 2012, compared to 2.7% in 2011. This poor performance is due to the tertiary (-8.8%) and secondary (-2.2%) sectors. The primary sector, however, grew at a rate of 8.1%. The economy is expected to turn around in 2013, with real GDP growth of 5.4% on the back of an increase in rice, cotton and gold production. Stable gold and cotton prices are also a factor. This trend is expected to continue in 2014, with growth forecast at 5.1%. Nevertheless, political instability, the suspension of international aid in 2012, the continuing war in northern Mali and political tensions related to elections could all adversely affect growth in 2013 and 2014. The primary sector was the sole generator of growth in 2012, thanks to rice (27%) and cotton (8%) production in the 2012/13 crop year. Growth in this sector should be around 5.4% in 2013 and 2014. It will remain dependent on rice and cotton despite the decreased cotton production forecast for 2013. The government will subsidise both of these crops, providing input materials and strengthening agricultural mechanisation. The poor performance of the construction (-20.0%) and food-processing (-13.0%) industries is responsible for the -2.2% growth rate of the secondary sector. Despite this, the textile and extractive industries grew 35.0% 144 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 140. 145African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 and 7.5% respectively in 2012. Although gold production increased from 46 tonnes in 2011 to 49 tonnes in 2012, the reduced output of certain gold mines is responsible for the lower-than-expected growth of the extractive industries (initial forecast of 10.1%). Textiles, energy, food processing, construction and the extractive industry will all contribute to secondary sector growth, which is expected to average 5.5% in 2013‑14. The tertiary sector experienced the largest slump, with -8.8% growth in 2012. The 22 March 2012 coup d’état and the nine-month occupation of the northern regions by Islamist groups caused the strong downturn. Non- financial services (-15%), trade (-10%) and financial services (-10%) were hit the hardest. The sector is predicted to grow on average 5.5% in 2013‑14, buoyed by trade, transport and telecommunications (a third mobile network operator, Alpha Télécommunication [Groupe Planor and Monaco Télécom International] is set to acquire a licence in 2013 for XOF 55 billion [CFA Franc BCEAO]). Domestic demand slowed down in 2012. With regard to the public sector, which accounts for 35% of domestic demand, budget cuts led to a 12% reduction in public sector consumption. Infrastructure sponsored by the US Millennium Challenge Corporation (MCC) and hydraulic agricultural projects were either put on hold or slowed down, causing investments on the part of the public sector to decrease about 60% in 2012 year on year. As a result, government investment decreased from 8.7% of GDP in 2011 to 2.6% in 2012. The political turmoil and insecurity also caused a contraction in tourism (hotels and travel agencies) and arts and crafts. The airline Air Mali laid off more than 200 employees, while 44 hotels went out of business, dismissing 208 employees and placing 739 others on temporary leave. This slowdown resulted in a 13% reduction in private sector investment in 2012, compared to a 7% increase in 2011. Household consumption contributed 1.5% to growth in 2012, against 5.0% initially forecast and 4.0% in 2011. Consumption and Gross Fixed Capital Formation (GFCF) contributed ‑1.7% and ‑31.9% respectively to growth in 2012. The gross investment rate decreased from 20.2% in 2011 to 16.3% in 2012, compared to 20.0% initially forecast. Consumption and GFCF are expected to grow 6.0% and 12.4% respectively in 2013, driving overall demand higher. Public sector consumption and investment are slated to grow 8% and 30% respectively. Consequently, renewed public sector investment is expected to increase slightly by 3.2 percentage points in 2013 year on year, reaching roughly 19.5%. Mali
  • 141. Macroeconomic Policy Fiscal Policy The government executed its 2012 budget with fiscal discipline despite the difficult context, halting all expenditure following the coup d’état, aligning spending with the forecast revised revenue and adopting a collective budget in October 2012. In the context of this budget, revenue was reduced by 29.8%. Fiscal revenue was mobilised at a rate of 72.4% on 30 September 2012, signalling a significant effort in tax collection. Taxes on petroleum products were increased three times, adding XOF 7.8 billion in revenue. The butane gas subsidy was reduced, resulting in XOF 2.9 billion in savings. The tax burden remains low (13% of GDP), below the minimal standard of 17% set by the West African Economic and Monetary Union (UEMOA). Spending was reduced 33.36% in 2012. Current expenditure (15.1% of GDP) decreased 6.9%, while capital expenditure, which represented 9.7% in the initial budget for 2012, dropped 73.8%. Externally-financed capital spending plummeted 91.0% from XOF 358.1 billion to XOF 32.1 billion due to a suspension of international aid. When executing the 2012 budget, the government favoured priority spending: salaries, pensions, domestic and foreign debt servicing, security and national defence, the food crisis and the holding of elections. It also maintained planned spending on social services (33.45% of total spending). The government balanced the budget at the expense of investment, namely in infrastructure. The 2012 Special Investment Budget (BSI) was cut 90%, with a 67% drop in internal financing and almost no external financing. The overall budget deficit increased to 5.8% of GDP in 2012 from 2.7% of GDP in 2011. The government issued treasury bonds to finance it. Mali received budget aid of only XOF 4.2 billion, 3.6% of the initial forecast for the 2012 budget. Not surprisingly, it only met two out of eight of the UEMOA’s criteria for economic convergence: basic fiscal balance in relation to GDP (excluding the Heavily Indebted Poor Countries [HIPC] Initiative) and total outstanding public debt relative to GDP. Fiscal policy will remain prudent in 2013 and based on internal resources. The deficit for 2013 is projected at XOF 55 billion (1% of GDP). The government plans to finance it through renewed donor budget support. The 2013 budget is oriented toward implementing the transition priorities: security and defence, humanitarian actions and the holding of elections. A revised budget was drawn up to eliminate the deficit and kick-start the economy in the wake of the revived donor co‑operation. The government plans to evaluate public spending and fiscal management of defence and security forces with the help of the World Bank. The goal is to enhance performance and reduce risks, given the potential hike in military spending as a result of the war in the north. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 21.7 20.4 20.6 16.3 17.3 19.5 Tax revenue 14.7 14.6 14 13 13.5 13.8 Oil revenue - - - - - - Grants 4.6 3.1 4 0.7 1.2 3.1 Total expenditure and net lending (a) 25.9 22.5 23.9 22.6 23.1 23.5 Current expenditure 14.7 14.3 15.3 15.1 14.8 14.6 Excluding interest 14.3 13.9 14.7 14.5 14.3 14 Wages and salaries 5 5 5.1 5 5 4.9 Interest 0.4 0.4 0.6 0.6 0.5 0.5 Primary balance -3.9 -1.7 -2.7 -5.8 -5.2 -3.5 Overall balance -4.2 -2.1 -3.3 -6.4 -5.8 -4 Figures for 2012 are estimates; for 2013 and later are projections. 146 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 142. 147African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Monetary Policy As a member of the UEMOA, Mali shares the institutional arrangements of the franc zone: the common currency, the CFA franc, is pegged to the euro; the French treasury guarantees the currency; it is freely transferable within the zone; and foreign exchange reserves are centralised. While this provides a certain degree of monetary stability, it also imposes constraints on monetary policy, in particular when there are asymmetric shocks. The goal of the Central Bank of Western African States (BCEAO) is to ensure price stability in the medium term. On the whole, it manages to do so despite exogenous shocks. Inflationary pressure was perceptible in 2012 despite prudent monetary policy at the regional level. The revised rate of inflation is expected to be 5.3%, against an initial forecast of 2.8% for 2012 and 3.0% in 2011. This high rate can be explained by provision problems and the decline in the supply of cereals, relatively low stocks of foodstuffs and the rise in the price of petroleum products. Mali exceeded the UEMOA’s standard of a maximum rate of 3% in 2012. Inflation is projected at 2.9% in 2013 thanks to the good 2012/13 crop year. The money market rate decreased 3.3% in 2011, against 4.1% in 2010, but private companies still have difficulty obtaining long-term credit. The BCEAO in Mali closed for a few days following the 22 March 2012 coup d’état; it reopened on 28 March 2012. It continued doing business with banks and private financial institutions but took precautionary measures in the wake of the coup. It blocked all of the central bank’s operations with the treasury until the inauguration of the transitional president. However, because the government has numerous accounts in the commercial banks, the scope of these measures is limited. Economic Cooperation, Regional Integration & Trade Total exports (28.7% of GDP) were XOF 1.46 trillion (EUR 2.2 billion) in 2012, against XOF 1.12 trillion (EUR 1.7 billion) in 2011. This 30% rise was largely due to increased cotton (136.4%) and gold (27.3%) exports. This trend is set to continue in 2013 and 2014. Imports (22.4% of GDP) increased by 30% from XOF 1 31 trillion (EUR 1.9 billion) in 2011 to XOF 1.36 trillion (EUR 2.1 billion) in 2012, driven by a 44.3% increase in food imports. They are expected to increase 10.32% and 10.44% in 2013 and 2014 respectively. Mali reduced its current account deficit from 10.0% of GDP in 2011 to 0.8% of GDP in 2012. It achieved this by turning a XOF 188.8 billion trade deficit into a XOF 73.6 billion surplus, improving the balance of net transfers by 28.9%, and increasing the terms of trade by 14.8%. The combined balance of the capital and financial accounts, meanwhile, was hit by the suspension of international co‑operation, shrinking by 78% from XOF 551.9 billion (EUR 841.4 million) in 2011 to XOF 121.9 billion (EUR 185.8 million) in 2012. Remittances – estimated at XOF 300 billion (EUR 457.3 million) a year – were hit by the crises in Libya and Europe (especially Spain), dropping by 5% according to the Malian migration information and management centre (CMIGM). (Measuring migrant flows is problematic in Mali, and BCEAO figures should be supplemented with statistics from source countries and additional research into informal flows.) The total balance of payments in 2012 had a XOF 130.6 billion (EUR 199 million) deficit, financed by tapping the BCEAO’s foreign exchange reserves. The current-account deficit is expected to deteriorate in 2013 (-6.8% of GDP). Mali will also have pressing balance of payment needs, which will require drawing XOF 83 billion (1.5% of GDP) from the BCEAO’s foreign currency reserves. Mali participates in regional integration initiatives. It has signed and ratified practically all the agreements and protocols of the Economic Community of West African States (ECOWAS) and the UEMOA. ECOWAS and the UEMOA are negotiating an Economic Partnership Agreement (EPA). Mali does not plan to reach a separate, bilateral agreement in the meantime. The Malian authorities support the regional position that supportive measures should be put in place before the agreement is signed, including financial aid to compensate for the effects of the EPA on trade. In the World Trade Organization (WTO) Mali supports the position of the C4 group (Burkina Faso, Benin, Chad and Mali) on eliminating subsidies for cotton producers in developed countries. Mali benefits from the WTO’s Enhanced Integrated Framework programme, which helps Least Developed Countries overcome supply-side obstacles to trade. Mali
  • 143. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -2.3 -2.4 -7.2 -3.6 6.4 1.8 -1.2 Exports of goods (f.o.b.) 19.6 19.8 21.8 21.5 28.7 25.6 23.6 Imports of goods (f.o.b.) 21.9 22.2 29 25.1 22.4 23.8 24.9 Services -5.8 -5.3 -6.7 -6 -6.4 -6.7 -6.7 Factor income -3.9 -5.1 -4.4 -4.6 -5.3 -5.5 -5.4 Current transfers 1.9 5.4 5.7 4.2 4.5 3.6 3.4 Current account balance -10.2 -7.3 -12.6 -10 -0.8 -6.8 -9.9 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy According to the debt sustainability analysis carried out in 2012, Mali’s debt distress rating risk remained “moderate”. Outstanding public debt was estimated at XOF 1.45 trillion at end-2012. External debt was estimated at XOF 1.26 trillion (86.4% of public debt) and domestic debt at XOF 197.3 billion (13.6%), down 17.1% following repayments to the primary banking sector. Domestic debt was thus cut by 0.5% in 2012, but as a ratio of GDP it actually increased from 26.5% to 27.7% because of the recession. External debt, meanwhile, increased by 2.7% to 23.3%. Debt servicing as a percentage of exports of goods and services was cut from 4.0% in 2011 to 3.3% in 2012 thanks to a 16.0% reduction in external debt servicing, from XOF 58.0 billion in 2011 to XOF 48.7 billion in 2012. The political and security crisis resulted in XOF 2.7 billion of net capital outflows from portfolio investments and XOF 59 billion of other capital outflows. Mali’s gross international reserves held by the BCEAO dropped by 18% to XOF 575.4 billion in 2012 (almost 5 months of imports) from XOF 701.4 billion in 2011 (6.2 months of imports). Despite the crisis the government has continued to meet its financial commitments to its creditors, in particular its debt servicing. In the aftermath of the coup d’état, however, it did fall behind in its loan repayments, running up estimated external arrears of XOF 29 billion as of mid-November 2012. As part of the IMF’s RCF, the government pledged not to exceed this amount and to settle it in 2013. The government is expected to pursue a prudent fiscal policy in 2013 and 2014 and cover its financing needs through grants and loans – which will have a concessionality rate of at least 35% – to maintain the sustainability of its public debt. 148 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 144. 149African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 25% 50% 75% 100% 125% 150% 175% Percentage Mali
  • 145. Economic & Political Governance Private Sector Mali dropped six places in the World Bank report Doing Business 2012 from 145th to 151st out of 185 countries. All the indicators related to commercial and industrial legislation deteriorated, except for paying taxes, which improved one point. Due to high hiring and dismissal costs and the lack of flexibility in determining salaries, Mali is ranked 121st for its job market. Its difficulties seem to have more to do with high costs than the number of procedures and delays, which are reasonable. The March 2012 political crisis had a negative impact on the perception of the country’s risk and its business environment. Its manufacturing base remains intact, but the Club des investisseurs français au Mali (Cifam) estimates that the looting that took place in the aftermath of the 22 March 2012 coup d’état will cost businesses XOF 500 million in damage and theft. The less favourable business climate led to the French credit insurance company Coface lowering Mali’s rating from C to D. The government adopted a new investments code in 2012, but its implementation was postponed. Financial Sector Despite the political and security crisis, Mali’s banking system remains stable and liquid, with shares held by major companies such as Attijariwafa Bank, Banque marocaine du commerce extérieur du Maroc (BMCE), BNP Paribas, Libyan Arab Foreign Bank (LAFB) and Atlantic Financial Group (AFG). No less than 73% of credit institutions respected the prudential standard for liquidity ratios in 2012. Commitments of less than three months were therefore at least 75% covered by the same class of assets. Banking activity nevertheless dropped 10% in 2012. The quality of the banks’ portfolio deteriorated 20.6% in 2012, as opposed to 18.7% in 2011. Total bad debt increased by 11.15% to from XOF 242 billion to XOF 269 billion during the first nine months of 2012. The provisioning rate for bad debts is estimated at 67% for 2012, compared to 70.0% in 2011. The companies concerned are essentially in the construction, hotel and tourism industries. In addition, banks with offices in the north of the country had losses estimated at XOF 17.8 billion. The high cost of credit limits access to financial services. Banking transactions increased a mere 0.8% – as opposed to 17.7% from 2010 to 2011 – adding up to XOF 1.68 trillion by the end of September 2012. This small increase can be attributed to the significant financing the banks provided to the cotton industry for commercialisation (XOF 70 billion) and material inputs (XOF 60 billion), and to the oil and gas sector (XOF 300 billion) and mining (XOF 150 billion). On the other hand, the crisis-hit hotel, tourism and construction industries did not benefit from substantial financing in 2012. The banking sector’s contribution to financing the economy remains weak, even though the ratio of credit to GDP increased from 18.2% in 2010 to 20.9% in 2011 and 21.5% in 2012. Ghana and Morocco, for example, have more enviable rates: 28.3% and 103.0% respectively. Public Sector Management, Institutions & Reform The strategic framework for growth and poverty reduction (Cadre stratégique pour la croissance et la réduction de la pauvreté, CSCRP), serves as the medium-term reference for Mali’s development policy. The government approved a new CSCRP for 2012‑17 in December 2011. It defines three strategic areas: promoting accelerated and sustainable growth that benefits the poor and creates jobs and revenue; reinforcing the long- term bases of development and equitable access to good-quality social services; and strengthening institutions and governance. To implement this, the government drew up a XOF 7.56 trillion priority action plan (PAP 2012‑17). Given the objectives and priorities of the transition authorities, a CSCRP emergency priority action plan (PAPU) for 2013-14 was slated to be approved in March 2013 for a total cost of XOF 1.42 trillion. Important progress has been made in recent years in governance. The Mo Ibrahim Index of African Governance (IIAG 2012) for Mali increased from 52.9 in 2010 to 55.0 in 2011. However, as a result of the suspension of international aid, there was no progress in 2012 with the measures recommended as part of the reform of the state. This reform includes the institutional development programme (PDI 2010‑13), the national programme for the support of regional authorities (PNACT 2010‑14) and the ten-year programme for the development of justice (Prodej 2010‑14). Justice is a major concern for the transition authorities. They plan to continue with the human-rights and anti- corruption reforms (there have been major breaches of human rights nationwide). 150 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 146. 151African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 In 2012, the government was only able to put in place one programme of activities as part of the governmental action plan to improve and modernise public finance management (Pagam/GFP). Progress that has been made over recent years has been weakened by the political crisis and the suspension of international aid. Pagam/GFP activities will resume in 2013, with the resumption of donor aid. Structural reforms did not progress either in 2012. The institutional reform of the state firm Énergie du Mali (EDM) was delayed, and the government did not adopt the sectoral approach in agriculture. UEMOA’s rule 14 on overloading has not been applied in transport, resulting in premature deterioration of the road network, which is vital in opening up the country. Natural Resource Management & Environment The 2011 CSCRP review found that while the government takes the environment into account in all its sectoral strategies and policies for development, it needs to do more. The government signed and ratified the African Convention on the Conservation of Nature and Natural Resources, the Convention on Biological Diversity, the UN Convention to Combat Desertification and the Framework Convention on Climate Change. It put in place national policies and programmes to implement them: the national policy for environmental protection, the national policy for the management of natural resources, the national programme to combat desertification, the strategic investment framework for the sustainable management of land, etc. In terms of climate change, a national policy and strategy were developed in 2011, but the government was unable to implement them in 2012. At the beginning of 2012, the government prepared a strategic framework for green growth in Mali and the implementation of a Malian climate fund (FMC). That said, the environment is not a priority for the transition authorities. Political Context Mali underwent the gravest political crisis in its history in the aftermath of the 22 March 2012 putsch perpetrated by Captain Amadou Haya Sanogo. Thanks to pressure from the international community and mediation from ECOWAS, rule of law was re‑established, with the inauguration of the president of the national assembly, Dioncounda Traoré, as interim president on 12 April 2012. A national unity government was subsequently formed, with Cheick Modibo Diarra as prime minister. However, political differences and pressure from the still-influential former military junta led to his resignation on 12 December 2012. Diango Cissoko was appointed prime minister the following day. The French military intervention and the establishment of a state of emergency in mid-January 2013 calmed things down somewhat. The government and the national assembly adopted the road map for the transition at the end of January 2013. The document, which led to the renewal of international aid, aims to re‑establish the country’s territorial integrity and enable transparent and credible general elections before 31 July 2013. The former junta, which was adamantly opposed to foreign military intervention, allegedly approached ECOWAS to negotiate an honourable solution. It requested that Captain Sanogo remain president of the military committee charged with monitoring reform of the military for the duration of the transition, and ECOWAS granted its request. The security situation in the south of the country seems stable. The liberation of the northern territories by the Malian army, with the support of French troops and the African-led International Support Mission to Mali (AFISMA), is ongoing. The major challenge remains to protect the liberated territories from possible attacks, ambushes and hostage takings. The absence of the Malian army in the Kidal region and the future role of the Tuareg rebellion by National Movement for the Liberation of Azawad (MLNA) remain important questions. Furthermore, national reconciliation, which was supposed to start with the military intervention, has not yet begun. Proof is the delay in putting in place the national commission for dialogue and reconciliation (CNDR). Suffice it to say, Mali’s significant security challenges threaten the stability of the sub-region and the Sahelian area as a whole. Mali
