Report by the Secretariat



ECONOMIC ENVIRONMENT

1 Overview

Benin covers an area of 112,622 km2. It is bordered by Burkina Faso and Niger to the north, Nigeria to the east, the Atlantic Ocean to the south, and Togo to the west. In 2003, its population was approximately 7 million, of whom 44 per cent lived in urban areas. Per capita GDP in 2001 was US$380.[1] The rate of demographic growth is fairly high (the birth rate being 2.6 per cent per annum) and average life expectancy is 53 years.

Since its trade policies were first reviewed in 1997, Benin has modified its development programme by adopting a Poverty Reduction Strategy Paper (PRSP) in 2002.[2] It has also continued with its macroeconomic stabilization and structural reform programme, with the support of a Poverty Reduction and Growth Facility (PRGF) from the IMF, which was renewed in May 2003. Benin’s principal objectives under the PRSP are to control government finance, support the common monetary policy of the West African Monetary Union (WAMU), and to speed up structural reform (cotton subsector and public sector).[3] In 2003, Benin met the eight trade criteria monitored by the West African Economic and Monetary Union (WAEMU).

Economic growth mainly depends on trends in the primary sector, which fluctuate considerably due to climate variations; the services sector has become more important, to the detriment of other sectors. Average rates of economic growth of 7 to 8 per cent over the period 2000-2014 would be needed to double the per capita gross domestic product (GDP), but the growth rate forecast for 2003 will not enable this goal to be met. The informal sector remains important, but its total size has not been determined.

According to the UNDP, Benin is 159th out of 175 countries as far as its human development level is concerned.[4] Under the Heavily Indebted Poor Countries Initiative (HIPC), since 2003 Benin has been granted relief amounting to US$124 million (in nominal value), equivalent to US$84.4 million in net present value terms.[5] This relief has been granted as a result of the sustained efforts at reform and in order to ensure that the indebtedness criteria do not exceed the thresholds set under the HIPC following the fall in cotton prices.

2 Recent Economic Performance[6]

1 Growth, employment and poverty

Since the first review, the economy has moved ahead in fits and starts (Table I.1). This is due to the difficulties caused by the macroeconomic imbalance and the deeply-rooted structural weaknesses, to which should be added the decline in international prices for cotton (Chapter IV(2)(iii)). According to the authorities, growth in GDP in 2002 was 4.6 per cent and 6.7 per cent in 2003.[7] The GDP growth forecast for 2004 is 6.4 per cent, but achievement of this growth objective will depend on the structural reforms introduced under the Poverty Reduction Strategy Paper.

Table I.1

Basic economic indicators for Benin, 1997-2004

(Share of GDP)

| | |

|GDP (percentage) |5.77 |

|Primary |35.8 |

|External economy | |

Memorandum items:Trade balance-5.7-6.4-8.6-5.2-7.2-5.3-5.7-4.6Current balance-4.9-5.4-4.4-3.4-3.0-2.7-3.1-2.8a Estimates.

Source: Ministry of Finance and the Economy, Economic Forecasting Department.

According to estimates by the Government, the deficit in the current balance in 2003 represented 3.1 per cent of GDP (7.5 per cent according to the IMF), while the forecast for 2004 is 2.8 per cent of GDP, in line with the continuing decrease shown in Table I.3.[20]

Benin has seen a rise in revenue from import duties, from CFAF 82.7 billion in 1997 (US$138 million) to CFAF 145.9 billion in 2002 (US$233 million), resulting in particular from higher tariffs following the introduction of the Common External Tariff (Chapter III(2)(iii)(a)) on goods from countries outside the WAEMU zone.[21] The IMF has estimated that in 2003 revenue accruing to the State was equivalent to 17 per cent of GDP, whereas in 1996 it had been some 15 per cent. As far as spending is concerned, the authorities wish to limit it to 16 per cent of GDP (2003), although it was 19 per cent in 1996. According to the Economic Forecasting Department at the Ministry of Finance and the Economy, the payroll will absorb around 22 per cent of expenditure in 2004.

Transparency and governance

Issues relating to transparency and proper management of public affairs have a direct impact on the overall economic environment and on the conditions under which economic actors take their decisions and operate.

The Government of Benin is determined to prevent and combat all forms of corruption and to improve governance. For this purpose, a new strategy to combat corruption was adopted in July 2002. The Government’s objectives relate to the need to enhance transparency by preparing and publishing economic information and by managing public resources in such a way as to ensure responsibility, efficiency and control of government spending. In December 2003, Benin signed the United Nations Convention against Corruption. The first study on governance and combating corruption should be completed during the first half of 2004.

