BENIN

BENIN – COUNTRY PROFILE

Capital: Porto-Novo
Largest city: Cotonou
Official languages: French
Government: Presidential republic
Total area: 114,763 km2
Population: 10,872,298 (2016 estimation)
GDP: total $27.177 billion / per capita $2,297 (2017 estimation)
Currency: West African CFA franc

Economy composition

Agriculture accounts for a quarter of GDP and 51 percent of the country’s employment with cotton as its primary export commodity. The informal sector, including subsistence agriculture, contributes up to almost 60 percent of GDP and engages over 80 percent of the labor force. Diversification slowly advances led by the agriculture and service sectors. During the period 2010-2016, the primary sector contributed by 0.5 percent to the real GDP growth while the secondary and tertiary sectors accounted for around 1 percent and 2.2 percent respectively, shares that have changed little since 1990 for when data are first available.

Agriculture

The agricultural sector is highly dependent on rainfall patterns and, mostly, on one major commodity (cotton). Despite its low productivity, agriculture remains one of the main sources of growth and employment of the country. To further contribute to economic growth and poverty reduction, productivity should be considerably strengthened. Agricultural exports are concentrated on three groups of products: cotton, fruits (pineapple), and nuts (cashews) and oilseeds (soy and cottonseed). To address the needs of a growing urban population, the country continues to import a large share of horticultural products from neighboring countries (mostly, Burkina Faso and Nigeria), rice from Asia, wheat, frozen meat and milk from Europe, and frozen poultry from Brazil. The agricultural sector faces the triple challenges of diversifying exports, increasing food production, and sustainably increasing farm and post-harvest productivity. The share of the agricultural sector has declined across low-income countries over time but has remained elevated in Benin.

Growth

During the last decade, growth in Benin has been comparatively highly volatile and per capita GDP growth has been stagnating. Real economy rebounded to 4 percent in 2016 compared to 2015, where the growth rate slowed to 2.1 percent due to weak agriculture output generated by unfavorable weather and negative spillovers from Nigeria. From 2006 to 2016, real GDP growth averaged 4.2 percent driven mainly by the services. The fiscal deficit grew from -0.4 percent of GDP in 2012 to -6.2 percent of GDP in 2016. In addition, economic growth was not inclusive. Notwithstanding recent progress, Benin remains a low-income country with almost 11 million people and a per capita income of US $ 790 in 2015.

The rapid population growth—which averages 3.5 percent per year—led to a modest and unequal increase in household consumption. Indicators related to education, health, access to water, and infant mortality have improved in recent years but at a slow pace. Growth has been accompanied by a low level of job creation with widespread underemployment affecting especially women and the youth in urban areas. FDI (Foreign Direct Investment) is keeping its pace with sub-Saharan Africa countries (SSA) but more investment is needed. Comparing Benin to SSA countries presently, the share of the manufacturing and services sectors is ahead of most of them, reaching 75 percent of GDP.

Export Diversification

Export diversification has not taken place. African benchmark countries diversified quite strongly after 1990 and have caught up to Asian benchmark countries. The number of export partners has increased on average, but the shares of the main export partners remain dominant.

Necessary Policies

Economic policies should focus on addressing weaknesses that hinder entry into new lines of economic activity. In particular, measures that could help improve productivity in the short run include:

• the large-scale adoption of improved agricultural technologies
• the development of productivity through efficient water management, reduction of post-harvest losses and better access to market through warehouses and other facilities
• the institutional support to the Ministry of Agriculture and other stakeholders in the sector
• a better access to financial services

Furthermore, measures to improve education could render significant impacts on the informal economy.

Financial inclusion and development

While access to finance is improving, relatively to other sub-Saharan countries, a number of reforms could foster financial inclusion and complement efforts to promote the expansion of the private sector and employment creation. Benin’s financial sector is shallow, segmented, and with limited financial inclusion. Three main categories operate in it: the banking sectors, the microfinance institutions and other non-bank financial institutions.

As of end-2016, there were 15 commercial banks, with 4 banks holding about 80 percent of credits to the banking system. Although the banking system remains stable, its depth has not improved. The banking sector is broadly sound but plays a limited role in financial inclusion. According to the BCEAO (Central Bank of West African States) 2010 estimations, there is a low level of access to banking service. More precisely, the number of deposit accounts in commercial banks relative to the active population is around 5 percent. Despite banks have developed branch networks in the country, only 17 percent of the population had a bank account in 2015. Access to finance is difficult for some vulnerable groups and for small and medium-sized enterprises.