  • 147. Social Context & Human Development Building Human Resources Expenditure on education represented 20.0% of total planned spending for 2012. According to the figures provided by the CSCRP’s 2011 progress report, the main indicators for primary education have improved over the past fifteen years. The gross enrolment rate increased from 79.5% in 2010 to 81.5% in 2011 (87.8% for boys and 73.2% for girls); the gross admission rate remained stable at 74.7% in 2010, compared to 74.6% in 2011, and the completion rate for primary school increased from 56.3% in 2010 to 58.3% in 2012. There are still major regional and gender disparities, but Mali is on the path to achieving universal primary education by 2015 (MDG 2), and this despite the occupation of the north of the country, which has weakened educational outcomes. The government continued to work to improve healthcare in 2012. Health spending represented 8% of total planned expenditure in 2012. This is below the goal of 15% adopted in the Abuja Declaration, which was signed by African heads of state on 27 April 2001. Modest progress was made with the main health indicators between the 2001 and 2006 demographic and health surveys (EDS). Consequently, there is little chance that Mali will attain by 2015 MDGs 4 and 5 of reducing under-five mortality by two-thirds and maternal mortality by three- quarters. National priority programmes have helped combat HIV/AIDS, tuberculosis and malaria. The prevalence rate for HIV/AIDS has been reduced from 1.7% to 1.3% in the past few years, and Mali is among the leading African countries for access to antiretroviral treatment, with 31 000 beneficiaries. For tuberculosis, the detection rate increased from 18% in 2004 to 29% in 2009. However, only 23% of malaria cases in children under five are treated within 24 hours. If these efforts are kept up, they will stand Mali in good stead to halt the spread of HIV/AIDS and control malaria and other major diseases (MDG 6). Nevertheless, the nine-month occupation of the north by armed groups reduced access to health services and worsened the quality of care, especially for mothers and children. Poverty Reduction, Social Protection & Labour Mali carried out a general census in 2009, then a survey of households (Elim) and a Multiple Indicator Cluster Survey (MICS) in 2010. The results allowed the government to identify the poor, vulnerable groups and those who do not have access to basic social services. As part of the CSCRP 2012‑17, it is targeting poor and vulnerable citizens and has set a goal of reducing the poverty rate to 32% by 2017, down from 42.7% in 2012. Authorities have been working since 2009 to set up mandatory health insurance (Amo) and a medical assistance plan (Ram), plus the structures to administer them, namely a national health insurance fund (Canam) and a national medical assistance agency (Anam). Though the authorities consider this social protection policy to be a major advance, there has been strong opposition from certain trade unions, who demanded and obtained the reimbursement of health insurance contributions that had been deducted from their salaries. The main challenges facing the social protection system in Mali are as follows: the limited coverage by existing measures (roughly 23% of the population), the lack of resources to finance non-contributory measures, the low sustainability of employee protection plans due to the ever-increasing gap between revenues from policyholder contributions and the cost of the services provided, and the lack of use of other social protection measures, especially mutual health insurance (3.3% of the population). The government plans to meet these challenges by implementing the 2011‑15 national action plan for social protection. The unemployment rate is 9.6% overall and 15.4% among young people (81.5% of the jobless). Gender Equality Mali has ratified the main international and regional measures regarding women’s rights. The government adopted a national gender policy (PNG-Mali) on 24 November 2010 to implement them. Despite the crisis it continued to promote equality between men and women in all areas in 2012. Gender-sensitive budgeting (PBSG) was adopted for the first time in 2012, allowing the government to analyse the budget’s impact on women, men, boys and girls, as well as on gender equality. Nevertheless, more women are still needed in decision-making positions. Diango Cissoko’s government has three women out of 30 ministers. The national assembly has 15 women out of 147 members, a mere 10%. The percentage of women among central administration directors is also 10%, while 14% of members of the Malian Chamber of Commerce (CCIM) are female. The situation of women in the north deteriorated substantially under the occupation of armed Islamist groups. They were illegally confined, raped, forced into marriages and forbidden from wearing certain clothes and participating in public festivities and mixed gatherings. 152 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Mali
  • 148. 153African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources Natural resources play a crucial role in the Malian economy, in particular gold and cotton. Mali has become Africa’s third largest gold producer, after South Africa and Ghana. Production increased from 6 tonnes in 1993 to 49.7 tonnes in 2012. As previously stated, it represents a quarter of GDP and three-quarters of export earnings. Exports increased from XOF 17.4 billion in 1993 to XOF 1.07 trillion in 2012. It is estimated that the state earned XOF 233 billion through direct and indirect taxes and dividends in 2012, compared to 62.3 billion in 2002. The government is planning a new tax, indexed on changes in global gold prices. The mining sector employs 8 000 people, including research companies and subcontractors, but the value added by local beneficiation and the development of sales outlets are still lacking. There are no national operators and service providers at the different levels of the mining industry (exploitation, subcontracting, providers of services and material inputs, use and enhancement of local products). Generally speaking, the mining sector does not have enough links to the local economy. Moreover, as a result of a lack of geological data on other mineral deposits, it only produces gold. The absence of a reliable mining land survey and an independent and appropriate financing mechanism penalise the sector. There is also insufficient control, monitoring and evaluation of mining companies. Lastly, energy and communications infrastructure in mining areas are underdeveloped. The government adopted a new mining code on 27 February 2012 to address these shortcomings and better integrate the mining sector into the national economy. Some of the measures it provides for are: the possibility for private Malian firms to acquire a 5% stake in mining companies; revising the amount and/or rate of taxes and rights related to mining activities; taking into consideration the development of communities near mines; implementing a model to finance research, training and capacity-building for the industry’s workers; and preserving and restoring the environment through social and environmental impact studies (EIES). In addition, as a member of the Extractive Industries Transparency Initiative (EITI) since 2 August 2006, the country produces a yearly report on its mining activities. The rural town of Sadiola is a good example of local development supported by mining activities. Two mining companies have operated the mines since 1996 in this town of 23 000, located 75km from Kayes in north- western Mali. They pay the town between XOF 400 and 600 million annually in levies, making Sadiola the richest rural community in Mali. The money has allowed it to invest in education, healthcare, agriculture and livestock farming. Before the mine opened the town had six schools; with the funds from the mining companies, it has built 27, and 23 of these benefit from supplies and equipment each year. It also built five new secondary health centres to complement the sole clinic that existed before the mine. Drinking water is free of charge thanks to the creation of two water supply points; the town has electricity and village associations are working towards reforestation. A local job commission has been set up to ensure 30% of all jobs are filled by local residents. Finally, the mining companies have also financed a XOF 600 million integrated development programme for Sadiola (Padi) to improve agriculture, livestock farming and microfinancing. Mali’s other major resource, cotton, accounted for around 1% of GDP and 15% of total export earnings in 2012. It was the country’s main export up until 2000. A drop in crop yields and global cotton prices, subsidies to producers in certain developed countries, lower production because of the refusal of farmers to cultivate the cotton and bad governance have all created serious difficulties for the industry since 1997/98. This has led to the liberalisation of the sector and a plan to privatise the CMDT. However, since the 2008/09 crop year, production has increased on average 23% per year. This gain is due to the state subsidising input materials by XOF 20 billion on average per year, providing support and advice to producers and guaranteeing prices. It also results from a refocusing of the CMDT’s activities on cotton and improving the sector’s governance, plus the relatively high global cotton prices. As a result, the government no longer seems interested in privatising the CMDT. The availability of good-quality cotton should be a potential advantage for Mali. However, it has not led to the creation of a local cotton processing industry. The few companies that make use of cotton grains, such as oil mills (Huicoma) and the textile industry (Comatex, Fitina, Batexci), are struggling. Automation in most cotton- producing countries has eroded the comparative advantages of low-wage countries like Mali. This is why the government needs to foster investment in the textile industry, which represents a mere 2% of GDP. An increase in the local processing of cotton, which is part of an industrialisation strategy for Mali, will help protect the sector from global price fluctuations. Mali
  • 149. Niger 2013 www.africaneconomicoutlook.org Souleymane Abdallah / Sabdallah@uneca.org Richard Antonin Doffonsu / r.doffonsou@afdb.org
  • 150. Niger Sections In 2012, GDP grew by an estimated 13.1% in real terms, one of the highest levels recorded in Africa. Growth was boosted by a good harvest and an exceptionally dynamic secondary sector, which grew by almost 38%, driven by the extractive industries. Although there are some risks, the outlook for 2013 and for the medium term is good, with growth expected to average 5.5%. Reducing the national debt remains a challenge. In the political sphere, state institutions were consolidated in 2012. In social affairs, progress was made in human development, but remains slow. Niger is unlikely to achieve all the Millennium Development Goals (MDGs) by 2015. Huge investment in the oil and mining sectors are encouraging signs for the country’s development. Nevertheless, better policies on the management of natural resources are needed, taking into account environmental externalities. To achieve sustainable mitigation of the economy’s and the population’s recurrent vulnerability to climatic impacts, Niger would benefit from making good use of its mining and oil resources to finance structural investments. Economic diversification is also necessary to generate inclusive growth. Overview The political situation in Niger is still improving. However, the regional crisis in Mali fuelled by jihadist groups (AQIM, Ansar Dine and MOJWA), and taken up by Boko Haram in Nigeria could threaten social cohesion in Niger. Because of the risks, Niger could change its budgetary decisions, increasing spending on security and defence at the expense of certain areas of social spending. The economic recovery continued in 2012, with growth in gross domestic product (GDP) of more than 13% according to provisional estimates. The primary, secondary and tertiary sectors all grew, contributing 6.9, 4.0 and 2.5 percentage points respectively to overall GDP growth. An expansionary fiscal policy was made possible by a number of factors: high revenue generated by the extractive industries, revision of various tax rates1 and continuing reforms of tax and customs administration. Support came from technical and financial partners including the African Development Bank (AfDB), the World Bank, the European Union (EU) and French co-operation. Debt rose again in 2011 and 2012. Analysis of debt sustainability reveals that the risk of over-indebtedness2 could be upgraded from moderate to high. The budget deficit was estimated at less than 3% of GDP in 2012, well below the 6.8% deficit recorded in 2011, and is forecast to remain low until 2015. The Central Bank’s monetary policy was slightly expansionary, with the money supply growing by 16.6% and credit to the economy – especially to the extractive industries – by 18.2% in 2012. Inflation increased from 2.9% to 3.9%. The effects of controls on staple food prices in response to the July 2012 floods will take place in 2013, with inflation forecast to fall to 1.8%, well below the West African Economic and Monetary Union (WAEMU) target rate of 3%. Public policies have improved human development in the areas of health, education and social protection. The greatest achievement of the last decade has been investment in human capital, which has vastly improved education and health services. However, income poverty has declined very slowly. About 60% of Niger’s population still live below the poverty line of USD 1 a day. If the poverty line is raised to USD 2 a day, that figure rises to 85%. In 2013, two years before the expiry of the MDGs, the poverty index is forecast to fall only to 55.0%, well short of the 2015 target of 31.5%. Niger Sections In 2012, GDP grew by an estimated 13.1% in real terms, one of the highest levels recorded in Africa. Growth was boosted by a good harvest and an exceptionally dynamic secondary sector, which grew by almost 38%, driven by the extractive industries. Although there are some risks, the outlook for 2013 and for the medium term is good, with growth expected to average 5.5%. Reducing the national debt remains a challenge. In the political sphere, state institutions were consolidated in 2012. In social affairs, progress was made in human development, but remains slow. Niger is unlikely to achieve all the Millennium Development Goals (MDGs) by 2015. Huge investment in the oil and mining sectors are encouraging signs for the country’s development. Nevertheless, better policies on the management of natural resources are needed, taking into account environmental externalities. To achieve sustainable mitigation of the economy’s and the population’s recurrent vulnerability to climatic impacts, Niger would benefit from making good use of its mining and oil resources to finance structural investments. Economic diversification is also necessary to generate inclusive growth. Overview The political situation in Niger is still improving. However, the regional crisis in Mali fuelled by jihadist groups (AQIM, Ansar Dine and MOJWA), and taken up by Boko Haram in Nigeria could threaten social cohesion in Niger. Because of the risks, Niger could change its budgetary decisions, increasing spending on security and defence at the expense of certain areas of social spending. The economic recovery continued in 2012, with growth in gross domestic product (GDP) of more than 13% according to provisional estimates. The primary, secondary and tertiary sectors all grew, contributing 6.9, 4.0 and 2.5 percentage points respectively to overall GDP growth. An expansionary fiscal policy was made possible by a number of factors: high revenue generated by the extractive industries, revision of various tax rates1 and continuing reforms of tax and customs administration. Support came from technical and financial partners including the African Development Bank (AfDB), the World Bank, the European Union (EU) and French co-operation. Debt rose again in 2011 and 2012. Analysis of debt sustainability reveals that the risk of over-indebtedness2 could be upgraded from moderate to high. The budget deficit was estimated at less than 3% of GDP in 2012, well below the 6.8% deficit recorded in 2011, and is forecast to remain low until 2015. The Central Bank’s monetary policy was slightly expansionary, with the money supply growing by 16.6% and credit to the economy – especially to the extractive industries – by 18.2% in 2012. Inflation increased from 2.9% to 3.9%. The effects of controls on staple food prices in response to the July 2012 floods will take place in 2013, with inflation forecast to fall to 1.8%, well below the West African Economic and Monetary Union (WAEMU) target rate of 3%. Public policies have improved human development in the areas of health, education and social protection. The greatest achievement of the last decade has been investment in human capital, which has vastly improved education and health services. However, income poverty has declined very slowly. About 60% of Niger’s population still live below the poverty line of USD 1 a day. If the poverty line is raised to USD 2 a day, that figure rises to 85%. In 2013, two years before the expiry of the MDGs, the poverty index is forecast to fall only to 55.0%, well short of the 2015 target of 31.5%. 156 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 151. 157African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 2.1 13.1 5.5 6.5 Real GDP per capita growth -1.4 9.6 2 3 CPI inflation 2.9 3.9 1.8 1.4 Budget balance % GDP -6.8 -2.8 -2 -2.5 Current account % GDP -22.7 -22.7 -21.5 -17.8 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2.5% 0% 2.5% 5% 7.5% 10% 12.5% 15% RealGDPGrowth(%) Niger
  • 152. 2011 and 48.0% in 2010. The secondary sector (Niger’s Achilles heel) recorded strong growth of 37.7% in 2012, up from 3.0% in 2011. This improvement was driven by the extractive industries, which grew by 152.5% thanks to oil production. After declines in 2011, production forecasts for uranium and gold are on the rise; 13.2% and 11.9% respectively in 2012. With the country’s refining capacity exceeding domestic demand and the electricity supply to Niamey http://dx.doi.org/10.1787/888932809583 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 44.2 43.1 Construction 2.7 2.9 Electricity, gas and water 1.2 1.4 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 6.2 5.6 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 5.6 5.5 Mining 4.8 6.3 Other services 3.6 3.2 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 9.5 9.6 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 7.1 6.8 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 15.2 15.8 Wholesale, retail trade and real estate ownership - - GDP growth in 2012 was estimated at more than 13.0%, fuelled by the start of oil production and a good harvest. The contribution made by the primary, secondary and tertiary sectors to that growth was 6.9%, 4.0% and 2.5% respectively. Tax on goods, meanwhile, impacted negatively on growth (‑2.1%). The balance of payments benefited from major flows of foreign direct investment (FDI) linked to projects to exploit natural resources and to the start of petroleum exports. Net foreign assets grew by an estimated 3.0% of GDP, but as in 2011, they represented only three months of imports. The primary-sector grew strongly in 2012, up 16.5% by volume from a fall of 3.7% in 2011. This strong growth was due to a good 2012/13 harvest, thanks to abundant rainfall. Agriculture contributed 24.8% to primary- sector growth, driven by winter crops and irrigated farming resulting from added investment and the provision of better seeds. Slower growth in livestock farming (2.8% against 4.5% in 2011 due to a fodder deficit the previous year), forestry (1.7% against 2.5% in 2011) and fisheries (3.0% against 3.5% in 2011) prevented higher growth in the sector. In 2012, the primary sector’s contribution to the economy stood at 46.2% of GDP, compared with 45.4% in 158 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 153. 159African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 2011 and 48.0% in 2010. The secondary sector (Niger’s Achilles heel) recorded strong growth of 37.7% in 2012, up from 3.0% in 2011. This improvement was driven by the extractive industries, which grew by 152.5% thanks to oil production. After declines in 2011, production forecasts for uranium and gold are on the rise; 13.2% and 11.9% respectively in 2012. With the country’s refining capacity exceeding domestic demand and the electricity supply to Niamey having improved, the energy sector’s value added grew by 5.7% in 2012, after contracting by 12.1% in 2011. The government’s ongoing infrastructure work has helped consolidate the construction sector, which grew by 7.4% in 2012, compared to a 3.3% contraction in 2011. Tertiary-sector growth remained steady at 6.6% in 2012, against 7.7% in 2011. This trend is linked to increased activity in freight transport,3 which grew by 8.5%, and the continued dynamism of public administration, which grew by 12.4%. The communications sector saw growth slow from 6.5% to 2.9%, with the market for mobile telephones becoming saturated. The short- and medium-term macroeconomic outlooks are positive, despite some risks. Huge investment in mining and oil and a consolidated macroeconomic situation should restore strong growth, which is predicted to hover at around 5.5% from 2013. The start of production at the Zinder oil refinery at the end of 2011 will make Niger a net exporter of petroleum products. Current investments and plans for a new uranium mine funded by the French group Areva should double production between 2012 and 2016, making the country the world’s second-biggest uranium producer. Mining and oil production and exports should also double between 2012 and 2016. With the decline in food prices, inflation is expected to remain low in 2013. The region’s fragile security and Niger’s vulnerability to natural disasters, as the July 2012 floods showed, affect the country’s outlook. On the demand side, real GDP growth is driven mainly by investment and exports. Consumption contributed 11.6% to growth, investment 6.1%, exports 3.0% and imports ‑7.5%. Final household consumption, which amounted to 70.6% of GDP in 2012, should continue to grow at a rate of 14.4%, up from 5.8% in 2011, with food imports having more than offset the deficit in agriculture in the 2011/12 season. Meanwhile, a rise in public expenditure means that final government consumption is likely to grow at a slower pace, having already slowed from 13.0% in 2011 to 5.5% in 2012. Final consumption grew by an estimated 12.4% of GDP in 2012 (up from 7.0% growth in 2011), representing 85.5% of GDP. After shrinking by 5.9% in 2011, investment grew by an estimated 16.0% in 2012. This growth was driven by a 15.0% increase in private gross fixed capital formation (GFCF) following Areva’s purchase of capital goods and a 20.0% increase in public GFCF following infrastructure work carried out by the government in rural areas, on roads and for the social sectors. Total investment reached an estimated 29.9% of GDP in 2012, down from 32.1% in 2011. Estimates for foreign trade, meanwhile, indicate that exports grew by 15.0%, thanks to the sale of oil and gas, to reach 22.1% of GDP, while imports grew by 14.8% to reach 35.8% of GDP. Deterioration in the both the trade and service balances caused the external deficit to widen from 22.7% of GDP to 25.0%. Niger
