Figure 1: Real GDP growth (W)

Figures for 2010 are estimates; for 2011 and later are projections.

Figures for 2010 are estimates; for 2011 and later are projections.

Following the reforms begun in 2000, the country adopted the principle of drawing up programme budgets and Medium-Term Expenditure Frameworks (MTEFs). A few of these were first implemented on an experimental basis and were then extended to ministries and public institutions and agencies. Since 2006, Benin’s fiscal policy has resulted in a rise in public expenditure due to the inception of major public works and to the government’s having met salary demands. After having decreased in 2005 and 2006, it increased by 10.3% and 22% in 2007 and 2008, respectively, mainly owing to operating expenditure, particularly on wages. For financial years 2007/08 and 2008/09, the wage bill increased by 27.5% and 23.8% respectively, thus accounting for more than 7% of GDP.

Tax revenue did not grow accordingly during the same period, however, and the government’s yearly goals in terms of tax collection have yet to be reached. The global financial crisis is partly responsible for this but measures to combat fraud and tax evasion also failed to bear fruit. Moreover, structural reforms are running late, particularly the reform of the revenue-collecting agencies which should mark the completion of the fiscal transition. This is partly because there is resistance to change amongst civil servants and partly because corruption is still present at a number of points in the expenditure chain.

As regards the wage bill, the government has begun, with support from its development partners, studies aiming to reinforce reform of the civil service including civil service pay. The history of the wage bill, however, as well as the problem of an ageing administration that will be increasingly solicited in a context of decentralisation, will have to be seriously analysed and negotiated by the different stakeholders.

In 2010, the state’s financial operations resulted in an improvement in the overall deficit (2.6% of GDP versus 4.2% in 2009).1 This was essentially due to poor execution of public expenditure. The deficit was financed for XOF 39.3 billion by internal resources and for XOF 119.2 billion by outside resources. Public expenditure (expenditure and net lending) amounted to XOF 702.2 billion, which represents an 80.1% execution rate in terms of the revised projections in the programme signed with the IMF, which constitutes one of the key tools for monitoring the government’s macroeconomic management. Public expenditure thus fell by 13.2% from that in 2009. As a share of GDP, executed expenditure amounted in 2010 to 23.9%, down from 25.9% in 2009.

Current expenditure, which is mostly constituted of wages (34%) and current transfers (31%), amounts to about 60% of public expenditure. Its execution rate in relation to forecasts was 91%. On the other hand, only 55% of projected capital expenditure was executed, mostly as a result of poor execution (47%) of expenditure financed from external resources. Although the reason given to justify the poor execution of investment expenditure was that public projects and programmes had been streamlined, this is not the complete explanation. In addition, tax-revenue collection encountered greater difficulties in 2010, and this was compounded by problems affecting trade with Nigeria and the competitiveness of the Port of Cotonou and the Benin corridor.2 These circumstantial factors, added to tax fraud and evasion, explain the low level and slow rate of collection of tax revenues observed in 2010. This led to a rationing of expenditure commitments by limiting the ordering parties’ access to public-expenditure management software (Système intégré de gestion des finances publiques – SIGFIP). Moreover, the major part of budget support (47.3% of external financing in 2010) programmed by the donors (African Development Bank, the Netherlands, the European Union, the World Bank and France) was not released until the last quarter of the year as conditions were not fully met by the agreed deadlines.

Tax revenues are dominated by customs revenues which represent 52% of total tax revenues on average. A large share of tax revenues is constituted by indirect taxes, mainly value added tax (VAT) (45% of total tax revenues). VAT, which is charged at an across-the-board rate of 18%, is applicable to all goods and services without distinction with regards to the consumers concerned except in difficult circumstantial situations.

In 2010, total revenues rose by 4.7% and amounted to XOF 603.0 billion. This represented a recovery rate of 88.4% in relation to revised projections. Only 73% of projected non-tax revenues were collected. The fiscal pressure level stands at 15.8% of GDP in 2010 versus 16.1% in 2009, whereas the wage bill/tax revenues ratio stands at 45%, which is higher than the 35% ceiling set by the West African Economic and Monetary Union (WAEMU). The share of tax revenue devoted to public investments has been estimated at 19% in 2010 versus 44.3% in 2009. Economic problems apart, poor tax-revenue collection is mainly explained by corruption at the point of recovery, fraud, administrative inefficiency and inertia in reform implementation.

Efforts to enlarge the tax base have been hampered by the vigour of the informal sector, as well as by complex procedures and an absence of civic-mindedness. To deal with this situation, the government decided to: i) set up taxation at source mechanisms; ii) establish an official centre for the facilitation of transfers from the informal to the formal economy; and iii) develop taxpayer education. The main tax reform developments in 2010 were extension of the tax base and tax collection via the allocation of individual tax account numbers (Identifiant fiscal unique – IFU). In 2011, reform is to be pursued through further extension of the tax base and the introduction of improved land deed and tax management procedures with the objective of speeding up the tax collection process and reducing its cost. It is also planned to have all personnel at the Port of Cotonou covered by a single tax office.

Over the past four years, grants amounted on average to 58% of external financing. For 2010, grants have been estimated at XOF 48.1 billion, which represents a mobilisation rate of 33% collection compared to projections. This is explained by poor aid absorption capacities, failure to meet conditions agreed with donors (often as a result of slow implementation of reform measures) and difficulties in applying donors’ procedures. As a share of GDP, received grants amounted to 3.1%, compared with 1.8% in 2008 and 3.2% in 2009. Aid is mainly benefiting transport (18.1%), social development (14.9%), health (14.6%), development administration (11%), human resources development (10.7%), regional development (8.6%), agriculture, forestry and fishing (6.9%), and economic management (6.6%).