Trends In Trade

Breakdown of trade

According to the statistics available (Chart I.1), Benin’s exports are as little diversified as they were at the time of the first review of its trade policy and the share of value-added products is still negligible. Although global cotton prices have reached their lowest level since 1994, cotton is still the main export, rising significantly from 46.3 per cent of total exports in 1998 to 65 per cent in 2002. Exports of manufactures still play a minor role despite the textile industry established in Benin (Chapter IV(4)).

The breakdown and geographical structure of trade is difficult to circumscribe because of the important role played by informal channels and re-export trade. Benin does not appear to have been able to take full advantage of the situation caused by the crisis in Côte d’Ivoire, especially as regards the re-export of goods arriving in the port of Cotonou and going to landlocked countries; this is due to the proximity of competitor ports, delays in the port of Cotonou and “incidental costs” (frequent road controls) (Chapter IV(5)(iii)(a)).

As far as destination is concerned, Benin’s exports have diversified considerably since the first review of its trade policy. Africa and Asia (particularly India) have become its leading export markets, followed by the European Union (Chart I.2). Trade with WAEMU and ECOWAS partners is moving ahead slowly (Chart I.3). According to the authorities, Nigeria is still an important customer, but the majority of trade is not officially recorded.

The breakdown of imports appears to have changed little and food products, fuel, electricity, chemicals, and transport machinery and equipment are still at the top of the list (Chart I.1). On the whole, the origin of the imports is still the same, with France occupying first place, followed by Asia, WAEMU member countries, and Nigeria (Charts I.2 and I.3).

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Outlook

Despite some efforts at agricultural diversification, the economy still depends to an excessive extent on the production of cotton. The economy’s recovery seems to be well under way and Benin is the only member that meets all the convergence criteria set by the WAEMU. Nevertheless, the high cost of inputs and its energy dependence are an obstacle to Benin’s industrialization. The rate of economic growth is estimated to be 6.4 per cent for 2004, while the inflation rate will remain below the limit of 3 per cent. The State’s continued withdrawal from economic activities and the reforms undertaken in the public sector should make the economy more dynamic. The impact of the crisis in Côte d’Ivoire does not appear to have affected Benin to the same extent as other countries in the subregion.

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[1] IMF (2003b).

[2] Government of Benin (2002).

[3] IMF (2003b).

[4] The human development indicator assesses the level reached in terms of life expectancy, education and adjusted real income. UNDP (2003).

[5] According to the IMF, to date, the reduction in Benin’s external debt has been US$460 million (IMF Press Release No. 03/42 of 25 March 2003).

[6] The main sources consulted were: IMF (2003b); and IMF (2002).

[7] According to the IMF, growth in GDP in 2002 was some 6 per cent, and the growth forecast for 2003 was 5.6 per cent. IMF (2003b).

[8] National Institute of Statistics and Economic Analysis (2002).

[9] Government of Benin (2002).

[10] The WAEMU Treaty was signed on 11 January 1994 by Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo; Guinea-Bissau acceded to the Treaty on 1 January 1997.

[11] Monetary cooperation among member countries of the WAMU, set up in 1962 with a new Treaty signed in 1973, and France dates back to the colonial era. The BCEAO is the result of a monetary cooperation agreement signed with France in 1972 and supplemented by the transactions account agreement of 1973.

[12] When the CFA franc was devalued by 50 per cent in 1994, the fixed rate became CFAF 1,000 = F 10.

[13] The same parity applies to the CFA (Central African Financial Cooperation) franc, which is the currency of the member countries of the Central African Economic and Monetary Union (CEMAC), whose structure is similar to that of the WAEMU.

[14] Decision of the Council of the European Union of 23 November 1998 concerning exchange matters relating to the CFA franc and the Comorian franc (98/683/EC).

[15] Additional Act No. 4/99.

[16] IMF (2003b).

[17] IMF (2003a).

[18] According to the provisions of Article 6 of Regulation No. 09/98/CM/UEMOA on financial relations among member States of the WAEMU, investment, loans, deposits and in general all capital movements among member States of the WAEMU are free and not subject to restrictions, pursuant to Articles 76, paragraph (d), 96 and 97 of the WAEMU Treaty and Article 4 of the WAMU Treaty.

[19] Ministry responsible for coordination of government action, planning, development and employment promotion (2001) and BCEAO (2002).

[20] According to the authorities, this situation is caused by the continuing deficits in the balance of goods and services, whereas current transfers mitigate the extent of the deficit in the balance of goods and services.

[21] According to the authorities, the major problems encountered by the customs service in collecting revenue are: (i) the measures taken by the Nigerian authorities, which do not allow Benin to import into Nigeria some key products that to a large extent make up the customs revenue; (ii) the expansion of illicit sales of petroleum products; and (iii) the reduction in traffic in the port of Cotonou, principally as a result of freight going to the ports of Tema (Ghana) and Lomé (Togo), where goods are under-invoiced (Ministry of Finance and the Economy (2002a)).

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