  • 154. Macroeconomic Policy Fiscal Policy Unlike in 2011, fiscal policy was expansionary in 2012. The initial budget was XOF 1.26 trillion (CFA franc BCEAO), but was then revised upwards to XOF 1.44 trillion and then downwards to XOF 1.35 trillion. The first increase in spending was financed by the significant revenue generated by the extractive industries, revenue from various changes to tax rates, the expiry of certain tax exemptions and ongoing measures to strengthen tax and customs administration. However, the XOF 68.8 billion capital loss in customs revenue from imports and exports, the XOF 8.6 billion reduction in resources drawn from the International Monetary Fund (IMF), the reduction in EU budget aid and lower oil revenue forced the government to revise the budget a third time, this time downwards to XOF 345 billion. The final budget was 6.5% higher than the initial budget approved in December 2011. Despite these changes, fiscal policy remained prudent, providing fiscal space of XOF 20 billion (0.5% of GDP) for unexpected events, including spending on security and defence. Niger is suffering the consequences of the regional security crisis, particularly in Mali, and experiences recurring climatic hazards, including devastating floods. In accordance with the terms of the new Extended Credit Facility (ECF) agreed with the IMF, the basic budget deficit was less than 3% of GDP in 2012, well below the 6.8% deficit of 2011. The deficit is expected to stay below 3% until 2015. From 2016, a budget surplus is expected when Africa’s largest uranium mine opens in Imouraren, with annual production expected to reach around 5 000 tonnes of uranate. In the medium term, Niger’s fiscal policy aims to maintain debt sustainability. It also aims to provide resources to increase social spending and public investment without choking private investment in sectors not controlled by the state. In addition, as part of the programme drawn up with the IMF, the government will work to set up a legal framework with transparent controls for the mining and oil sectors. The government will also support the development of the private and financial sectors. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 18.7 18.4 18.8 21.4 21.9 21.2 Tax revenue 13.5 12.9 14.1 14 14 13.9 Oil revenue 4.4 4.6 4.1 6.6 7.2 6.6 Grants - - - - - - Total expenditure and net lending (a) 24.1 20.8 25.6 24.1 23.9 23.7 Current expenditure 11.9 13 14 13 12.8 12.2 Excluding interest 11.6 12.8 13.6 12.7 12.4 11.8 Wages and salaries 3.7 3.7 4.2 3.8 3.7 3.6 Interest 0.2 0.2 0.4 0.3 0.4 0.4 Primary balance -5.1 -2.2 -6.4 -2.5 -1.6 -2.1 Overall balance -5.3 -2.4 -6.8 -2.8 -2 -2.5 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Niger is a member of WAEMU. As such, since 1 April 2010, the country’s monetary policy is the sole remit of the Monetary Policy Committee (Comité de politique monétaire, CPM) of the Central Bank of West African States (CBWAS). According to Article 8 of the CBWAS statutes, the bank’s primary objective is to ensure price stability. To help achieve this objective, the bank provides support to WAEMU’s economic policies for healthy, sustainable growth. In 2012, the CBWAS implemented a slightly expansionary monetary policy, increasing the money supply by 16.6%. As a result, credit to the economy increased by 18.2%, mainly benefiting the extractive industries. To implement this policy, the CPM cut interest rates by 25 basis points following its meeting on 11 June 2012. The minimum open-market and marginal-lending rates were set at 3.0% and 4.0% respectively, coming into effect 160 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 155. 161African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 growth. In 2012, the CBWAS implemented a slightly expansionary monetary policy, increasing the money supply by 16.6%. As a result, credit to the economy increased by 18.2%, mainly benefiting the extractive industries. To implement this policy, the CPM cut interest rates by 25 basis points following its meeting on 11 June 2012. The minimum open-market and marginal-lending rates were set at 3.0% and 4.0% respectively, coming into effect on 16 June 2012. In the money market, the CPM has noted that the tensions that justified lowering the reserve requirements in March 2012 have faded. The weighted average rate of one-week loans on the interbank market stood at 4.67% in March 2012, but fell to 4.25% by May of the same year. The CPM responded by freezing reserve requirements for banks at 5.0%, the rate that had been in place since 16 March 2012. Inflation rose by a single percentage point in 2012 to 3.9%. Measures to control staple food prices following the July 2012 floods should bring inflation back down to 1.8% in 2013, below the ECOWAS target rate of 3.0%. As part of an expansionary fiscal policy to finance social and capital spending and respond to the recovery of the extractive industries, the CBWAS’s monetary policy in 2013 will aim to stabilise prices and the real effective exchange rate and prevent public spending from crowding out private investment. Economic Cooperation, Regional Integration & Trade Niger’s trade deficit widened again in 2012, increasing by XOF 25 billion to XOF 473 billion, despite the buoyancy of exports, boosted by sales of uranium and the country’s first refined petroleum products. Exports were up 15.0%, representing 22.1% of GDP. Imports, meanwhile, grew by 14.8%, representing 35.8% of GDP. The current account has a structural deficit and deteriorated in 2012. The deficit grew to XOF 795 billion, or 22.7% of GDP, from XOF 684 billion in 2011. One of the main causes of this deterioration was the import of capital goods for major extraction investment projects. Furthermore, food imports almost doubled and imports of other consumer goods also increased. Foreign direct investment (FDI) – mainly Chinese and French investment in the mining and oil sectors – has remained high over the past three years, making the deficits sustainable. Total FDI was XOF 499 billion in 2011 and XOF 402 billion in 2012. The current account balance should improve drastically in 2013. Imports of the main refined petroleum products will fall dramatically, while exports should get into their stride after a slow start to 2012. Meanwhile, in early 2012 the IMF approved a new three-year economic programme under the Extended Credit Facility that will further strengthen medium-term macroeconomic stability. Regarding regional integration, Niger has signed and ratified all protocols and agreements drawn up by the main regional integration and co‑operation bodies, including WAEMU and ECOWAS. Niger participates actively in discussions on Economic Partnership Agreements (EPAs) and on introducing a five-band common external tariff (CET) for ECOWAS. The challenge for the customs authorities is to combat fraudulent imports of goods, especially from Benin and across the porous 1 500 km border between Niger and Nigeria. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -5.3 -14.9 -14.3 -14.9 -13.7 -13.4 -11.7 Exports of goods (f.o.b.) 15.1 18.6 20.3 19.9 22.1 22.2 23.9 Imports of goods (f.o.b.) 20.4 33.4 34.6 34.7 35.8 35.6 35.6 Services -5.8 -7.4 -12.8 -12.6 -13.7 -12.6 -10.1 Factor income -0.4 -0.6 -0.8 -0.8 -1.2 -1.3 -1.3 Current transfers 3.6 2.8 7.9 5.5 6 5.7 5.3 Current account balance -8 -20.1 -20 -22.7 -22.7 -21.5 -17.8 Figures for 2012 are estimates; for 2013 and later are projections. Niger
  • 156. Debt Policy According to the conclusions of the IMF’s Article IV Consultation with Niger, the country’s debt levels fell considerably after it received debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). In 2010-11, total public debt (domestic and external) was equal to 24% of GDP. The authorities have made considerable efforts to develop a comprehensive inventory of domestic debt. An agreement signed between Niger and the CBWAS in July 2010 on bank-loan repayments considerably improved Niger’s financial position vis-à-vis the CBWAS. However, in 2012 public debt grew due to the state guarantee on the loan granted to the Soraz oil refinery and a loan to finance the government’s holding in the new uranium mine. Debt sustainability analysis therefore reveals a higher debt ratio, with Niger’s debt distress rating having increased from low to moderate. Public debt monitoring has improved, but further steps are needed to strengthen debt management. The government therefore needs to shift more towards grants and concessional loans to finance public investment. Government guarantees for new investments in the extractive industries should be limited as much as possible. To strengthen debt management, the government aims to create an office within the Ministry of Finance in charge of managing all domestic and external debt. Proposals for new loans and guarantees, including those for the exploitation of natural resources, should be presented to the national debt-management committee for proper analysis. Given the risk of debt distress, the authorities have reached an agreement with the IMF that funding for the new uranium mine, due to open in 2014, will not benefit from government guarantees. Official development assistance (ODA) is on the rise. ODA increased again after it had contracted in 2010 during the military transition following the coup and co‑operation from technical and financial partners (TFPs) was suspended. In 2011 it almost doubled to XOF 206.8 billion, and in 2012 it continued rising, reaching an estimated XOF 365 billion. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 50% 60% 70% Percentage 162 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 157. 163African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Economic & Political Governance Private Sector According to the World Bank report Doing Business 2013, Niger introduced no major environmental reforms in 2012 and slipped one place down the rankings, from 175th to 176th out of 183 countries. While other countries like Rwanda and Zambia have made progress, having introduced major reforms over the past three years, almost all of Niger’s indicators have shown no improvement. The indicator for starting a business has made no significant progress, unlike among other economies in the African Business Law Harmonisation Organisation (OHADA). Starting a business in Niger requires nine procedures and takes seventeen days, making it much more complex than in similar economies, like Mali, where it requires four procedures and takes eight days. Practical steps by the government to improve the business climate must focus on: further reducing the time needed to obtain a construction permit by eliminating problems in cadastral matters and registering property; reviewing the cost of energy, which is too dependent on imports and therefore vulnerable to external impacts; greatly improving protection for investors; improving the procedures, delays and costs of enforcing contracts; adopting an effective collection policy in response to the many cases of insolvency. Financial Sector The financial system remains relatively healthy. It has not been affected by the recent world financial crises because it has few links with the world economy and is closely supervised by WAEMU’s banking commission. With around ten banks and one financial institution the system remains highly concentrated compared with those of other WAEMU countries. As of 2011, nine-tenths of total balance-sheet assets – worth XOF 712.6 billion – were owned by four major commercial banks. The depth of the financial sector, measured as the ratio of money supply to GDP (M2/GDP), has increased substantially, but remains low. The ratio increased from 8.8% in 2000 to 20.5% in 2010 before falling slightly to 20.3% in 2011, well below the average of 41.0% for the whole of sub-Saharan Africa. Financial products and capital markets are very limited in their capacity to respond to the specific needs of an economy driven by the primary sector (agriculture) and the extractive industries (such as mining and oil). Credit to the formal private sector remains low due to a shortfall in funds available on the market given the sector’s requirements. Financial intermediation and the banking rate are both low. Access to finance is limited; less than 5% of the population use financial products of any kind. The distribution of credit does not reflect the relative size of the different economic sectors. The growth-driving agricultural sector, for instance, contributes more than 40% to GDP, but receives less than 1% of bank loans and struggles to obtain finance. This lack of structure in demand for credit is one of the bottlenecks preventing entrepreneurs from obtaining agricultural loans. Indeed, because demand for credit isn't formally structured, (documented, based on reliable data, etc.) and lacks guarantees, lending is far too risky for banking institutions. Bringing structure to the demand for credit requires support for developers in preparing bankable proposals and providing adequate guarantees. Improving access to credit also requires substantial progress in the country’s business environment, particularly in legal and judicial matters. Public Sector Management, Institutions & Reform Following the return to democracy and constitutional order in 2011, 2012 saw a consolidation of the Republic’s institutions. On the economic front, the government of Niger organised the round table of Niger TFPs on financing the PDES development plan (Plan de développement économique et social) for 2012-15, in conjunction with the United Nations Development Programme (UNDP) and with the support of bilateral and multilateral TFPs. The plan is based on an annual-growth forecast of 8% between now and 2015. The aim of the plan is to build infrastructure to support the economy and reduce the cost of transport and energy. Costing USD 12.4 billion, the 2012-15 PDES particularly aims to diversify an economy that depends heavily on mining revenue, especially uranium. The PDES envisages a 20% rise in tax revenue, most of which still comes from the oil sector. The Kandadji dam should contribute to this programme by enabling the irrigation of 10 000 hectares by 2018. Costing EUR 500 million, the dam will also power a 130-megawatt power station, thus raising the country’s total Niger
  • 158. power capacity by 55%. Another major project is the pipeline from the Agadem oil fields in eastern Niger to Chad, from where an existing pipeline will carry Niger’s oil to the coast of Cameroon. This project will allow the new oil-producing country to become an exporter of crude oil. Negotiations are well under way. Natural Resource Management & Environment Management of natural resources and environmental externalities is a priority for Niger. On the strategic and operational front, environmental policies and regulations focus on protecting natural resources, ensuring their sustainable use and managing pollution. In the extractive industries, the country created a national charter on good governance and management of mineral resources and oil and gas. To fully comply with the Extractive Industries Transparency Initiative (EITI) in 2012, all investors had to conduct an environmental and social impact study and to have an environmental and social management plan for all mining and oil and gas projects. As part of their revised mining and investment codes, the government plans to bolster environmental standards by aligning them with international standards. In the agricultural sector, the government adopted a new rural development strategy on 18 April 2012: the 3N4 initiative for food safety and sustainable agricultural development. This strategy tackles environmental management through the following programmes: i) managing natural resources sustainably; ii) strengthening the capacity of stakeholders; iii) supporting land tenure security; and iv) establishing a participatory system of governance. More than USD 2 billion will be invested in the 3N initiative. In the context of climate change, Niger has been admitted to the Pilot Program for Climate Resilience (PPCR). The PPCR is the first programme of the Strategic Climate Fund and is designed to redirect development towards low-density forms of carbon that can withstand the effects of climate change. To accompany these resources the government created a separate fund with the CBWAS that will receive revenue from the extractive industries to be used to manage crises related to climate change, such as recurring droughts and floods. Political Context The political situation in Niger is still improving, but the regional situation threatens to disrupt the internal balance. Within Niger, the country is becoming more politically stable, with all the national institutions envisaged in the Constitution being gradually put in place. This has been helped by government stability, which was not seen in previous decades. The ruling MNR coalition (Mouvance pour la renaissance du Niger) has a comfortable majority in the National Assembly. However, in view of the continued criticism aimed at the government by the second strongest party in the coalition, some might question how long the coalition government is likely to last. In the wider region the situation remains volatile. To the north, the Libya crisis has subsided, but the country remains volatile. To the south, the Nigeria-based Boko Haram sect still poses a threat, with a real, albeit contained, danger of negative impacts in Niger. Finally, to the west the deteriorating situation in northern Mali has led to an influx of refugees, which has had repercussions on security and humanitarian aid. Given the regional situation, before the military operations to retake northern Mali, Niger launched a national security operation to limit the security repercussions of the crises in Mali, Nigeria and Libya. This operation had a huge effect on the national budget. The rise in defence spending in 2012 is set to continue in 2013, possibly at the expense of certain capital investments. Military operations in Mali by French and Malian forces with the deployment of the African-led International Support Mission to Mali (AFISMA) have certainly helped remove jihadists from major cities in northern Mali, but they have not permanently removed the threat to Niger. 164 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 159. 165African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources The government has made efforts to improve the health system. To combat malaria – the leading cause of death in Mali – healthcare centres, information campaigns and the use of mosquito nets, especially among children under five, have contributed to lowering the mortality rate from 0.18% in 2006 to 0.16% in 2010. The infant mortality rate is drastically improving. Efforts have centred around assisted births supported by qualified healthcare staff, the rate of which increased from 14.9% in 1992 to 17.7% in 2006, then to 37.1% in 2010. Water-borne diseases linked to the lack of safe water, hygiene and sanitation – the main cause of deaths among infants under five – are also expected to become less prevalent in the medium term. Indeed, access to drinking water rose from 43.0% in 2000 to 50.1% in 2008, and should climb further thanks to major government investment supported by donors such as the AfDB. The government’s strategy to tackle HIV/AIDS, which affects workforce productivity, especially in rural areas, has focused on improving access to treatment for HIV by local, devolved, decentralised services. The number of people with advanced HIV infection receiving combination antiretroviral therapy greatly increased between 2008 and 2010, from 2 846 to 7 663 people. Niger has also made good progress in education, but unless it changes its policy it will not achieve the MDG goal on primary education. In education and literacy, efforts are still needed to reduce disparities, despite the progress made, particularly those between men and women. The net enrolment rate5 increased from 25.4% for the period 1997‑98 to 62.8% for the period 2009‑10, then to 67.2% for 2010‑11. The completion rate, meanwhile, reached 51.2% in 2011, up from 15.0% in 1990. Niger has also made significant progress in reducing inequalities between girls and boys, with the ratio of girls to boys in primary schools having increased from 62.5% in 1997 to 82.0% in 2011. But despite these efforts, there are still problems with maintaining quality. Poverty Reduction, Social Protection & Labour The various surveys on household living conditions conducted by the national statistics agency (Institut national de la statistique, INS) in 2005 and 2008, based on a monetary approach, concluded that poverty had declined. The incidence of poverty stood at 63% in 1990, 62.1% in 2005 and 59.5% in 2008. Progress has therefore been slow, with 60.0% of the population still living below the poverty line of USD 1 a day in 2008. If the poverty line is raised to USD 2 a day, that figure rises to 85.0%. Poverty most affects people in rural areas (especially women), since the structures and production systems in those areas are based mainly on rain-fed agriculture and livestock farming, which are heavily dependent on climatic conditions. Spatial analysis also shows that poverty is endemic in the Maradi, Dosso and Tillabéry regions. This poverty has many causes. According to the INS report on gender and poverty, they include high fertility,6 successive droughts resulting in poor harvests and often endemic food shortages, the deterioration of productive potential, migration of young people from rural to urban and mining areas, or their migration to neighbouring countries, and poor access to credit and jobs for women. According to the 2012‑15 PDES, unemployment7 and underemployment, particularly among young graduates, are ongoing concerns with a strong impact on poverty. Encouraging preliminary estimates by the authorities suggest that by 2013 the incidence of poverty will have fallen to 55.0%, thanks to public policies in the social sectors over a number of years. However, the target of 31.5% for the incidence of poverty (MDG 1, eradicating extreme poverty and hunger) will not be achieved by 2015. The government has therefore adopted a proactive policy on social protection. It has ratified several legal instruments, adopted a national policy document on social protection in 2011, improved services during food crises and created a full range of aid to the most vulnerable groups in the form of safety nets. Gender Equality Gender disparities persist in education and in the labour market. In education, policies by successive governments have doubled the percentage of girls in primary education since 2000. However, the gap between girls and boys in absolute terms is widening, since the enrolment rate of boys is growing even quicker. The disparities between boys and girls grow as they get older: in primary schools almost half the students are girls, while in the second cycle of secondary schools they constitute only a fifth of students. There is also an unequal contribution made by men and women to the country’s development. While 50.1% of Niger