The microfinance sector plays an important role in providing financing to both sectors of the economy and rural population that are underserved by banks. Despite the fact, that microfinance plays an increasing role in reducing poverty in Benin; it lacks to provide financing to small and medium enterprises, in particular, long term loans. The large number of unauthorized MFIs represents a high risk for the banking system, and requires a further tightening of licensing requirements. Although the number of bank branches has been recently increasing, in particular in rural areas, there is room to further expand financial inclusion by strengthening the regulatory framework.

Access to an account in Benin compares poorly with averages from low income countries. Male reported higher access than females and the level of education is also a factor determining access to an account.

Benin’s financial sector provides limited contribution to private investment because the institutional framework discourages commercial banks from taking risks and because the cost of establishing bank branches in rural area is very high. Benin is performing relatively well regarding use of mobile banking holding around 5 percent of the total volume of mobile transactions in the WAEMU (West African Economic and Monetary Union) region, but there is scope for further progress.

Efficiency of public investment in Benin

Benin is projected to increase public investment volumes significantly to help close the region’s infrastructure gap. Benin is lagging behind SSA average in electricity supply, paved road density and telecommunication infrastructure. Benin has historically spent much less on public investments than its neighbors. Public investments as a proportion of the national budget were maintained at an average annual rate of 36.7 percent from 2010 to 2014 despite significant needs. The country performances regarding public investment appear weaker in comparison to similar countries. Although Benin’s public investment effort is above the WAEMU countries average, it has drastically decreased since 2010. Access to public infrastructure such as electricity or treated water has scarcely improved since the 1990’s. To close this gap, Benin is envisioning to significantly boost public capital expenditure in the medium term. In addition to the infrastructure gap, however, infrastructure is also perceived as being of low quality, and investment efficiency appears low. The most recent World Economic Forum’s (WEF) Global Competitiveness Indicators ranks Benin behind the SSA average.

Inequality

Benin faced a difficult macroeconomic situation characterized by two factors. Growth has slowed significantly and the public debt-to-GDP ratio reached 47 percent in 2016. At the same time, low tax revenues constrain the government’s ability to achieve social objectives. To address large macroeconomic imbalances Benin launched a reform in 2017 centered on domestic revenue mobilization. The reform sought to boost tax revenues through an increase in the VAT rate and cut non-priority spending to contain the accumulation of public debt. The reform reduces the income of the urban poor and income inequality in rural areas.

Poverty

Benin’s solid macroeconomic performance did not translate in a meaningful reduction in poverty. Following a decade of mediocre economic performance, growth over the last 3 years (2013–15) averaged 5.2 percent, closing the gap with SSA average in per capita GDP growth. Despite the increase in real GDP per capita since 1987, the poverty rate in the country deteriorated in recent years. An overall estimate of poverty in Benin conducted by the National Institute of Statistics and Economic Analysis (INSAE) shows that the percentage of population that lives in poverty conditions grew from 36.2 percent in 2011 to 40.1 percent in 2015. However, Benin’s level of development has remained virtually unchanged, as its Human Development Index has risen from 0.480 in 2015 to 0.485 in 2016 below the average of 0.523 for SSA countries.

The country registers considerable decline in rights, being the seventh most deteriorated country on the continent. There is a concerning regression registered in freedom of expression, association and assembly. At the same time, Benin is the eighth most improved country in Education (+10.6) on the continent, especially in primary education.

References from the International Monetary Fund:

Dabla-Norris, Era, Giang Ho, Kalpana Kochhar, Annette Kyobe, and Robert Tchaidze, 2013, “Anchoring Growth: The Importance of Productivity-Enhancing Reforms in Emerging Market and Developing Economies”. IMF SDN/13/08.
Dabla-Norris, Era, Jim Brumby, Annette Kyobe, Zac Mills, and Chris Papageorgiou, 2011, “Investing in Public Investment Efficiency”. IMF Working Paper 11/97.
Dominguez-Torres, Carolina and Vivien Foster, 2011, Benin’s Infrastructure—A Continental Perspective. Policy Research Working Paper 5689. The World Bank. June Henn, Christian, Chris Papageorgiou, and Nikola Spatafora, 2013,” Export Quality in Developing Countries,” IMF Working Paper 13/108.
IMF, 2014a, “Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries—The Role of Structural Transformation and Diversification.” IMF Policy Paper, March.
Imbs, Jean, and Romain Wacziarg. 2003. “Stages of Diversification.” American Economic Review, 93(1): 63-86.
Medina, Leandro; Andrew W Jonelis, and Mehmet Cangul, 2017, “The Informal Economy in Sub-Saharan Africa: Size and Determinants,” Working Paper No. 17/156 Papageorgiou, Chris, Fidel Perez-Sebastian, and Nicola Spatafora, 2013, Structural Change through Diversication: A Conceptual Framework. International Monetary Fund. March.
Regional Economic Outlook, 2015, African Department. International Monetary Fund. April.
Maria Albino-War, Svetlana Cerovic, Francesco Grigoli, Juan Carlos Flores, Javier Kapsoli, Haonan Qu, Yahia Said, Bahrom Shukurov, Martin Sommer, and SeokHyun Yoon, 2014, Making the Most of Public Investment in MENA and CCA Oil-Exporting Countries. International Monetary Fund, November.
Foster, Vivien, and Cecilia Briceño-Garmendia, 2010, Africa’s Infrastructure: A Time for Transformation, Africa Development Forum. Washington, DC: World Bank.
http://documents.worldbank.org/curated/en/246961468003355256/Africas-infrastructure-atime-for-transformation
Commission for Africa, 2015, Still Our Common Interests, March.
Gelb, A., and S. Grassman, 2010. “How Should Oil Exporters Spend Their Rents?” Working Paper 221, Center for Global Development, Washington, DC.
Grigoli, F., and J. Kapsoli, 2013. “Waste Not: The Efficiency of Health Expenditure in Emerging and Developing Countries.” IMF Working Paper 13/87, International Monetary Fund, Washington, DC.
International Monetary Fund, 2015, “Making Public Investment More Efficient”, Fiscal Affairs Department Policy Paper, Washington, DC.
Keefer, P., and S. Knack, 2007. “Boondoggles, Rent-Seeking and Political Checks and Balances: Public Investment under Unaccountable Governments.” Review of Economics and Statistics 89 (3): 566–72.
Adrian Peralta-Alav, Marina Mendes Tarvares, and Xuan S. Tam, 2017, The Distributional Implications of Fiscal Consolidation in Developing Countries, Manuscript.
Bollinger, Christopher R. and Barry T. Hirsch, 2013, “Is Earnings Nonresponse Ignorable?” Review of Economics and Statistics, May, 95(2): 407–416.
Bollinger, Christopher R. and Barry T. Hirsch, 2006, Match Bias from Earnings Imputation in the Current Population Survey: The Case of Imperfect Matching, Journal of Labor Economics, July, 24, 483-519.
Fabrizio, Stefania, David Furceri, Rodrigo Garcia-Verdu, Bin Grace li, Sandra V. Lizarazo, Marina Mendes Tavares, Futoshi Narita, and Adrian Peralta-Alva, 2017, Macro-Structural Policies and Income Inequality in Low-Income Developing Countries. SDN/17/01. January Institut National de la Statistique et de l’Analyse Economique, 2015, Enquete Modulaire Integree sur les Conditions de Vie des Menages. Octobre.
Medina, Leandro, Andrew Jonelis, and Mehmet Cangul, 20917, The Informal Economy in Sub-Saharan Africa: Size and Determinants, International Monetary Fund. WP/17/156 Tang, Xin, A Tutorial of the Toolkit for Solving a Multisector Heterogeneous Agents General Equilibrium Model, August. Manuscript.
Institut National de la Statistique et de l’Analyse Economique, 2015, Enquête Modulaire Intégrée sur les Conditions de Vie des Ménages. Octobre.
Nora Lustig, ed., Commitment to Equity Handbook: Estimating the Redistributive Impact of Fiscal Policy, The Brookings Institution and CEQ Institute/Tulane University, in progress.
Human Development Report 2016, UNDP, 2016.

OTHER LINKS:

- IMF International Monetary Fund
- Benin Wikipedia
- Benin official Government website