  • 160. the population are women, only 26.0% of civil servants and only 21.7% of private-sector and parapublic workers are women. More than half (53.0%) of potentially active women do not work; by contrast, only 14.0% of men are inactive. In government, however, women have increased their presence. For the period 1999‑2002 only 8.7% of government workers were women; for 2002‑04, 14.3% were women; since 2004 the figure has been over 20.0%. The proportion of female MPs increased from 1.2% for 1999‑2004 to 12.4% for 2004‑2009, then increased again. Thanks to a law requiring at least 25.0% of senior public positions to be filled by women, the number of women in such roles will improve further. Gender disparities persist in education and in the labour market. In education, policies by successive governments have doubled the percentage of girls in primary education since 2000. However, the gap between girls and boys in absolute terms is widening, since the enrolment rate of boys is growing even quicker. The disparities between boys and girls grow as they get older: in primary schools almost half the students are girls, while in the second cycle of secondary schools they constitute only a fifth of students. There is also an unequal contribution made by men and women to the country’s development. While 50.1% of 166 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 161. 167African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources Niger has an abundance of natural resources, particularly minerals, oil and gas. The main resources are uranium, gold, coal, iron, limestone and phosphates. Present in Niger for over half a century, the French group Areva is developing the country’s uranium potential through the Niger-based companies Somair, Cominak and Imouranen SA. The opening of the new uranium mine in Imouraren, scheduled for 2014 or 2015, will represent a major turning point. By 2016 the mine’s maximum annual capacity is expected to reach 5 000 tonnes of uranates. Niger is expected to become the second largest producer of uranium, behind Kazakhstan and ahead of Canada. Gold mining is expected to go through another phase of expansion in the coming years. Thanks to proven reserves of more than 80 million tonnes, Niger is also expected to benefit from high global demand for coal.8 It has more than a billion tonnes of iron ore, too. The Termit Massif is of great interest and is currently being explored. The country also has large limestone and phosphate reserves. In the oil and gas sector, the first explorations were carried out in 1970 by major oil companies such as Esso, Texaco, Sun Oil, Global Energy and Elf Aquitaine. A major turning point was the introduction of a major programme to interpret geological and geophysical data in 1990. Niger’s oil and gas potential comes from two large sedimentary basins covering 90% of its territory: the west basin (Iullemeden basin and Tamesna sub-basin) and east basin (Chad basin). Oil maps show 34 separate blocks, and exploration or operating licences have only been granted for four of them: three by the China National Petroleum Corporation (CNPC) and one by the Algerian firm Sonatrach. The remaining 30 blocks are open to investors. The total potential remains to be established by prospecting, but partial knowledge of Niger’s geology reveals an assemblage of promising features.9 Currently, proven reserves amount to 744 million barrels of oil and more than 16 billion m³ of gas. Since 2012, operations at the Zinder (Soraz) refinery by the CNPC and the government have made Niger a net exporter of oil. The impact of the extractive industries on the economy as a whole has been mixed, even negligible. Their contribution to GDP is increasing, but remains very low (2.8% of GDP in 2010 and 6.0% in 2012); agriculture alone provides 40.0% of GDP. This partly reflects the unbalanced partnership that has lasted decades.10 Apart from staff wages and royalties paid to the local and regional authorities of the areas mined, the capital-intensive mining sector seems disconnected from the rest of the economy. Production is exported without any local processing. The extractive industries provide only 10% of tax revenue. In the medium term, mining and oil should raise their contribution to GDP and to tax revenue. Given this scenario, compliance with the EITI11 and its extension to include oil and gas is good news for the future, as are the articles in Niger’s new Constitution that strengthen the framework of governance, exploitation and management of natural and subsoil resources, (articles 148 and 153). The extractive industries have had the most significant effect on growth, through FDI, and on the balance of payments through foreign exchange reserves. The PDES 2012‑15 in Niger highlighted the possibilities and prospects of rational and sustainable exploitation of mineral and oil and gas resources changing the structure of the country’s economy. In accordance with Article 153 of the Constitution, the government has decided that the priority for income from mining and oil is reinvestment in economic diversification. It will thus finance structural investment in agriculture and livestock farming to support the 3 N initiative for food security. Agribusiness will be a major source of diversification thanks to its still underexploited potential and will become a lever for growth and job creation in the medium term. FDI and the future-generations fund envisaged in the Constitution will help transform the economy, growing the value chains of agriculture, forestry and livestock farming. In addition, the exploitation of natural resources could create the potential for the development of industrial mining and a regional oil and gas market. The main challenges are macroeconomic and environmental. At the macroeconomic level, government involvement in the extractive industries has led to a deterioration of debt ratios. Inappropriate exploitation of natural resources could also be speeding up environmental degradation. In response to these risks, the government intends to bolster the environmental code by ensuring that an appropriate PDES is prepared for any activity affecting the environment. The government will limit its equity participation, and possibly end the guarantees it offers for certain investments in mining and oil. In addition, by reinvesting mining and oil income in diversifying the economy, the government will be able to mitigate the risk of Dutch disease. Notes 1. Certain exemptions granted under the investment code have expired. 2. In 2012 public debt grew thanks to a state guarantee on the loan granted to the Soraz oil refinery and a loan taken out by the government to finance its stake in the new uranium mine in Imourarem. 3. Especially oil and gas, along with oil refining and petroleum exports to certain neighbouring countries. Niger
  • 162. 4. Les Nigériens nourrissent les Nigériens (Nigerians feed Nigerians). 5. Indicator measuring the education system’s capacity to enrol the school-age population. 6. According to the EDS-MICS III demographic and health survey, women in Niger have an average of seven children. Almost half the female population marry before the age of 15 and have their first child before the age of 18. 7. According to the employment section of the 1-2-3 survey conducted by the INS in 2003, the overall unemployment rate was estimated at 15.9% (19.4% in urban areas and 15.1% in rural areas). 8. This is due to the energy needs of China and India and is seen as an indirect result of the moratorium on nuclear energy declared by several Western countries following the Fukushima disaster. 9. Niger is surrounded by countries whose large reserves have already been updated and exploited: Algeria and Libya to the north and Chad to the east, as well as Nigeria and Cameroon along the coast to the south, where offshore operations have been in place for many years. 10. The increase in the contribution to GDP since 2010 is the result of contract renegotiations with the French group Areva in 2009‑10, resulting in higher purchase prices for uranate and allowing Niger to sell part of its quota on the international market. The nascent oil industry also contributed. 11. Extractive Industries Transparency Initiative. 168 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Niger
  • 163. Nigeria 2013 www.africaneconomicoutlook.org John Kofi Baffoe / j.baffoe@afdb.org Colleen Zamba / colleen.zamba@undp.org
  • 164. Nigeria Sections The outlook for growth remains positive. Downside risks include security challenges arising from religious conflict in some states and slower global growth. As economic growth is largely driven by capital-intensive sectors, it has not translated into sufficient job creation and poverty remains high. As a result, Nigeria has a low Human Development Index (HDI). The country has made some progress towards attainment of the Millennium Development Goals (MDGs), albeit slowly and unevenly. There is a high need to diversify the Nigerian economy into the non-oil sector. This would help expand the sources of growth and make it broad based, both socially and geographically. Further development of agriculture, manufacturing and services could broaden growth, create employment and reduce poverty. Overview The Nigerian economy slowed down from 7.4% growth in 2011 to 6.6% in 2012. The oil sector continues to drive the economy, with average growth of about 8.0%, compared to -0.35% for the non-oil sector. Agriculture and the oil and gas sectors continue to dominate economic activities and Nigeria. The fiscal consolidation stance of the government has helped to contain the fiscal deficit below 3.0% of gross domestic product (GDP). This, coupled with the tight monetary policy stance of the Central Bank of Nigeria (CBN), helped to keep inflation at around 12.0% in 2012. The outlook for growth remains positive. Short- and mid-term downside risks include security challenges arising from religious conflict in some states, costs associated with flooding, slower global economic growth (particularly in the United States and China) and the sovereign debt crisis in the euro area. The economic growth has not translated into job creation or poverty alleviation. Unemployment increased from 21% in 2010 to 24% in 2011 because the sectors driving the economic growth are not high job-creating sectors (the oil and gas sector, for example, is a capital intensive “enclave” with very little employment-generating potential). The major policy issue is employment generation, particularly among the youth, and inclusive growth. The economic growth was not accompanied by a structural change of the Nigerian economy. The economy lacks diversification and agricultural production lacks modernisation. To address this, the government is encouraging the diversification of the Nigerian economy away from the oil and gas sector. It is addressing the infrastructure deficit in the country and the development of the agricultural sector through modernisation and the establishment of staple-crop processing zones, with the value chain model to provide linkages to the manufacturing sector. Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 2.5% 5% 7.5% 12.5% RealGDPGrowth(%) Nigeria Sections The outlook for growth remains positive. Downside risks include security challenges arising from religious conflict in some states and slower global growth. As economic growth is largely driven by capital-intensive sectors, it has not translated into sufficient job creation and poverty remains high. As a result, Nigeria has a low Human Development Index (HDI). The country has made some progress towards attainment of the Millennium Development Goals (MDGs), albeit slowly and unevenly. There is a high need to diversify the Nigerian economy into the non-oil sector. This would help expand the sources of growth and make it broad based, both socially and geographically. Further development of agriculture, manufacturing and services could broaden growth, create employment and reduce poverty. Overview The Nigerian economy slowed down from 7.4% growth in 2011 to 6.6% in 2012. The oil sector continues to drive the economy, with average growth of about 8.0%, compared to -0.35% for the non-oil sector. Agriculture and the oil and gas sectors continue to dominate economic activities and Nigeria. The fiscal consolidation stance of the government has helped to contain the fiscal deficit below 3.0% of gross domestic product (GDP). This, coupled with the tight monetary policy stance of the Central Bank of Nigeria (CBN), helped to keep inflation at around 12.0% in 2012. The outlook for growth remains positive. Short- and mid-term downside risks include security challenges arising from religious conflict in some states, costs associated with flooding, slower global economic growth (particularly in the United States and China) and the sovereign debt crisis in the euro area. The economic growth has not translated into job creation or poverty alleviation. Unemployment increased from 21% in 2010 to 24% in 2011 because the sectors driving the economic growth are not high job-creating sectors (the oil and gas sector, for example, is a capital intensive “enclave” with very little employment-generating potential). The major policy issue is employment generation, particularly among the youth, and inclusive growth. The economic growth was not accompanied by a structural change of the Nigerian economy. The economy lacks diversification and agricultural production lacks modernisation. To address this, the government is encouraging the diversification of the Nigerian economy away from the oil and gas sector. It is addressing the infrastructure deficit in the country and the development of the agricultural sector through modernisation and the establishment of staple-crop processing zones, with the value chain model to provide linkages to the manufacturing sector. Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 2.5% 5% 7.5% 12.5% RealGDPGrowth(%) 170 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 165. 171African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 7.4 6.6 6.7 7.3 Real GDP per capita growth 4.9 4.1 4.2 4.8 CPI inflation 10.9 12 9.7 9.5 Budget balance % GDP -0.1 3.7 4.4 5.7 Current account % GDP 3.2 10.4 11.8 14.6 Figures for 2012 are estimates; for 2013 and later are projections. Nigeria
  • 166. http://dx.doi.org/10.1787/888932809602 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2011 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 32.7 30.9 Construction 1.3 1.2 Electricity, gas and water 0.2 0.2 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 6.1 6.2 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 2.5 1.9 Mining 36.6 40.9 Other services 1.2 1.1 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 0.8 0.7 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 3.5 2.3 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 15.1 14.6 Wholesale, retail trade and real estate ownership - - Nigeria is a resource-rich country, with about 34 different minerals, including gold, iron ore, coal and limestone. It has about 37.2 billion barrels of proven oil reserves, 187 trillion cubic feet of proven natural gas1 and produces about 2.3 million barrels of oil per day. It also has about 70 million hectares of farmland. The structure of the Nigerian economy is oriented toward the production of two primary products: agricultural products and crude oil. After robust economic growth over the past decade – averaging about 7.5% growth – the Nigerian economy slowed down in 2012. Economic growth for 2012 is estimated at 6.6% (Table 1). The non-oil sector continues to drive the economy, with average growth of about 8.0% in 2012, compared to -0.35% for the oil and gas sector (Graph 1). High consumer demand is the main force driving non-oil sector growth. The oil and gas sector accounts for about 15.0% of GDP, 79.0% of federal government revenue and 71.0% of export revenue, while agriculture accounts for 30.9% of GDP and employs about 70.0% of the labour force. Factors that contributed to the slow growth in 2012 include: the effects of the partial removal of fuel price subsidies, periodic fuel scarcity, an increase in electricity tariffs, security challenges, weather variations and 172 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 167. 173African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 external shocks resulting from the slowdown of the global economy. Flooding in several parts of the country and the security challenges led to a decline in agricultural output. However, the impact was not as severe as expected because of the variations in gestation and harvesting periods for crops across regions. The decline in agricultural output contributed to slower growth in wholesale and retail trade. Nigeria rebased its GDP calculation from 1990 to 2009. This is forecast to increase total GDP by about 40%, which would put Nigeria’s GDP just behind South Africa’s. The lack of transparency and accountability in the oil and gas industry has fuelled a strong perception of corruption and mismanagement of oil resources in Nigeria. To address this, Nigeria opted to join and was accepted as an Extractive Industry Transparency Initiative (EITI) candidate in 2007; it was validated as compliant in 2011. To introduce some fiscal prudence in the management of oil resources, the government established the Sovereign Wealth Fund (SWF) in 2010, with strengthened oversight responsibilities. The SWF is currently operating alongside the Excess Crude Account, where excess oil revenues over the benchmark oil price are domiciled. Also, the government has submitted the Petroleum Industry Bill (PIB) to the National Assembly for consideration. The PIB addresses the issue of transparency in the sector. In early January 2012, an attempt by the government to totally remove the fuel subsidy led to an eight-day national strike to protest the impact of the removal on the cost of living, particularly for the poor, in the face of perceived corruption in the oil and gas industry. The cost of the strike was estimated at about 0.5% of GDP. The robust economic growth has not translated into employment generation. Unemployment increased from 21% in 2010 to 24% in 2011. This is because the sectors driving the economic growth are not high job-creating sectors. Furthermore, the oil industry is a capital intensive “enclave” that generates very little employment. Poverty remains widespread, with a headcount that declined marginally from 48% in 2003/04 to 46% in 2009/10. During the first three quarters of 2012, Nigeria’s exports increased while its imports decreased, resulting in a 59% improvement in its trade balance relative to 2011. Foreign capital inflows into Nigeria increased by 77%, with portfolio flows accounting for 76% and foreign direct investment (FDI) 24%. The relatively more attractive interest rates drove the portfolio flows. As of 16 November 2012, foreign reserves amounted to USD 45.7 billion, equivalent to over six months of imports cover. Favourable crude oil prices and high foreign investment in government securities contributed to the high foreign reserves. The outlook for growth remains positive, estimated at 6.7% and 7.3% for 2013 and 2014, respectively. However, there are a number of short- and mid-term downside risks. These include security challenges arising from religious conflict in some states and the continuing economic cost of flooding. Also, slower economic growth in the United States (which imports 40% of Nigeria’s oil) and in China, together with the sovereign debt crisis in the euro area, could depress fuel prices and cause reduced economic growth. Nigeria
  • 168. Macroeconomic Policy Fiscal Policy Fiscal management has aimed at ensuring macroeconomic stability. The fiscal policy stance is geared toward fiscal consolidation and inclusive growth, with the fiscal deficit set within the threshold of 3.0% of GDP after 2010. The medium-term fiscal strategy is to reorient spending from recurrent expenditure to capital expenditure. The share of recurrent expenditure in the total budget decreased from 74.4% in 2011 to 71.4% in 2012 and 68.7% in 2013, while the share of capital expenditure increased from 25.6% in 2011 to 28.6% in 2012 and 31.3% in 2013. The steady increase in the share of capital expenditure is expected to lead to an improvement in physical infrastructure and provide a firmer platform for future growth. As part of the fiscal consolidation, on 1 January 2012 the Nigerian government eliminated the subsidy on petrol because it was unsustainable and those for whom it was meant were not benefiting from it. In 2011, 30% of total government expenditure – or about 4.2% of Nigeria’s GDP – was on petrol subsidies. The total subsidy payments for 2012 and 2013 are estimated within the range of USD 5-6 billion. The removal of the fuel subsidy caused retail fuel price to increase from NGN 65 (USD 0.42) to NGN 141 (USD 0.92) per litre, triggering an eight-day national strike. The strike was called off after the fuel price was reduced to NGN 97 (USD0.63) per litre. The cost of the strike was estimated at about 0.5% of GDP. The government redirected the savings from the partial removal of the fuel subsidy into social safety net programmes and key infrastructure projects through a Subsidy Reinvestment and Empowerment Program (SURE-P). The projected fiscal deficit for the 2012 budget was 2.85% – a reduction from the 2.96% of GDP in the 2011 budget. This is within the required 3.0% threshold laid out in the Fiscal Responsibility Act (FRA). The government is investing in key sectors consistent with the objectives of its Transformation Agenda. Shares to the key sectors of the economy were as follows: security 19.9%, education 8.65%, health 6%, power 3.5%, agriculture and development 1.7% and public works 3.9%. As of end-October 2012, 75% of the 2012 capital budget had been released. Furthermore, NGN 15 billion (USD 96 million) out of NGN 180 billion (USD 1.15 billion) was released every month before October 2012 for various projects and programmes under the SURE-P. Regarding power supply, there is a consistent level of 15 hours of electricity per day, facilitated by an additional 1 000 megawatts of electricity from the rehabilitation of existing power infrastructure. With respect to agriculture and transportation, 13 new private sector mills with a capacity of 240 000 metric tonnes have been established and the Abuja-Kaduna railway line is at 46% completion. Lastly, concerning job creation, the Community Services and Women and Youth Employment Programmes of the SURE-P (established in January/February 2012) are already up and running in 14 states, with a target of creating 370 000 jobs per year. The 2013 budget continued to focus on fiscal consolidation and inclusive growth. The projected fiscal deficit was 2.17% of GDP, down from the 2.85% of GDP in the 2012 budget (well within the 3.0% threshold stipulated in the FRA). The government aims to continue to implement prudent fiscal policies and invest in key sectors of the economy. External financial assistance to Nigeria is very small relative to the country’s own resources. Total official development assistance (ODA) commitments to Nigeria in 2010 were USD 703.2 million,2 whereas its 2010 GDP was close to USD 200 billion and its federal budget USD 26.6 billion. As of 31 December 2012, the Total Debt Stock to GDP ratio was about 19%, with the domestic debt component representing 16% of GDP and the foreign component 3%. About 81% of the external debt is owed to multilaterals, 11% to bilaterals and 8% to the private sector, mostly through Eurobonds. The federal government owes about 64% of external debt and roughly 70% of domestic debt, with the states liable for the difference. About 62% of the federal government’s domestic debt stock is held in federal government bonds, 33% in Nigeria treasury bills and 5% in Nigeria treasury bonds. The breakdown of the domestic debt indicates that lenders prefer lending to the federal government, crowding out the private sector. The authorities have been concerned about the rising debt stock, particularly its domestic component. Some of the strategies aimed at addressing the relatively high domestic debt stock are the provision of NGN 100 billion in the 2013 budget to redeem part of maturing domestic debt obligations (instead of refinancing) and the planned gradual reduction of net domestic borrowing to NCN 500 billion (1.34% of GDP) by the year 2015, as part of the overall fiscal consolidation. 174 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 169. 175African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 18.1 21 27.3 29.2 28.8 29.1 Tax revenue 5.1 4.4 4.7 4.2 4 3.8 Oil revenue 10.1 13.9 20.6 23.4 23.4 23.8 Grants - - - - - - Total expenditure and net lending (a) 27.9 25.8 27.5 25.4 24.4 23.4 Current expenditure 17 16.9 20 18.8 18.1 17.5 Excluding interest 15.5 15.3 18 17.1 16.7 16.2 Wages and salaries 7.5 7.2 10.3 9.7 9.2 8.7 Interest 1.5 1.7 2 1.7 1.5 1.3 Primary balance -8.4 -3.1 1.9 5.4 5.9 7 Overall balance -9.8 -4.8 -0.1 3.7 4.4 5.7 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Monetary policy has focused on an objective of single digit inflation, with monetary tightening since 2011. After a steady decline in inflation to 10.3% in December 2011, it jumped to 12.6% in January 2012 as a result of the partial removal of the fuel subsidy. Three measures were taken in January 2012 to reduce inflationary pressures: the Monetary Policy Rate (MPR) of the Central Bank was increased from 6.25% to 12.0%, the Cash Reserve Requirement (CRR) was increased from 1.0% to 8.0% and the Liquidity Ratio (LR) was increased from 25.0% to 30.0%. Growth in money supply has also been sluggish. These monetary policy measures have helped to contain inflation around 12.0% in 2012, with average core inflation at 13.87% and food inflation at 11.32%, compared to 10.8% and 10.3% respectively for 2011. The major drivers of inflation include prices of consumer goods, housing, water, electricity and transport. The relatively high inflation has contributed to high interest rates. Banks in Nigeria raised their maximum lending rates from 22%-23% to 25%-27% in May 2012, attributing the move to high operating costs occasioned by decaying infrastructure. This put a credit squeeze on the private sector, particularly agriculture. The high interest rates and the use of foreign reserves to support the domestic currency (naira) on the foreign exchange market have limited the volatility in the exchange rate and helped to maintain the value of the naira. The monthly average inter-bank exchange rate of the naira in relation to the US dollar appreciated from NGN 161.31 per USD in January 2012 to NGN 157.46 per USD in May 2012. It was maintained around NGN 157 per USD till December 2012 (despite some slight depreciations within the period). The CBN aims to continue its monetary tightening policy to bring inflation down to single digits and spur lower interest rates. Nigeria’s exports increased during the first three quarters of 2012 relative to the same period in 2011. The value of year-on-year exports increased 15.6% during the third quarter of 2012 due to a price rise in crude oil and goods such as live animals and animal products, plastic, rubber and associated items, prepared foodstuffs and beverages. The value of exports is estimated at 40.4% of GDP for 2012 (Table 4). On the other hand, Nigeria’s imports decreased during the period. The value of year-on-year imports decreased 42.2% due to a decline in the value of major imports such as mineral fuels, food and live animals.3 The value of imports is estimated at 22.4% of GDP for 2012. Consequently, the year-on-year trade balance increased 59.5% in the third quarter of 2012 and is estimated at 18.0% of GDP for 2012. Nigeria
  • 170. Foreign capital inflows into Nigeria during the third quarter of 2012 increased 77% over that of the second quarter to USD 6.07 billion. Portfolio flows accounted for 76% of the total inflows during the period because of the relatively more attractive interest rates, while FDI accounted for 24%.4 The dominance of portfolio investment in the aggregate foreign capital inflows suggests the need to put in place measures against capital reversal. The current account surplus increased from USD 5.0 billion during the second quarter of 2012 to UDS 5.03 billion during the third quarter, representing 7.6% of GDP. It is estimated at 10.4% of GDP for 2012. Foreign reserves declined steadily from USD 43.3 billion during the first quarter of 2010 to USD 36.5 billion on 6 August 2012. Falling crude oil prices and the use of foreign reserves to support the naira on the foreign exchange market were behind the drop in foreign reserves. However, favourable crude oil prices and high foreign investment in government securities soon drove them back up. Economic Cooperation, Regional Integration & Trade Nigeria’s economy represents about 55% of West Africa’s GDP, and its population of some 167 million people makes up the largest market in Africa. There is huge potential for growth and economic diversification from regional integration, which Nigeria has yet to carry out. Nigeria’s exports to African countries amounted to roughly 11% of the total value of its exports, with exports to the Economic Community of West African States (ECOWAS) accounting for 3%. It imported 8% of the total value of its imports from African countries, with 1.3% coming from the ECOWAS. The West African market provides a tremendous opportunity for Nigeria’s financial sector. Efforts are ongoing for a monetary union, although full integration is still a long way off. Member countries for the West African Monetary Zone (WAMZ) are facing major challenges in convergence criteria. These include persistent high inflation, escalating budget deficits in some countries, rising wage bills, increasing domestic interest payments, declining external reserves in months of import cover and high non-performing loans in the banking system. Nigeria should spearhead efforts to ensure monetary integration in the region. There has been some progress in trade. An example is the adoption of the ECOWAS 5-band Common External Tariff in 2005, which reduced the Most Favoured Nation (MFN) import tariff from 12.0% to 11.5% and the number of import bans from 44 products to 22. The Nigerian government has introduced various initiatives to encourage local manufacturing and promote exports, including the Free Trade/Export Processing Zones (1992) and the Export Expansion Grants Scheme (1986, 2005). However, a major challenge is that trade networks and infrastructure within West Africa are not well developed. In the World Bank report Doing Business 2013, Nigeria is ranked 154 out of 183 countries on the criteria “trading across borders”, which is below the average ranking of 134 for sub-Saharan Africa. Long and cumbersome clearance processes and a high cost of exporting are the most serious barriers to trade. The government has established a task force to reform the Nigeria Customs Service and find ways of reducing costs and time for clearing imports at ports. Nigerian ports have witnessed increased activities due to the reforms in the sector. Nigeria is also driving the negotiation of an Economic Partnership Agreement (EPA) between ECOWAS and the European Union (EU) to enhance trade between Nigeria and the EU. Substantive progress has been made in the negotiations. (The EU’s new Market Access Regulation (MAR) would exclude countries that have not ratified and implemented their agreement by 1 January 2014.) 176 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 171. 177African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance 18.5 14.4 13.2 12.5 18 19.2 20.9 Exports of goods (f.o.b.) 39 31.9 33.3 37.4 40.4 39.5 39.8 Imports of goods (f.o.b.) 20.5 17.5 20.1 25 22.4 20.3 18.9 Services 10.3 11.4 -8.5 -7 -5.8 -5.2 -4.5 Factor income -10.3 -5.7 -7.3 -6.2 -5.2 -4.9 -4.2 Current transfers 3 10.3 4.4 3.9 3.4 2.7 2.3 Current account balance 21.5 30.4 1.8 3.2 10.4 11.8 14.6 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy The debt policy, as articulated in the government’s Medium Term Public Debt Strategies, is to ensure that the national and state governments keep to prudent and sustainable borrowing and also use resources effectively. The strategic focus is to deepen the domestic bond market to support private sector development and provide low-cost funding for public projects. With regard to external borrowing, the policy is to borrow on non- concessional terms to support infrastructure development, particularly power, road transport and railway projects with self-paying capacity and job creation potential. The government also seeks to mobilise grants and concessional loans to support social sector projects aimed at poverty alleviation and achieving the Millennium Development Goals (MDGs). An External Borrowing Plan was reviewed and approved by the House of Representatives and the Senate before implementation. Furthermore, state governments are requested to seek the federal government’s approval for external borrowing and work with the Debt Management Office to show that the total external debt of the state is sustainable. ODA decreased from USD 2.0 billion in 2010 to USD 1.8 billion in 2011. Total FDI in 2011 was USD 8.9 billion, representing 20% of the total FDI to Africa in 2011. However, these investments are mostly in the oil and gas sector. Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 50% 60% Percentage Nigeria
  • 172. Economic & Political Governance Private Sector Nigeria’s business environment does not encourage investment and competitiveness in its industrial sector. Although the private sector is the main employer and the primary source of export earnings, there has been little improvement in the business climate over the past few years. The World Bank report Doing Business 2013 ranked Nigeria 131 out of 185 countries, compared to 133 out of 183 countries in the 2012 Report. The slight improvement is due to the improved ranking in the “ease of getting credit”. The security challenges in the country could further hamper private sector confidence. In terms of competitiveness, Nigeria has been on a declining path since 2008 and ranks well below most of its peers in the region. Major constraints to private sector growth and competitiveness include the poor state of infrastructure – particularly energy, transport and ports – a difficult business environment, limited access to credit, inadequate training and skills and weak economic governance. While competition declined in Nigeria from 2008 to 2011, it seems to have started to recover in the 2012/13 financial year. Nigeria’s ranking declined from 94 out of 134 countries in the World Economic Forum’s 2008- 2009 Global Competitiveness Report to 127 out of 139 countries in the 2010-2011 report and 115 out of 144 countries in the 2012-2013 report. The major factors that contributed to the recent improvement include a more stable macroeconomic environment, market size, labour market efficiency, financial market development and business sophistication. Financial Sector The CBN’s structural reforms to tackle the lingering effects of the global financial crisis have given Nigeria’s financial sector a sound footing over the past few years. The non-performing loan ratios for the five big banks in Nigeria5 are below the 5.0% guideline of the CBN, compared to 9.37% at the end of August 2011.6 The Capital Adequacy Ratio (CAR) for the eight largest banks in Nigeria is projected at 21.1%, up from 17.2 % as of end-August 2011, compared with the 15.0% regulatory minimum for banks with international operations.7 Nigerian Banks are on course to deliver on average between 18.0% and 20.0% Return on Equity (ROE) for 2012.8 Banking credit to the private sector increased from 33.0% of GDP at end-December 2010 to 37.1% of GDP at end-December 2011 and 42% at end-August 2012. As Nigerian banks are expanding their operations in Africa, the authorities need to control the risks and assess the impact on the Nigerian economy. Efforts are needed to strengthen financial intermediation and improve access to finance. In 2010, 46.3% of Nigeria's population was still excluded from the financial system.9 In 2011, less than 10.0% of small- and medium-sized enterprises (SMEs) had a loan or line of credit and only 5.0% of bank lending went to SMEs.10 Constraints to accessing credit or other financial services include the high cost of borrowing (an average interest rate of about 30%), the perceived high risk of SMEs, limited product offerings and lack of long-term financing. Microfinance has been key in enhancing access to financial services for SMEs and low-income households. However, the industry faces some challenges, including operational inefficiencies, limited capacity and poor consumer protection. The new microfinance policy and regulatory and supervisory framework of the CBN addresses these challenges. Other measures the CBN has taken to reduce Nigeria’s financial exclusion rate include the following: the review of the Primary Mortgage Banking Policy to make it more flexible; the extension of the Agricultural Credit Guarantee Scheme Fund (ACGSF) to customers of microfinance banks; the strengthening of the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL); the introduction of interest-free banking; plans to establish a Micro, Small and Medium Enterprises Development Fund (MSMEDF). Pension funds in Nigeria are worth about USD 15 billion, representing 7% of GDP. They are projected to grow at 30% over the next 10 years to top USD 100 billion (20% of GDP), becoming one of the largest investments in the economy. After various reform programmes in the insurance industry and efforts to win the trust of Nigerians, the value of insurance contracts is expected to triple from about NGN 300 billion (USD 1.92 billion, or about 1% of GDP) 178 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 173. 179African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 currently to about NGN 1 trillion (USD 6.4 billion, or 3% of GDP) in 2017. Investors are expected to shift to insurance stocks from 2013 onwards, thereby helping improve the value of insurance companies. A slowdown in economic activity resulted in some losses in the Nigeria Stock Exchange’s (NSE) All Share Index during the first half of 2012. However, a stronger economy in the second semester drove the NSE All Share Index to finish 35.4% up in 2012, making it the strongest performance since 2008. Despite this, the NSE faces liquidity and depth challenges. Financial markets lack the depth and diversification to drive economic transformation and job creation, including infrastructure financing. Public Sector Management, Institutions & Reform Public Sector Financial Management (PFM) reforms picked up at the federal level after the 2003 presidential elections. Since then, legislation and regulation have been introduced to improve the transparency of the budget process, ensure efficient cash management and reform the procurement process. The legal framework for PFM has been strengthened, with the passage of fiscal and PFM Acts, such as the Fiscal Responsibility Act 2007, the Public Procurement Act 2007 and the Financial Reporting Council Act 2011. All this legislation complies with good international practices. PFM reports indicate that there have been some positive developments in public finance management at both the federal and state levels. However, these improvements do not go far enough to significantly influence the overall quality of public finance management. The 2010/2011 Public Expenditure and Financial Accountability (PEFA) assessment concluded that despite some progress there are significant weaknesses in the PFM systems of the country. For example, the national assembly has not concluded its hearings on the audit reports of the Office of Federal Auditor General (OFAG), even though OFAG has submitted audit reports up to the fiscal year 2010. Furthermore, the new Audit Act, which replaces the current 1956 Audit Act, is awaiting the approval of the National Assembly. The government must address major challenges to improve public financial management. It needs to coordinate PFM reforms by the ministries, departments and agencies and ensure proper scrutiny of external audit reports to guarantee their independence and effectiveness. It must also tackle audit and risk assessment, follow up on audit findings by internal and external auditors and the non-disclosure of annual financial statements and audit reports. Finally, it must reduce the complexity of the intergovernmental transfer system between federal, state and local governments. Natural Resource Management & Environment Nigeria is the largest oil producer in Africa and the tenth largest in the world, averaging about 2.3 million barrels per day, with 37.2 billion barrels of proven oil reserves. Despite these impressive oil resources, the contribution of Nigeria’s oil and gas sector to the national GDP in 2012 was only about 14%. This is the direct consequence of the importation of 80% of the goods and services needed for projects in the sector. Nevertheless, about 79% of federally collected revenue and 71% of total export revenue are from the oil and gas industry. Even though Nigeria is the tenth largest oil producer in the world, it imports about 85% of its refined petroleum products due to the low capacity utilisation (around 30%) and frequent breakdowns of its refineries. The Nigerian oil and gas industry lacks transparency, accountability and good governance. In light of this, the government initiated a process for Nigeria to comply with the principles of the Extractive Industry Transparency Initiative (EITI). Nigeria was declared EITI compliant in March 2011. Furthermore, to curb wastage and introduce fiscal prudence in the management of oil resources, the government established the Sovereign Wealth Fund (SWF), with strong institutional oversight responsibilities. Also, the government introduced the Petroleum Industry Bill (PIB) (currently under consideration by the national assembly), aimed at further enhancing transparency, accountability and good governance in the petroleum industry. Nigeria’s economy is dependent on sectors that are either climate sensitive or contribute to climate change, such as agriculture, forestry, fisheries and oil and gas. Nigeria's environment is increasingly threatened by natural disasters, such as drought, desertification and floods, which have threatened the livelihoods of farmers and food security in recent years. Pollution from oil exploration activities and gas flaring in the Niger Delta remains a concern to the country, as is the heavy concentration of industries in locations that are highly vulnerable to climate change (e.g. Lagos). The government is addressing these issues through various climate change policies. These include the Nigeria Climate Change Policy and Response Strategy (approved by the Federal Executive Council on 13 September Nigeria
  • 174. 2012) and the National Adaptation Strategy and Plan of Action for Climate Change in Nigeria (NASPA-CCN), currently being finalised. These will provide a guide for the integration of climate change adaptation into government policies, strategies and programmes. Nigeria has also prepared an investment plan to transition toward low-carbon development. Despite this, it still needs a coherent and strategic approach to addressing the challenge of climate change. Political Context Nigeria returned to democratic rule in 1999 after decades of military dictatorship. Since then it has witnessed successful changes of government through the electoral process. The 1999 election saw the current ruling party elected into office. It has since survived three consecutive elections, the results of which were all heavily contested by the opposition. In the 2011 elections, Dr. Goodluck Ebele Jonathan of the People’s Democratic Party (PDP) was elected president (as vice president he had served out the term of his predecessor who died in office). Allegations of unfair practices and rigged elections have trailed the electoral process since independence. Supreme court judgments have been necessary to validate presidential elections since the return to civil rule in 1999. The current Nigerian political system is heavily influenced by ethnic, religious and class differences. Allegiance is more to interest groups than the party itself, undermining true democratic practice in the country. Divisive issues such as zoning of political appointments in the parties are a distinctive feature of the system. At both the federal and state levels, the dominance of the ruling party is very strong. Despite regular elections, the system is still carefully controlled and manipulated by the ruling class. Moreover, political parties are still deficient in internal democracy. Governance assessment by the Mo Ibrahim Foundation ranked Nigeria 43 out of 52 countries in 2011. The adequacy of the Nigerian constitution in guaranteeing stable democratic culture and minimising the political wrangling that has characterised the country’s political environment has been questioned. The absence of a constitutional platform for alternative political views has been identified as a reason why some politicians, who feel they have been forced out of power, seek unconstitutional means to undermine the government. Democratic institutions of governance such as the judiciary and the legislature are critical for ensuring a viable political system. Currently in Nigeria there are questions about the adequacy of both institutions in deepening the democratic process in the country. Opposition politicians are very sceptical of the judiciary in resolving election petitions. The perception in the population is that justice is not only always delayed, but judgments are always in favour of the rich and the politically powerful. Nigerians are questioning the usefulness of the legislature at all tiers of government in the development process. Ordinarily, the legislature is expected to lead the fight against executive arbitrariness and corruption, but in Nigeria public perception is that the legislature by its nature cannot be effective in this regard. When the integrity of the legislature is called into question, it undermines public confidence. This appears to be the case in Nigeria today. 180 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 175. 181African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Social Context & Human Development Building Human Resources Nigeria still ranks low in the United Nations’ Human Development Index (HDI), with a score of 0.471 in the 2013 UN Human Development Report (values are from 0 to 1). The 2010 MDGs report (the latest available) suggests that overall Nigeria continues to progress toward attainment of the MDGs, albeit slowly and unevenly. Nigeria’s MDG target for education is universal primary education and gender equality at primary and secondary levels. A major development in education is the implementation of Universal Basic Education Programme. As a result, primary school enrolment rose from 80% in 2004 to 89% in 2005. Completion rate, however, is only at 68%. The challenge then is that there are a lot of out-of-school children in Nigeria. According to the Ministry of Education, Nigeria has over 10 million out-of-school children, or 42% of the school- going population. Substantial additional efforts are required to reach the 100% goal by 2015. With respect to health, significant progress has been made over the last decade, but the MDG targets will nevertheless be hard to attain. The infant mortality rate moderated to 75 per thousand live births in 2008 from 110 per thousand in 2007, and much higher in previous years. Maternal mortality (goal 5) was down to 545 per one hundred thousand births in 2008 from 800 per one hundred thousand live births, with striking regional geopolitical differentials. For example, the North East zone recorded a Maternal Mortality Ratio (MMR) of 1 545 per one hundred thousand, while the South West zone recorded an MMR as low as 165 per one hundred thousand. The government has recently launched the UN MDG Acceleration Framework (MAF) for MDG 5, offering a new and urgent way to rise to the challenge of accelerating progress with MMR. It draws attention to prioritised intervention, identifying and removing bottlenecks that impede the implementation of action plans. The prevalence of HIV/AIDS in Nigeria declined from 5.8% in 2001 to 4.6% in 2008 and to 4.1% in 2010.11 However, there is a wide variation of prevalence in the country, with the highest concentration in the North Central zone (7.5%) and the lowest concentration in the North Western zone (2.1%). The trend signals a general reversal of the epidemic in Nigeria. The MDG report asserts that the target of “halting and beginning to reverse” the spread of HIV/AIDS is already met. Key challenges affecting human development and progress towards the MDGs include limited institutional capacities. Data continues to pose a huge challenge in measuring not only overall progress but also specific goals. Intergovernmental co-ordination of efforts both vertical and horizontal is still weak, just as public sector investment continues to be fraught with leakages and declining efficiency and effectiveness. Private sector investment in MDGs and human development is generally low and unevenly spread across the country. Poverty Reduction, Social Protection & Labour Nigeria is a resource-rich country and a fast-growing economy. Despite the huge recent macro gains of over 7% per annum over the past decade, the country is also among the poorest nations in the world, with per capita GDP of USD 1414 (2011). The growth has neither generated employment nor translated into poverty reduction nor addressed inequality in Nigeria. Nigeria’s prospects of halving poverty by 2015 seem weak. The proportion of people living below the national poverty line has worsened from 65.5% in 1996 to 69.0% in 2010. Poverty is higher in rural areas (73.2 %) than in urban areas (61.8%). Inequality, as measured by the Gini Coefficient, also rose from 0.429 in 2004 to 0.447 in 2010. Rates of poverty vary significantly between urban and rural citizens and among the geopolitical zones. A full 66% of the rural population lives below the poverty line of USD 1 per day. Malnutrition is widespread. Rural areas and disadvantaged groups are particularly vulnerable to chronic food shortages and unbalanced nutrition. Nationally, 41% of Nigerian children are stunted, 9% wasted or thin and 23% underweight (National Health and Demographic Survey 2008). The 2011 unemployment rate was 24%, compared to 21% in 2010. The unemployment rate is highest for the 15 to 24 and 25 to 44 age groups (38% and 22 % respectively). An average of 1.8 million people have entered the labour market every year over the past five years. The National Bureau of Statistics (NBS) projects the number of new entrants will grow annually from 3 million in 2012 to about 8.5 million in 2015.12 Unemployment, particularly youth unemployment, is an urgent policy priority. Several agencies and plans have been established to tackle poverty and unemployment. These include the National Directorate of Employment, Social Context & Human Development Building Human Resources Nigeria still ranks low in the United Nations’ Human Development Index (HDI), with a score of 0.471 in the 2013 UN Human Development Report (values are from 0 to 1). The 2010 MDGs report (the latest available) suggests that overall Nigeria continues to progress toward attainment of the MDGs, albeit slowly and unevenly. Nigeria’s MDG target for education is universal primary education and gender equality at primary and secondary levels. A major development in education is the implementation of Universal Basic Education Programme. As a result, primary school enrolment rose from 80% in 2004 to 89% in 2005. Completion rate, however, is only at 68%. The challenge then is that there are a lot of out-of-school children in Nigeria. According to the Ministry of Education, Nigeria has over 10 million out-of-school children, or 42% of the school- going population. Substantial additional efforts are required to reach the 100% goal by 2015. With respect to health, significant progress has been made over the last decade, but the MDG targets will nevertheless be hard to attain. The infant mortality rate moderated to 75 per thousand live births in 2008 from 110 per thousand in 2007, and much higher in previous years. Maternal mortality (goal 5) was down to 545 per one hundred thousand births in 2008 from 800 per one hundred thousand live births, with striking regional geopolitical differentials. For example, the North East zone recorded a Maternal Mortality Ratio (MMR) of 1 545 per one hundred thousand, while the South West zone recorded an MMR as low as 165 per one hundred thousand. The government has recently launched the UN MDG Acceleration Framework (MAF) for MDG 5, offering a new and urgent way to rise to the challenge of accelerating progress with MMR. It draws attention to prioritised intervention, identifying and removing bottlenecks that impede the implementation of action plans. The prevalence of HIV/AIDS in Nigeria declined from 5.8% in 2001 to 4.6% in 2008 and to 4.1% in 2010.11 However, there is a wide variation of prevalence in the country, with the highest concentration in the North Central zone (7.5%) and the lowest concentration in the North Western zone (2.1%). The trend signals a general reversal of the epidemic in Nigeria. The MDG report asserts that the target of “halting and beginning to reverse” the spread of HIV/AIDS is already met. Key challenges affecting human development and progress towards the MDGs include limited institutional capacities. Data continues to pose a huge challenge in measuring not only overall progress but also specific goals. Intergovernmental co-ordination of efforts both vertical and horizontal is still weak, just as public sector investment continues to be fraught with leakages and declining efficiency and effectiveness. Private sector investment in MDGs and human development is generally low and unevenly spread across the country. Poverty Reduction, Social Protection & Labour Nigeria is a resource-rich country and a fast-growing economy. Despite the huge recent macro gains of over 7% per annum over the past decade, the country is also among the poorest nations in the world, with per capita GDP of USD 1414 (2011). The growth has neither generated employment nor translated into poverty reduction nor addressed inequality in Nigeria. Nigeria’s prospects of halving poverty by 2015 seem weak. The proportion of people living below the national poverty line has worsened from 65.5% in 1996 to 69.0% in 2010. Poverty is higher in rural areas (73.2 %) than in urban areas (61.8%). Inequality, as measured by the Gini Coefficient, also rose from 0.429 in 2004 to 0.447 in 2010. Rates of poverty vary significantly between urban and rural citizens and among the geopolitical zones. A full 66% of the rural population lives below the poverty line of USD 1 per day. Malnutrition is widespread. Rural areas and disadvantaged groups are particularly vulnerable to chronic food shortages and unbalanced nutrition. Nationally, 41% of Nigerian children are stunted, 9% wasted or thin and 23% underweight (National Health and Demographic Survey 2008). The 2011 unemployment rate was 24%, compared to 21% in 2010. The unemployment rate is highest for the 15 to 24 and 25 to 44 age groups (38% and 22 % respectively). An average of 1.8 million people have entered the labour market every year over the past five years. The National Bureau of Statistics (NBS) projects the number of new entrants will grow annually from 3 million in 2012 to about 8.5 million in 2015.12 Unemployment, particularly youth unemployment, is an urgent policy priority. Several agencies and plans have been established to tackle poverty and unemployment. These include the National Directorate of Employment, the National Poverty Eradication programme, the Small and Medium Enterprises Development Agency, microcredit and entrepreneurship development plans and, more recently, the job creation committee. The Agricultural Transformation Agenda (ATA) is a major tool for driving rural income growth, accelerating the achievement of food and nutritional security, generating employment and transforming the economy into a leading player in the global food market. On 14 May 2012, the president inaugurated the Agriculture Transformation Implementation Council (ATIC), with the mandate of driving the ATA. The target is to create about 3.5 million new jobs from rice, cassava, sorghum, cocoa and cotton value chains, with many more jobs Nigeria
  • 176. the National Poverty Eradication programme, the Small and Medium Enterprises Development Agency, microcredit and entrepreneurship development plans and, more recently, the job creation committee. The Agricultural Transformation Agenda (ATA) is a major tool for driving rural income growth, accelerating the achievement of food and nutritional security, generating employment and transforming the economy into a leading player in the global food market. On 14 May 2012, the president inaugurated the Agriculture Transformation Implementation Council (ATIC), with the mandate of driving the ATA. The target is to create about 3.5 million new jobs from rice, cassava, sorghum, cocoa and cotton value chains, with many more jobs from other future value chain activities. It is also anticipated that farmers and other rural entrepreneurs might earn over NGN 300 billion in additional income from value chain activities, helping to reduce poverty. Social protection is a priority in Nigeria’s Vision 20:2020 plan. However, it is yet to have a comprehensive policy and budget support. Social protection policy has been on the agenda for some time. Several actors are involved in funding and ensuring social welfare, mainly civil society groups with programmes supporting orphans, widows, and people living with HIV/AIDS. In recent years the federal government has initiated three social protection initiatives: conditional cash transfers targeted at households with specific social characteristics, health fee waivers for pregnant women and children under five and community-based health insurance plans (redesigned in 2011). Gender Equality The disparities in gender are significant. The country is ranked 79 out of 86 in the OECD’s 2012 Social Institutions and Gender Index and 120 out of 135 countries in the World Economic Forum’s 2011 Global Gender Gap Index. Gender gaps are notable in access to education, as well as political representation. Although school participation has been improving at primary level, the proportion of girls enrolled is still lower than boys across all levels of education, with the ratio decreasing at tertiary levels. Despite the fact that the Gender Parity Index (GPI) for the five year period 2005/06 to 2009/10 favours boys, there is consistent progress toward gender parity: 0.87 in 2010, up from 0.83 in 2006. Women’s representation in political decision making saw remarkable progress in 2009 but reversed in the 2011 elections. However, in the federal cabinet the president appointed 13 female members, constituting 31% of the 42 member entity. Women also constitute 11.8% of the 17 members of the supreme court. Across the country women constitute 30.0% of high-court judges. Nevertheless, the government recognises that much more remains to be done. 182 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 177. 183African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Thematic analysis: Structural transformation and natural resources Nigeria is well-endowed with human capital and natural resources. It is the most populous country in Africa, with about 167 million inhabitants. It has a vibrant entrepreneurial streak and a highly-educated labour force. Nigeria has enormous natural resources. It has about 34 different minerals across the country (including gold, iron ore, coal, tin, uranium, phosphates, and limestone), 37.2 billion barrels of proven oil reserves13 and 187 trillion cubic feet of proven natural gas. Also, there are opportunities for fertiliser and liquified gas production. With average production of about 2.3 million barrels of crude oil per day, Nigeria is the largest exporter of crude oil in Africa and tenth largest in the world. It has a vast land area of 923 768 km2, of which about 70 million hectares are farmland. The Nigerian economy is the largest in West Africa and the second largest in sub-Saharan Africa, predominantly oriented toward the production of agricultural products and crude oil. Agriculture accounts for about 30.9% of the GDP, 70.0% of employment but contributes only about 2.5% of export earnings. Crude oil and natural gas account for about 15.0% of GDP, 71.0% of export earnings and 79.0% of government revenue. Since 2000, Nigeria has witnessed significant progress in macroeconomic performance, with an average economic growth of 7.0%, driven by the non-oil sector. Despite the robust economic growth, Nigeria continues to face rising unemployment, a high incidence of poverty and a high degree of social deprivation. The unemployment rate rose from 19.7% in 2009 to 21.1% in 2010 and 23.9% in 2011; income distribution continues to be skewed, with a Gini coefficient of 0.44 in 2011; 63% of Nigerians live below the poverty line of USD 1 per day; 42% do not have access to safe drinking water and 69% do not have access to basic sanitation. Social and economic indicators show huge regional disparities in the country. In a nutshell, the overall economic improvements have not translated into improvements in the welfare of the average Nigerian. Despite the country’s huge agricultural potential, less than 50% of the total farmland in Nigeria is cultivated, and agricultural productivity is low because of the lack of modernisation. Nigeria relies on the importation of food to meet its domestic demand, with the import bill for wheat, rice, sugar and fish estimated at NGN 1 trillion (USD 6.4 billion) per annum. There is a lack of diversification of the Nigerian economy. The manufacturing base is low and has been dwindling. The share of the manufacturing sector in the GDP declined from 6% in 1985 to about 4% in 2011. The main drivers of economic growth do not require large amounts of labour and thus are not able to absorb the 1.8 million new entrants in the labour force every year. Nigeria is among the leading exporters of crude oil in the world, but it imports about 85% of its refined petroleum product needs due to low capacity utilisation of its oil refineries (around 30%) and their frequent breakdowns. The production of primary agricultural commodities and oil continue to dominate the Nigerian economy. Economic growth was not created through a structural change of the economy. Sources of economic growth need to be diversified to strengthen the economy. The Nigerian economy therefore needs growth in order to reduce the financial burden of imports, create jobs to absorb the growing unemployment, grow incomes, reduce poverty and increase prosperity for all Nigerians. Towards the Structural transformation of Nigeria A . Macroeconomic Management: The Nigerian authorities have introduced macroeconomic reforms that have led to macroeconomic stability. These reforms need to be deepened, consolidated and sustained. Price and exchange rate stability, prudent public expenditure management, improved quality of public investment projects, enhanced budgeting, public financial management and procurement processes, prudent debt management practices and an enhanced domestic revenue base are all critical for macroeconomic stability. B. Consolidating Democracy: The democratic dispensation that Nigeria has witnessed since 1999 needs to be consolidated, with leaders held to higher standards of accountability, a vibrant, proactive and critical press, social media and civil society and a well-organised and strong opposition. Good governance, anti-corruption measures and adherence to the rule of law are also vital. C. Diversifying the Nigerian Economy: The Nigerian economy needs to be diversified to the non-oil sector. This will help expand the sources of growth and make it broad based, both socially and geographically. Micro- level reforms are needed to address binding constraints to sectoral growth, with a focus on improved technology, skills acquisition, high productivity and access to financing. The agricultural sector will continue to be important given its potential for reducing poverty and creating employment. It also offers the opportunity Nigeria
  • 178. for linkages to support industrialisation, reduce food imports and enhance food security. Potential also exists in manufacturing, mining, tourism, and the entertainment and hospitality sectors. D . Boosting Agricultural Production: This involves targeted interventions and reforms, including technological innovation, productivity improvement, infrastructure development in agricultural production zones, commercialisation and input supply and distribution systems. Specific interventions should include increasing the area of land under cultivation, increasing the use of improved seeds and fertilisers, enhanced cultural practices, mechanisation of agricultural production and the adoption of a value chain approach to boost agricultural production. These should be complemented with improvements in infrastructure, particularly road transport, energy, irrigation, storage and processing. Moreover, partnerships with private sector operators and farmers associations should be developed, and long-term financing should be provided at a reduced cost to small- and medium-sized enterprises in the agricultural sector. These measures are incorporated in the Agricultural Transformation Agenda of the current administration. E . Fostering Industrial Development: Industrialisation is a key component of Nigeria’s economic diversification and structural transformation. It should be based on the country’s comparative advantage that it has with its human and physical capital and natural resources. The provision of industrial park clusters with selective and targeted incentives, is key in attaining this objective. A growth identification and facilitation study would help identify target sectors and the required steps for encouraging growth in them. F. Addressing the Major Infrastructure Gap: The infrastructure deficit in Nigeria is a major bottleneck for the structural transformation of the Nigerian economy. This is particularly so in the electric power industry and road and rail transport. Increased public sector investment in infrastructure, improved project implementation and the leveraging of private investments to complement the efforts of the government through privatisation/concessioning and Public-Private-Partnerships (PPPs) are critical. This is a major priority for the current administration, and improvements have been observed in critical infrastructure development in the country. However, progress in PPPs has been slow. G. Supportive Financing: Establishing a sound, deep and efficient financial sector to support the structural transformation is vital. This includes the pooling of funds and allocating them to the most productive sectors, improving the access to long-term financing by SMEs, adopting innovative financing arrangements to broaden the base of investors (e.g. Diaspora bonds), attracting more foreign direct investment, particularly in the non- primary sectors, and attracting foreign portfolio investment. Various initiatives by the Central Bank of Nigeria aim to address these issues, but much still needs to be done. H . Improving the Business and Investment Climate: Nigeria continues to be ranked very low in the World Bank report Doing Business. This is because of unfavourable physical, institutional and regulatory environments for doing business in the country. The time it takes and the cost of starting and operating a business, plus trade regulations, taxation, and the state of infrastructure, are often cited as constraints to doing business. They need to be addressed. Various initiatives by the government to tackle these problems have slightly improved the business and investment climate. Notes 1. 2011 BP Statistical Energy Survey. 2. OECD Statistics. 3. National Bureau of Statistics, Foreign Trade Statistics: Third Quarter of 2012. 4. Central Bank of Nigeria, Economic Report – Third Quarter 2012. 5. The First Bank of Nigeria Plc, Guaranty Trust Bank Plc, Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc. 6. Report by Renaissance Capital Limited. 7. Standard and Poor’s Rating Services Report of 24 October 2012. 8. Report by the First Bank of Nigeria Capital Limited. 9. 2010 Enhancing Financial Innovation and Access (EFInA) Survey. 10. Financing Small and Medium Term Enterprises in Nigeria, April 2012. 184 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Nigeria
  • 179. 185African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 11. National Agency for the Control of AIDS (NACA), (2012), “Country Progress Report: Federal Republic of Nigeria”. 12. National Bureau of Statistics, 2011 Annual Social-Economic Report. 13. 2011 BP Statistical Energy Survey. Nigeria
  • 180. Senegal 2013 www.africaneconomicoutlook.org Khadidiatou Gassama / k.gassama@afdb.org Toussaint Houeninvo / t.houeninvo@afdb.org
  • 181. Senegal Sections Senegal's 2012 growth recovered to an estimated 3.7%, after a slowdown in 2011 when agriculture suffered. This should continue in 2013 and 2014 thanks to new infrastructure programmes. The new president and government elected in 2012 have taken measures to improve good governance, which should boost the management of public resources. The structural transformation of the economy remains slow. Strategies are planned to promote new products to diversify exports and growth sources. Overview Senegal's economy recovered in 2012 with growth estimated at 3.7% of gross domestic product (GDP), up from 2.1% in 2011. Projected growth for 2013 and 2014 is 4.3% and 5.1% respectively. These projections assume that the government’s socio-economic programme will be implemented along with the Policy Support Instrument (PSI-II) 2010-13 agreed upon with the International Monetary Fund (IMF). The main investment programmes are for road infrastructure, with the continuation of a toll motorway and Blaise Diagne International Airport, as well as energy (electricity distribution). The National Strategy for Economic and Social Development (SNDES) for 2013-17 was approved in November 2012. It centres on three areas of action: growth, productivity and wealth creation; human capital and sustainable development; and government, institutions, peace and security. The direction taken by the new administration in the area of good governance should lead to better management of public resources. The implementation of necessary reforms to achieve growth objectives may be made easier by the strong legitimacy of the new ruling team that emerged from the presidential and parliamentary elections in early 2012. However, the opening of the Senegalese economy makes it vulnerable to fluctuations in world commodity prices and to the economic crisis in Europe and political crisis in neighbouring Mali. There are also internal risks linked to floods and other climatic shocks and to the slowness of the road infrastructure programme and reforms, especially of the energy sector. Recent studies indicate that from 1980 to 2009, labour migration was from the primary and secondary sectors to the urban informal sector. But the structural transformation of Senegal's economy remains slow. About 60% of the working population still depends on agriculture. Senegal has not become mining-oriented, despite the potential offered by phosphate and gold. Mining and quarrying accounted for less than 1.5% of GDP for the period 2002-11. Reforms to improve the business environment and the quality of human resources are therefore crucial. Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) Senegal Sections Senegal's 2012 growth recovered to an estimated 3.7%, after a slowdown in 2011 when agriculture suffered. This should continue in 2013 and 2014 thanks to new infrastructure programmes. The new president and government elected in 2012 have taken measures to improve good governance, which should boost the management of public resources. The structural transformation of the economy remains slow. Strategies are planned to promote new products to diversify exports and growth sources. Overview Senegal's economy recovered in 2012 with growth estimated at 3.7% of gross domestic product (GDP), up from 2.1% in 2011. Projected growth for 2013 and 2014 is 4.3% and 5.1% respectively. These projections assume that the government’s socio-economic programme will be implemented along with the Policy Support Instrument (PSI-II) 2010-13 agreed upon with the International Monetary Fund (IMF). The main investment programmes are for road infrastructure, with the continuation of a toll motorway and Blaise Diagne International Airport, as well as energy (electricity distribution). The National Strategy for Economic and Social Development (SNDES) for 2013-17 was approved in November 2012. It centres on three areas of action: growth, productivity and wealth creation; human capital and sustainable development; and government, institutions, peace and security. The direction taken by the new administration in the area of good governance should lead to better management of public resources. The implementation of necessary reforms to achieve growth objectives may be made easier by the strong legitimacy of the new ruling team that emerged from the presidential and parliamentary elections in early 2012. However, the opening of the Senegalese economy makes it vulnerable to fluctuations in world commodity prices and to the economic crisis in Europe and political crisis in neighbouring Mali. There are also internal risks linked to floods and other climatic shocks and to the slowness of the road infrastructure programme and reforms, especially of the energy sector. Recent studies indicate that from 1980 to 2009, labour migration was from the primary and secondary sectors to the urban informal sector. But the structural transformation of Senegal's economy remains slow. About 60% of the working population still depends on agriculture. Senegal has not become mining-oriented, despite the potential offered by phosphate and gold. Mining and quarrying accounted for less than 1.5% of GDP for the period 2002-11. Reforms to improve the business environment and the quality of human resources are therefore crucial. Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2% 4% 6% 8% 10% RealGDPGrowth(%) 188 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 182. 189African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 2.1 3.7 4.3 5.1 Real GDP per capita growth -0.5 1.1 1.7 2.5 CPI inflation 3.4 2.5 1.6 1.8 Budget balance % GDP -6.6 -7 -7.9 -7.4 Current account % GDP -7.7 -8.6 -9.3 -10 Figures for 2012 are estimates; for 2013 and later are projections. Senegal
  • 183. http://dx.doi.org/10.1787/888932809659 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 13.8 16.7 Construction 5.6 4.2 Electricity, gas and water 2.9 3.3 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 15.6 15 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 14.5 14.7 Mining 1.1 2.9 Other services 7.7 7.0 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 7.1 7.2 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 12.7 11.6 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 19 17.4 Wholesale, retail trade and real estate ownership - - Economic activity gained intensity in 2012, with 3.7% growth thanks to a good harvest. However, growth was held back by the crisis in neighbouring Mali and poor peanut production in 2011, as well as tensions in the lead up to the presidential election in early March 2012. The drop in Malian demand caused the decline in exports of hydraulic cement (‑0.3%) and petroleum products (‑2.3%) in 2012. On the supply side, the return to normal agricultural production enabled the primary sector to contribute 16.7% of GDP in 2012. This growth is forecast to continue in 2013 and 2014. Agriculture recovered because rainfall was good and seeds and fertiliser were distributed on time by the government. The groundnut sector grew in volume, as did cotton, tomatoes and watermelons. The value added of livestock farming fell by an estimated 1.1% in 2012 due to a fall in the number of recorded slaughters. The fisheries sector rebounded, growing by 6.8% in 2012 thanks to increased landings by traditional fisheries. Senegal has stopped granting fishing licenses, while Mauritania has granted more licenses to Senegalese boats. Growth in the primary sector has been erratic and subject to floods, droughts and other external shocks. After recording negative growth of 10.8% in 2011, the sector grew by 8.9% in 2012 and is projected to expand by 190 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 184. 191African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 6.1% in 2013. Medium- and long-term transformation of the economy depends on the stabilisation of rural revenues and the diversification of the sources of value added. The secondary sector (excluding mining and quarrying) contributed 22.2% of GDP in 2012. In 2013 and 2014, this growth is expected to be supported by manufacturing as unrest in Mali stabilises. The 1.4% decline in the value added of the secondary sector in 2012 was the result of a drop in the production of phosphates, fats, flour and cement. Industry, which is concentrated on the primary processing of raw materials, still needs diversifying. Sugar production rose as a result of a five-year sugar self-sufficiency plan which ends in 2015. Similarly, production of textile fibres increased following the implementation of the three-year (2010-13) plan to revive the cotton industry. Energy production increased, thanks to the restructuring of the sector since 2011. But these increases were not enough to drive growth in industry as a whole. The tertiary sector, including government, contributed 58.2% of GDP in 2012, with growth of 4%. The sector was driven mainly by financial services, telecommunications and trade. In contrast, transport (especially rail and air) hotels and restaurants suffered a setback in 2012 due to difficulties encountered by the tourism and leisure sectors. The tertiary sector should rebound in 2013 and 2014, with growth of around 4%, since the crises in Europe and Mali are expected to wane, VAT on tourism will stay at 10% and agricultural production and manufacturing is forecast to grow. Growth in domestic demand rose from 3% in 2011 to 5.3% in 2012. This additional growth helped offset weak exports and resulted in a 5% rise in imports. Household consumption contributed more than 70% of GDP in 2011‑12, driven by rising remittances, which were estimated at XOF 737.7 billion (CFA franc BCEAO) in 2012 (10% of GDP). Gross fixed capital formation was supported by public investment. After falling by 1.9% in 2011, it rebounded in 2012 thanks to work on a major toll road, on Blaise Diagne International Airport and investment in the electricity sector. In 2013 and 2014, gross fixed capital formation and job creation will be boosted by the start of zircon mining, as well as gold mining. In 2012 the Apix agency invested XOF 432.6 billion to create a plant for water desalination and drinking-water production (100 000 m3 a day), energy production (400 MW a day) and salt production with German, Turkish and Senegalese capital. The reform of the general tax code (Code général des impôts) will lead to a rationalisation of tax exemptions and tax relief for individuals in 2013. This will affect the purchasing power of households by approximately XOF 29 billion, or 0.37% of GDP, in 2013. The implementation of the accelerated growth strategy as part of the SNDES should result in growth of 4.3% in 2013 and 5.1% in 2014. Public investment is aimed at reconstituting seed capital and equipment in rural areas, as well as road and energy infrastructure programmes, including as part of an agreement financed by the Millennium Challenge Account. These investments and reforms, especially in the energy sector, should be effective enough to limit the risks resulting from shocks such as the Mali crisis and climate instability. Senegal
  • 185. Macroeconomic Policy Fiscal Policy Fiscal policy in 2012 was marked by a slowdown in the global economy and tensions in neighbouring Mali and Guinea-Bissau. The budget deficit, estimated at 7% in 2012 against 6.6% in 2011, would have been higher (8%) if measures had not been taken to cut government spending and delay some non-priority capital expenditure. The budget deficit in 2012 came from the XOF 150 billion, or 2% of GDP, of subsidies on energy (electricity and oil products). Other factors that widened the deficit were aid for drought victims and lower-than-projected growth (3.7% versus a projection of 3.9%). The deficit is projected to rise in 2013 to 7.9%. Total receipts increased by 12.9% in 2012 to XOF 1.72 trillion due to increased budget revenue (9.8%) and grants (41.3%). The tax burden rose from 18.8% to 19.1% in 2012, above the West African Economic and Monetary Union (WAEMU) target of 17%. Fiscal policy was slightly expansionary in 2012. The ratio of expenditure to net loans reached around 30%, up from 29% in 2011. The 8.9% rise in total expenditure and net lending in 2012 was caused by a 6.1% rise in wages and salaries, a 6.6% rise in other current expenditure (including subsidies), and a 17.7% rise in debt servicing. The additional debt costs were due to a 47.7% hike in domestic debt service. Capital expenditure on domestic financing uses about 37% of tax revenue, well above the WAEMU standard of 20%. The wage bill as a percentage of tax revenue was about 30% in 2012, and is expected to remain the same in 2013‑2014, below the 35% ceiling. Under the PSI, the government has a XOF 50 billion ceiling on payment orders, but without accumulation of arrears. Electricity price subsidies in 2013 should be limited to XOF 80 billion (a saving of XOF 45 billion based on current oil prices). It seems unlikely that this limit will be kept however. The draft 2013 budget is in line with the priorities of the country's development strategy. About 35% of the budget is allocated to the infrastructure, agriculture, health and education ministries. The XOF 14.2 billion reduction in current expenditure and the XOF 81.4 billion increase in capital expenditure reflect the government's desire to have a more investment-oriented budget. Table 3: Public Finances 2013 (percentage of GDP) 2009 2010 2011 2012 2013 2014 Total revenue and grants 21.6 21.9 22.5 23.1 23 23.2 Tax revenue 18 18.7 19 18.9 19 19.2 Oil revenue - - - - - - Grants 3 2.5 2.2 2.9 2.7 2.7 Total expenditure and net lending (a) 26.8 27.3 29.1 30.1 30.9 30.6 Current expenditure 16.7 15.8 17.6 18.1 18.2 17.7 Excluding interest 15.9 14.8 16.1 16.4 16.3 16.1 Wages and salaries 6 6.1 6.3 6.3 6.3 6.2 Interest 0.8 0.9 1.5 1.7 1.9 1.6 Primary balance -4.4 -4.4 -5.1 -5.3 -6 -5.8 Overall balance -5.2 -5.4 -6.6 -7 -7.9 -7.4 Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy 192 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 186. 193African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Senegal is a member of WAEMU, the eight-country group that uses a single currency, the West African CFA franc. Monetary policy, for which the main objective is to ensure price stability and safeguard purchasing power, is conducted within the monetary union. Monetary conditions in Senegal and the wider WAEMU community were marked by the reduction of required reserve ratios from 7% to 5% in March 2012. Similarly, the minimum open market bid rate was reduced from 3.25% to 3% in June 2012. These two decisions by the Central Bank of West African States (CBWAS) pushed down interest rates for loans of all maturities, with the notable exception of lending rates, which rose by 25 basis points between the second and third quarter, reaching 8.16% by the end of September 2012. In Senegal, lending rates stood at an average of between 4.97% and 11%, depending on the borrower. The CBWAS has decided it would cut rates by a further 25 basis points in March 2013. This would bring the minimum open-market bid rate down from 3% to 2.75%. Senegal’s money supply, measured by the aggregate M3, grew from XOF 2.71 trillion in 2011 to XOF 2.91 trillion in 2012. This resulted in an increase in domestic credit of around 14% and a reduction in net foreign assets of around 11%. The money supply grew from 39.8% of GDP in 2011 to 40% in 2012, while credit to the economy amounted to 30.5% of GDP in 2012. In 2013, the money supply is projected to increase to XOF 3.23 trillion, or 42% of GDP. According to the World Bank report Doing Business 2012, firms cite access to finance as a major constraint. On regional financial markets, the Senegalese government has a greater presence than private enterprises, with total borrowing amounting to XOF 76.8 billion as of 20 October 2012. The money market has been active over the past few years, and on 12 October 2012 the government injected XOF 429.7 billion. It issued eurobonds in 2009 and 2010 and plans to take out non-concessional loans amounting to around USD 200 million in 2013. Inflation was contained at 2.5% in 2012 (down from 3.4% in 2011), despite higher food prices (cereals) and higher non-alcoholic drink prices. Forecasts predict inflation will be below the WAEMU ceiling of 3%. Economic Cooperation, Regional Integration & Trade The trade deficit for 2012 is estimated at 18.1% of GDP. The current account deficit was 8.6% of GDP in 2012, and is projected to rise to 9.3% in 2013. This deficit should be financed by public and private capital transfers. Migrant remittances in 2012 were an estimated XOF 737.7 billion and should remain at 10% of GDP in 2013. Foreign direct investment (FDI) was estimated at XOF 136 billion in 2012 (about 2% of GDP), compared with XOF 133 billion in 2011, and is expected to decline to XOF 88 billion in 2013. Only exports of industrial gold increased significantly (+53.4%) in 2012. The sharpest falls were for exports of groundnuts, mineral and chemical fertilisers, phosphoric acid and food products. Mali remains the top destination for Senegalese exports, receiving 47% of exported hydraulic cement and 11% of exported petroleum products. WAEMU countries were the destination of 24.3% of exports in 2012. The liberalisation of the sale of groundnuts resulted in direct intervention by Chinese and Indian buyers with Senegalese producers at the expense of oil manufacturers. Disbursements of official development assistance (ODA) in 2010 totalled XOF 479 billion, or about 8% of GDP. Budget support from technical and financial partners to implement the reforms resulted in disbursements of XOF 163 billion (2.25% of GDP) in 2012. Senegal slipped in the World Bank's Doing Business rankings from 164th to 166th place. Similarly, it fell down in the Global Competitiveness Index rankings, from 111th to 117th. The depreciation of the CFA franc against the currencies of partner countries (‑1.6%) and the favourable inflation differential (‑2.6%) enhanced competitiveness by an average of 4.2% during the first eight months of 2012. Figures for 2012 are estimates; for 2013 and later are projections. Monetary Policy Senegal
  • 187. Table 4: Current Account 2013 (percentage of GDP) 2004 2009 2010 2011 2012 2013 2014 Trade balance -12.3 -15.9 -14.9 -17 -18.1 -18.2 -18.4 Exports of goods (f.o.b.) 18.8 16.4 16.8 17.7 17.7 17.4 17.2 Imports of goods (f.o.b.) 31.1 32.3 31.7 34.8 35.8 35.6 35.6 Services -0.3 -1 -0.5 -0.9 -0.9 -0.9 -0.8 Factor income -1.6 -1.3 -1.1 -1.2 -1 -1 -0.8 Current transfers 7.9 11.5 12 11.4 11.4 10.7 10 Current account balance -6.4 -6.7 -4.5 -7.7 -8.6 -9.3 -10 Figures for 2012 are estimates; for 2013 and later are projections. Debt Policy Senegal continued to diversify its debt instruments in 2012 in terms of the concessional level, maturity and interest rates by issuing debt securities on regional and international markets. The government gives priority to concessionary financing and neither contracts nor guarantees external loans on non-concessional terms. It consults the IMF in advance whenever it does not stick to these criteria. The government plans to use remaining funds from the IMF programme for non-concessional loans (USD 200 million) and the programme for semi- concessional loans to finance infrastructure investment. Domestic debt reached an estimated 9.9% of GDP in 2012 and is projected to reach 8.9% in 2013. External debt, meanwhile, reached an estimated 32.2% of GDP in 2012, and is projected to reach 34.1% in 2013. Public debt service was estimated at 9.9% of government revenue in 2012 – well below the 30% ceiling – and is expected to remain the same in 2013. As a percentage of exports of goods and services it was estimated at 8.3% in 2012 and is projected to rise fractionally to 8.4% in 2013, both of which are below the 20% ceiling identified in the debt sustainability analysis. Domestic debt service increased by 47.6% in 2012 to reach XOF 66 billion. It is projected to reach XOF 82 billion in 2013. The debt ratio remains below the 70% ceiling set as part of WAEMU’s control measures. Total debt, however, stood at XOF 1.20 trillion in 2007, three times as high as immediately after the cancellations made as part of the Multilateral Debt Relief Initiative (MDRI) in 2006. The domestic debt stock is growing steadily, albeit slowly, reaching around 10% of GDP in 2012 compared to just 4.5% in 2007. This upward trend is the result of the external financing of major public investment programmes and financing on the international market in 2009 and 2011. The most recent analysis of debt sustainability concluded that Senegal is a low risk. Aware of the inherent risk of a rapid rise in debt, the government created its first medium-term debt strategy led by the Treasury’s new public debt division (Direction de la dette publique). This new strategy, based on detailed study, calls for a reshaping of debt by reducing short-maturity instruments for domestic debt. 194 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 188. 195African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 2: Stock of total external debt and debt service 2013 Figures for 2012 are estimates; for 2013 and later are projections. Debt/GDP Debt service/Exports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 20% 40% 60% 80% 100% Percentage Senegal
  • 189. Economic & Political Governance Private Sector Despite reforms to improve the business environment, major efforts are still necessary. In the World Bank report Doing Business 2013, Senegal scores below the African average for “getting electricity” (180th in the world), paying taxes (178th) and registering property (173th). In the World Economic Forum's Global Competitiveness Report 2012‑13 Senegal was ranked 117th out of 144 countries. With room for improvement possible, the 11th meeting of a presidential council on investment held in December 2012 adopted a set of short-term measures and a new programme of reforms for 2013‑15. These include a new general tax code that came into force at the start of 2013, removing registration fees for business start-ups and lowering the tax on real-estate transactions. In the energy sector, the additional capacity of the Bel Air and Kahone power stations and the rehabilitation of production capacity of the state electricity company, Société nationale d’électricité (Sénélec), should result in a better electricity supply in 2013. In the new tax code, value added tax for tourism has been frozen at 10%. For those seeking loans, there are plans to set up credit information centres in 2013, as part of efforts being conducted for the WAEMU. There will also be collateral registries and a reliable database of the mortgage registry. For property registration, transaction authorisations will be abolished and replaced with a prior declaration. For land conservation, meanwhile, there will be statistics on the time taken to establish and issue real rights and transfers and record them in the land registry. The new programme of reforms (2013‑15) envisages the automation of administrative procedures, the creation of a simplified fiscal and legal framework that provides incentives, and the promotion of investment with a strong social impact. Financial Sector The financial system is continuing the diversification of its range of products and its increased accessibility, thanks in particular to the development of microfinance. The banking sector dominates Senegal's financial system, accounting for 88% of assets at the end of 2011. Credit to the economy was worth an estimated 30.5% of GDP in 2012, down from 28.7% in 2011. Access to financial services is estimated at about 19% (opening of bank accounts, microfinance institutions and the postal network). Stress tests conducted by the monetary authorities and the IMF indicate the sector can stand up to liquidity and interest-rate risks. The high level of bank liquidity stems from the lack of creditworthy projects. Nevertheless there are risks to the soundness of the banking sector because of the high concentration of loans. Another cause for concern is the ratio of non-performing loans, which reached 17% in 2012. There are at least 234 microfinance outlets in the Dakar region, and more in other urban and rural areas. By July 2012 the total credit given by the institutions was XOF 219 billion. The main beneficiaries were small retail, services, agriculture and transport enterprises. The concentration of these businesses could be a risk for the microfinance system. On the regional stock exchange, total market capitalisation increased by 1.1% from XOF 4.19 trillion at the end of June 2012 to XOF 4.24 trillion at the end of September 2012. This trend is due to the 1.4% rise in market capitalisation of stocks and shares. With the opening of the National Economic Development Bank (Banque nationale pour le développement économique), the number of banks in Senegal could rise to 20 in 2013. Various initiatives are under way to improve access to finance, including the creation of the FONGIP priority investment guarantee fund (Fonds de garantie des investissements prioritaires), which targets investment by young people and women or in rural areas. Mobile banking has also developed rapidly, especially in rural areas. Public Sector Management, Institutions & Reform Senegal has put new WAEMU directives on public finances into its legislation, with parliament approving a transparency code in December 2012. The provisions of a new general financial administration law will be tested in 2013 in the justice and environment ministries. 196 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 190. 197African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Regarding external auditing, in 2012 the National Assembly passed a reform of the court of auditors (Cour des comptes) aimed at strengthening its independence and its powers. Furthermore, following the reactivation of the anti-corruption court (Cour de répression de l'enrichissement illicite), a law was passed in December 2012 to set up a national anti-fraud and anti-corruption office (Office national de lutte contre la fraude et la corruption). This office has the power to act on its own initiative and its reports will be made public. Eight national agencies were abolished in 2012 and the others will be assessed in 2013. A physical audit of civil servants was launched. A reform of the general tax code in 2012 will lead to a rationalisation of tax exemptions in 2013. To improve cash flow the government will continue its work to set up a single treasury account, which should be completed in 2013. The authorities publish information such as calls for tenders for public works in newspapers and on the public markets management system website, SYGMAP website: www.marchespublics.sn. The broadcasting of parliamentary debates on radio and television allows people to follow public affairs. Many of the media function independently and report unethical behaviour. Natural Resource Management & Environment The sectoral policy on the environment and natural resources planned for 2009‑15 aims to ensure a sustainable environment and reverse the degradation of the environment and natural resources. The sector has a framework for medium-term expenditure and a budget designed to concentrate spending on priority areas. Technical and financial partners provide support for major projects to prevent deforestation and help the population adapt to climate change. Of the 127 validated environmental and social management plans (PGES), 58% (74 plans) were monitored in 2011, down from 60% in 2010. The reforestation/deforestation ratio stood at 0.99 in 2011, up from 0.96 in 2010, thanks to the regeneration of 8 232 hectares and the reforestation of 29 266 hectares, versus 19 455 hectares in 2010. The new government has announced it plans to review the legislative framework of the mining sector. In the medium term, the country plans to join the World Bank’s Extractive Industries Transparency Initiative (EITI). Under the SNDES 2013‑17, environmental achievements already made will be boosted by policies aiming to mitigate the effects of climate change on ecosystems, strengthen management for the environment and natural resources, promote the green economy and green jobs, and make rural ecosystems less vulnerable to climate change. Political Context Presidential and legislative elections were held in 2012. Protests following the decision of the Constitutional Court in January to allow the candidacy of incumbent President Abdoulaye Wade were severely repressed and several people killed. The elections themselves ran smoothly however and were deemed transparent. The election of opposition candidate Macky Sall as president strengthened Senegalese democracy. The July 2012 general election was won by the Benno Bokk Yakaar (BBY) coalition supported by the president. The BBY took 119 of the 150 seats available. Good governance is one of the new government's priorities. As part of the battle against corruption and the pursuit of illegally acquired goods, the questioning of dignitaries from the former government began in July 2012. People have high expectations that the new government will create jobs and improve living conditions. In its efforts to bring peace and security, the new government has adopted a regional approach to resolving the conflict in Casamance, with greater involvement from the Gambia and Guinea-Bissau. This strategy resulted in the release of eight hostages, including seven military personnel held by separatist factions of the Mouvement des forces démocratiques de Casamance (Movement of Democratic Forces of Casamance, MFDC). Instability in Mali has increased the militant threat to the region. Finally, 2012 was marked by numerous strikes by state teachers. The 2011/12 school year was saved by agreements reached between the new authorities and teachers' unions. Senegal
  • 191. Social Context & Human Development Building Human Resources According to the results of the 2010‑2011 survey on demography and health (EDS-MICS), under-five mortality has fallen from 121 per thousand in 2005 to 72 per thousand in 2011. Child mortality fell from 64 per thousand in 2005 to 26 per thousand in 2011, even though disparities between urban and rural areas remain high, as does maternal mortality. For the period 2012‑15, Senegal is implementing new strategic plans to prevent malaria, HIV/AIDS and malnutrition and to extend health insurance coverage. The aim is to speed up the implementation of different prevention programmes and the provision of healthcare services within the framework of the national healthcare development plan (Plan national de développement sanitaire) for 2009‑2018. The plan aims to eradicate infectious and chronic diseases, reduce maternal mortality and ensure the survival and nutrition of children. In education, more than 93% of children aged 7‑12 attended school in 2011. For preschool children, school attendance was 11%, and 53% for secondary schools. Parity between the number of girls and boys in primary education was achieved nationally in 2006. Disparities persist in certain regions and the further children go up the age scale. The completion rate of elementary education rose from 59% in 2010 to 66% in 2011, helped by the private sector, which operates at all levels of education. According to the results of the July 2012 ESPS poverty survey (Enquête de suivi de la pauvreté au Sénégal), the literacy rate of those aged 15 and over is 51%, up from 42% in 2005. The rate is higher in Dakar (68%) and other towns (61%) than in rural areas (38%). Men have a literacy rate of 65%, but women have a rate of just 40%. The new general policy for education and training for 2012‑2025 focuses on improving the quality of teachers. It aims to get all children through a basic education by 2020 and a transition rate to secondary education of 80% by 2025. The policy envisages new vocational training, with at least 30% of primary school graduates moving into vocational training by 2025. It also envisages developing practical skills qualifications for 300 000 young people working in the informal economy. Poverty Reduction, Social Protection & Labour The government gives special attention to education and health policies. Data in the 2013 budget law shows that education accounted for about 18% of overall spending and health 5%. According to the provisional results of the 2012 ESPS, 46.7% of the population were living below the poverty threshold in 2011, down from 48.3% in 2006. Poverty is lower in Dakar (26%) than in other urban areas (41%) and rural areas (57%). However, the number of poor people increased between 2006 and 2011 from 5.7 million to 6.3 million. Social security coverage remains low in Senegal. Mutual health-insurance companies have proliferated in response to this problem, and there were 217 local and 20 national mutual health-insurance companies, providing coverage to around 609 000 people in 2011. Nevertheless, the coverage rate remains low, targeting is not done correctly, resources are insufficient and action taken lacks co‑ordination. Poverty-reduction policies and strategies are ineffective. Agriculture remains unproductive, because it is having to deal with climatic vagaries and problems accessing factors of production, especially prepared land. Senegal has not yet achieved the standards set by the World Health Organization (WHO) for health infrastructure and qualified staff. In education, the results achieved do not reflect the money invested. The negative effects of external shocks (international prices) and domestic shocks (low rainfall) have played a role in this. Between 2009 and 2011, GDP growth averaged 3%, while population growth averaged 2.6%. Senegal will probably achieve goals two, six and seven of the Millennium Development Goals (MDGs), which concern equal access to education, combating HIV/AIDS and malaria, and environmental sustainability. The SNDES and social protection measures are helping the country to achieve these goals. A social security scheme (Caisse autonome de protection sociale universelle) will enter a trial phase in 2013. Initially it will be allocated XOF 10 billion for basic health coverage, a minimum pension and a family allowance for households headed by women and the elderly. The labour market consists of three sectors: rural, urban informal and modern. As a result, 32% of the working population was affected by underemployment in 2011. The National Economic Development Bank for small- and medium-sized enterprises (SMEs) is due to launch in 2013, as is the FONGIP, with XOF 5 billion to support projects in job creating sectors. Gender Equality 198 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 192. 199African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Senegal has ratified the United Nations Convention on the Elimination of All Forms of Discrimination Against Women and the African Charter on Human and Peoples' Rights, including its protocol on women’s rights. Article 7 of the Senegalese Constitution enshrines the equality of men and women before the law. Enforcement of the law on parity in general elections in July 2012 resulted in the proportion of female lawmakers increasing from 22% to 43%. Gender parity has been achieved in primary schools and Senegal has made progress in the area of women's rights, but there remains room for improvement in the enforcement of gender-equality laws. The new government has made provisions to facilitate the access of women in rural areas to land ownership. Women's groups will be able to receive microfinance loans. They will also receive professional and literacy training. In addition, the government plans to reform the nationality code to allow all Senegalese women to pass on their nationality, particularly to their children. The labour market consists of three sectors: rural, urban informal and modern. As a result, 32% of the working population was affected by underemployment in 2011. The National Economic Development Bank for small- and medium-sized enterprises (SMEs) is due to launch in 2013, as is the FONGIP, with XOF 5 billion to support projects in job creating sectors. Gender Equality Senegal
  • 193. Thematic analysis: Structural transformation and natural resources Between 1991 and 2011, economic growth was volatile, peaking at 6.7% in 2003 as a result of the statistical catch up from the minimum 0.7% in 2002. Between 1995 and 2005 growth averaged 4.5% a year. Growth was helped by the devaluation of the CFA franc in January 1994, but also by reforms. The tertiary sector has been the main contributor to GDP for several decades as there have been no major new products in the diversification of exports and sources of growth. On the demand side, consumption remains the main component, driven by monetary income from groundnuts, public investment in external resources, and more recently, remittances from migrants. During the 1960s and 1970s, a downward trend in the primary sector’s share of GDP benefited the secondary and tertiary sectors. Studies indicate that from 1980 to 2009, labour migration has been from the primary and secondary sectors to the urban informal sector. But the transformation remains slow, since 60% of the working population still depend on agriculture. Mining and quarrying accounted for less than 1.5% of GDP for the period 2002‑11. The main resources are phosphates, limestone (cement transformed) and groundnut products. The first gold bar was produced in Senegal in 2009. Gold capacities are estimated at four tonnes a year for seven years. The mining of heavy mineral sands is in the development stage. Production is expected to be 85 000 tonnes of zircon a year for 25 years. No provisions have been made to ensure that future generations benefit from the income acquired through national resources. However the income is not high enough to justify creating a long-term sovereign wealth fund. Recent research has reached two major conclusions. Firstly, given the structure of Senegal's export basket, its growth potential for the period 2010‑30 lies between 5.89% and 8.20%. For the past 30 years, Senegal's GDP per capita, and hence its productivity, has been below the African average. As the country did not have a major resource such as oil, Senegal relied in the past primarily on groundnuts and phosphates as its main export products. Since the 1970s, fish, cotton and tourism have helped to diversify the economy. None of these products, however, has provided a sustainable platform for a thriving industry. The edible oils and fats sector is feeling the effects of fluctuating levels of rainfall and world prices. Phosphate derivatives (fertilisers and phosphoric acid) are faced with problems of quality and/or competitiveness. The tuna industry is not competitive. Tourism has also not achieved the desired success. The lack of entrepreneurs and private investors was the reason for the government's role in the 1960s and 1970s to promote growth and development. The poor results reflect the failure to make the right strategic choices, to base planning on transformation of the economy and to implement reforms while maintaining necessary discipline. In response to the need to harmonise public and private initiatives to promote entrepreneurship, investment and innovation, the Conseil présidentiel de l'investissement (presidential investment council, CPI) was created in 2002 and an accelerated growth strategy (Stratégie de croissance accélérée, SCA) was created in 2005‑07. These measures should enable infrastructure, finance, human resources, the legal and institutional framework and promising sectors to benefit from greater attention from public and private officials. To place structural transformation on a sustainable foundation, guidelines are needed to steer the emergence and renewal of sectors that are diversifying exports and sources of growth. But such a portfolio does not yet exist. The government growth strategy aims to use a collaborative, competitive partnership to set up a successful innovation system to bring together the strongest sectors and ensure that development accelerates. Such a system can provide appropriate solutions to the lack of public and private leadership, the lack of skills in the workforce, and the weak total factor productivity. The government plans to create an investment fund with the characteristics of a sovereign wealth fund, that would apply specific budgetary rules to natural resource revenues. Money for the fund would come from revenues from resources like phosphate, gold and zircon, the sale of fishing licences and fisheries agreements, and revenue from the sale of capital assets or royalties shares. To be effective, the fund would have to invest in real development projects and follow international practices as the goal is to ensure long-term development for future generations. 200 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 Senegal
  • 194. Sierra Leone 2013 www.africaneconomicoutlook.org Jamal Zayid / j.zayid@afdb.org
  • 195. Sierra Leone Sections The mining sector made real GDP growth leap from 6% in 2011 to 16.7% in 2012, with support from agriculture, services and construction; it is projected to stabilise in 2013 and 2014. Sierra Leone has risen eight places in the latest World Bank report Doing Business (140th out of 185 countries) and ranks as one of the top reformers since 2005 in improving business regulation for domestic firms, property registration and “narrowing the distance to frontier”. The 2013 Human Development Index (HDI) ranks Sierra Leone at 0.336, near the bottom (180th out of 187 countries), and below the regional average of 0.463. Overview Driven by the mining sector (particularly iron ore), real gross domestic product (GDP) growth accelerated from 6% in 2011 to 16.7% in 2012 as a consequence of iron ore production. It has also been supported by agriculture, services and an expansion in construction. GDP growth is projected to stabilise around 7.2% in 2013 before reaching 12.1% in 2014 as iron ore projects become fully operational. This robust economic growth has been accompanied by a tight monetary policy that has reduced inflationary pressures. As a result, inflation has dropped from 18.5% in 2011 to 11.6 % in 2012 and is projected to return to a single-digit 7.1% in 2013 and 6.9% in 2014 as agricultural production recovers and international food prices fall, aided of course, by the tight monetary policy. Indeed, the government implemented several reforms to contain inflation and has taken appropriate monetary policy measures. Policies to strengthen fiscal discipline in 2012 have helped to reduce the fiscal deficit from 4.5% of GDP in 2011 to 1.8% in 2012, and is projected around 2.3% in 2013, and 2% in 2014. The current account deficit as a percentage of GDP has also been reduced from 52.3% in 2011 to 44.0 % in 2012 as a consequence of an expansion in the minerals and cash crop exports. It is projected to shrink to 11.6% in 2013 but to slightly increase to 12 % in 2014. The restrictive fiscal and monetary policies contributed to a reduction in the government expenditure and thus the domestic debt burden. This has been supported by strong reforms aiming at fighting corruption, improving the ease of doing business in Sierra Leone and reducing poverty. The Poverty Reduction Strategy Paper (PRSP) II is being succeeded by a new strategy called Agenda for Prosperity 2013-17, which aims to scale up inclusive green economic growth, employment and value addition in various sectors and to accelerating progress towards the Millennium Development Goals (MDGs). Recent discoveries of iron ore mines and the expansion of the extractive sector in Sierra Leone have initiated a structural transformation of the economy with a shift of productivity from agriculture to mining and construction activities that are now the main driver of GDP. However, labour transfer to these sectors is still low due to the fact that extractive activities and construction are capital intensive. Under its new development strategy, Agenda for Prosperity 2013-17, the government plans to improve its management of natural resources and to enhance revenue collection. Sierra Leone Sections The mining sector made real GDP growth leap from 6% in 2011 to 16.7% in 2012, with support from agriculture, services and construction; it is projected to stabilise in 2013 and 2014. Sierra Leone has risen eight places in the latest World Bank report Doing Business (140th out of 185 countries) and ranks as one of the top reformers since 2005 in improving business regulation for domestic firms, property registration and “narrowing the distance to frontier”. The 2013 Human Development Index (HDI) ranks Sierra Leone at 0.336, near the bottom (180th out of 187 countries), and below the regional average of 0.463. Overview Driven by the mining sector (particularly iron ore), real gross domestic product (GDP) growth accelerated from 6% in 2011 to 16.7% in 2012 as a consequence of iron ore production. It has also been supported by agriculture, services and an expansion in construction. GDP growth is projected to stabilise around 7.2% in 2013 before reaching 12.1% in 2014 as iron ore projects become fully operational. This robust economic growth has been accompanied by a tight monetary policy that has reduced inflationary pressures. As a result, inflation has dropped from 18.5% in 2011 to 11.6 % in 2012 and is projected to return to a single-digit 7.1% in 2013 and 6.9% in 2014 as agricultural production recovers and international food prices fall, aided of course, by the tight monetary policy. Indeed, the government implemented several reforms to contain inflation and has taken appropriate monetary policy measures. Policies to strengthen fiscal discipline in 2012 have helped to reduce the fiscal deficit from 4.5% of GDP in 2011 to 1.8% in 2012, and is projected around 2.3% in 2013, and 2% in 2014. The current account deficit as a percentage of GDP has also been reduced from 52.3% in 2011 to 44.0 % in 2012 as a consequence of an expansion in the minerals and cash crop exports. It is projected to shrink to 11.6% in 2013 but to slightly increase to 12 % in 2014. The restrictive fiscal and monetary policies contributed to a reduction in the government expenditure and thus the domestic debt burden. This has been supported by strong reforms aiming at fighting corruption, improving the ease of doing business in Sierra Leone and reducing poverty. The Poverty Reduction Strategy Paper (PRSP) II is being succeeded by a new strategy called Agenda for Prosperity 2013-17, which aims to scale up inclusive green economic growth, employment and value addition in various sectors and to accelerating progress towards the Millennium Development Goals (MDGs). Recent discoveries of iron ore mines and the expansion of the extractive sector in Sierra Leone have initiated a structural transformation of the economy with a shift of productivity from agriculture to mining and construction activities that are now the main driver of GDP. However, labour transfer to these sectors is still low due to the fact that extractive activities and construction are capital intensive. Under its new development strategy, Agenda for Prosperity 2013-17, the government plans to improve its management of natural resources and to enhance revenue collection. 202 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 SierraLeone
  • 196. 203African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 Figure 1: Real GDP growth 2013 (West) Figures for 2012 are estimates; for 2013 and later are projections. Table 1: Macroeconomic indicators 2013 2011 2012 2013 2014 Real GDP growth 6 16.7 7.2 12.1 Real GDP per capita growth 3.8 14.5 5.1 10.1 CPI inflation 18.5 11.6 7.1 6.9 Budget balance % GDP -4.5 -1.8 -2.3 -2 Current account % GDP -52.3 -44 -11.6 -12 Figures for 2012 are estimates; for 2013 and later are projections. Real GDP growth (%) Western Africa - Real GDP growth (%) Africa - Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% RealGDPGrowth(%) SierraLeone
  • 197. http://dx.doi.org/10.1787/888932809697 Recent Developments & Prospects Table 2: GDP by Sector (percentage of GDP) 2007 2012 Agriculture, forestry & fishing - - Agriculture, hunting, forestry, fishing 55.6 53.9 Construction 1.9 1.2 Electricity, gas and water 0.4 0.2 Electricity, water and sanitation - - Extractions - - Finance, insurance and social solidarity - - Finance, real estate and business services 3.9 3.1 General government services - - Gross domestic product at basic prices / factor cost 100 100 Manufacturing 2.6 2.2 Mining 5.4 12.1 Other services 11.6 10.3 Public Administration & Personal Services - - Public Administration, Education, Health & Social Work, Community, Social & Personal Services 4.3 4.5 Public administration, education, health & social work, community, social & personal services - - Social services - - Transport, storage and communication 7.9 5.1 Transportation, communication & information - - Wholesale and retail trade, hotels and restaurants 6.5 7.4 Wholesale, retail trade and real estate ownership - - Supported by the expanding mining and extractive sector, real GDP growth (including iron ore) leapt from 6% in 2011 to 16.7% in 2012 but is projected to slow down to a more sustainable rate of 7.2 % in 2013. It is projected to rise to 12.1% in 2014 mainly on account of the expected commencement of new iron ore projects and improvements in infrastructure. The economic expansion has also been strengthened in 2012 by a robust growth of agricultural production (particularly crop production) and high international prices for diamonds and aluminium, Sierra Leone’s major exports. Real GDP growth depends on weather conditions and is likely to be dampened by power distribution that continues to be inefficient and poor infrastructure linking mines to port facilities (despite some improvements). Sustainability of real GDP growth will also depend on governance and good management of the new iron ore projects’ revenues. Agriculture continues to be the largest contributor to GDP although its share decreased from 55.6% of total output in 2011 to 53.91% in 2012 (Table 2). The sector has been an important driver of “inclusive growth” given the inclusivity of agricultural activity, and is expected to grow robustly in 2013 and 2014 as a result of the new foreign financed projects such as a major bio ethanol programme and the government’s focus on self- 204 African Economic Outlook - Regional Edition / Western Africa © AfDB, OECD, UNDP, ECA 2013 SierraLeone
  • 198. 205African Economic Outlook - Regional Edition / Western Africa© AfDB, OECD, UNDP, ECA 2013 sufficiency in rice production, which will in turn improve the productivity of the sector and the livelihoods of farmers. However, agriculture still suffers from inadequate rural financial services, limited irrigation facilities, weak rural infrastructure, weak extension services, and heavy reliance on rain-fed agriculture. The Assessment of the African Development Bank (AfDB)/ World Bank (WB) joint assistance strategy for Sierra Leone (JAS) 2009- 2012 showed that the agriculture sector has benefited from a number of projects supported by international donors, especially those financed by AfDB and the WB1 aiming to improve efficiency and transparency in agriculture and fisheries. The fisheries sector is also expected to be another driver of growth, as the government has started to cope with the challenges related to weak governance in the sector and illegal fishing. The mining and quarrying sector is a booming sector and will continue to be one of the main drivers of GDP growth over the next few years as its share in GDP has more than doubled in 2012 (12.1%) compared to 2011 (5.4%). The three large mining projects (Tonkolili, Marampa and Bembeye) started in 2012 will boost iron ore exports in 2013 and 2014 and make Sierra Leone one of Africa's largest iron ore producers within five years. This will in turn improve the country’s trade balance and enhance the country’s tax collection efforts. In addition, the expansion of this sector will contribute to upgrading infrastructure as the foreign mining company operating the Marampa and Tonkolili iron ore mines, African Minerals Limited, is planning to invest in transport facilities linking the mines to the country's maritime port. While the mining sector is gaining a growing share of GDP, the contribution of the tradable service sector at current prices (wholesale and retail trade, hotels and restaurants, transport, storage and telecommunication and finance, real state and business services) in GDP has been reduced, although it continues to be the second dominant sector with a share of 15.6% of GDP in 2012 against 18.3% in 2011. Trade, transport and logistics are suffering from weak infrastructure, especially roads and poor land-based telecommunications. To address the latter problem, Parliament approved the privatisation of the state-owned, fixed-line Sierratel in 2012 with a new, three-year management contract. Sierratel has benefited from assistance by the Indian government and has already started to rehabilitate its fixed-line infrastructure, taking the first steps towards the rollout of a national fibre backbone network. Sierra Leone is endowed with beautiful beaches and has a reasonable potential for tourism. Indeed, tourism is one of the four pillars of the country’