In 2011, the budget will be executed within the framework of the 2011-15 Strategy for Growth and Reduction of Poverty (Stratégie de croissance pour la réduction de la pauvreté – SCRP) in a context marked by presidential and legislative elections and an expected general deficit equal to 2.5% of GDP. Total expenditure should amount to 24.1% of GDP (XOF 916 billion) in 2011 and 23.2% in 2012, versus 25.9% in 2009. Current transfers should increase 8.3% to XOF 130 billion in 2011 versus XOF 120 billion in 2010. Staff expenditure, including benefits paid to specific categories, recruitment of police and customs officers, and payments to contract personnel, should rise 15.3% to XOF 280.5 billion versus XOF 243.2 billion in 2010.

Outstanding internal public debt decreased in 2010 to XOF 246.9 billion versus XOF 369.4 billion one year earlier thanks to the state’s efforts to honour its obligations. Internal public debt represents 10.5% of GDP, versus 11.9% in 2009 and 9.24% in 2007. The main elements constituting internal debt are debenture loans (58.2% of internal debt) and securitised wage arrears.

Table 4: Public finances (percentage of GDP)

Figures for 2010 are estimates; for 2011 and later are projections

As a member of the WAEMU, Benin conducts its monetary policy according to the directives of the Central Bank of West African States (CBWAS), the main goal of which is to maintain the rate of foreign-exchange coverage of the currency at a sufficient level to support the economic growth of the union in a non-inflationary environment. In 2010, the WAEMU maintained interest on key rates and monetary-policy instruments at the same level. The repurchase rate and the discount rate remained stable at 4.25% and 6.25% respectively. The bank reserve requirement was lowered, however, for Benin from 9% in 2009 to 7% in 2010. Institutional surveillance of prices, combined with a good supply of food products, helped to keep the inflation rate under the 3% mark, thanks to lower prices for food products and non-alcoholic beverages, housing, water, gas, electricity and other types of fuel, and communications.

In 2010, credits to the economy reached 23% of GDP, up by 8.5% on 2009. The increase was driven by ordinary credit (+8.4%) while credit to the cotton-growing sector stagnated. Reflecting the structure of the economy, almost half of the credits to the economy (46% to 48%) went to the wholesale and retail trades and restaurants and hotels, while an average of 26% was granted to other service categories and about 27% to the production sector. For the most part, the credits were short-term loans which represented an average of 60% of total loans. At the same time, the government’s net position vis-à-vis monetary institutions has improved after the tension on liquidities observed in 2009.

Net foreign assets (NFAs) came to XOF 781 billion in 2010, up by 11.8% following an increase of the order of 33% of the central bank’s NFAs. Money supply showed a stronger upward trend than its counterparts, increasing by 11.4% compared with 2009. The liquidity ratio of the economy has been estimated at 42% in 2010 versus 38% in 2009. This can be attributed to good levels of bank deposits, which showed a estimated growth of 14.3% over 2009, while currency in circulation is estimated to have progressed by only 4.6% year on year, with a ratio of currency in circulation to money supply of the order of 0.24 versus 0.28 in 2009.

Imports of goods increased by 6.1% in 2010 compared with 9.7% in 2009. This compares with 40% and 10% increases in 2007 and 2008, which reflected the high level of building materials and capital equipment imported as part of the preparations for the CEN-SAD summit. The increase in imports in 2010 was mainly due to purchases of food products, intermediate products, energy products and capital goods. In terms of value, more than one-third of imports were consumer goods. The relative shares of food products and energy products have fallen from one year to the next but those of capital goods and intermediate products have tended to rise since 2006.

Exports stood at XOF 588.3 billion in 2010, up 4.6% from 2009. They consisted mainly of agricultural products, principally lint cotton. The share of lint cotton in the total value of exports (including re-exports), which had reached an average of 50% in the mid-2000s, has declined in the past five years due to difficulties in the sub-sector and declining production.

The other key characteristic of Benin’s foreign trade is the phenomenon of re-exportation, which is particularly present in the informal economy. Benin’s primary trading zone for this kind of trade is the Economic Community of West African States (ECOWAS), with Nigeria the principal destination. More than 40% of Benin’s export products go to Nigeria. The share of imports from Nigeria varies considerably from year to year but stood at 16% in 2009. In informal trade, Nigeria is still the main source country for petroleum products, live animals and food products. Re-export goods are mostly meat and edible offal and vegetable oils. Developments in the import-export trade in goods, combined with a deficit trend in the balance of non-factor services resulting from high freight rate levels on imports, resulted in a deficit in the balance of goods and services estimated at 11.5% of GDP in 2010. This represents a slight improvement over 2009.

Factor and current-transfer revenues showed a negative balance estimated at XOF 14.9 billion in 2010 compared with XOF 11.5 billion in 2009. This result was principally due to the level of interest payments on public external debt. Current transfers, on the other hand, showed a positive balance estimated at XOF 166 billion, compared with XOF 151 billion in 2009, thanks to substantial private and public transfers. The overall current account deficit has been estimated at 7% of GDP, one of the explanations for this being poor mobilisation of grants.

The final balance of payments deficit has been estimated at XOF 15 billion, or 0.5% of GDP, down from 1.5% in 2009.

In 2010, the level of external indebtedness came to 19.4% of GDP versus 16.3% in 2009. In the early 2000s, however, the level was close to 50%. The increase in external debt in 2010 can be attributed to the evolution of multilateral debt, which amounts to more than 80% of total external debt. The increase was maintained at a moderate level, however, through the various relief measures afforded under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), as well as to the cautious approach to debt adopted by the Beninese authorities. Benin has regularly honoured its external debt service obligations, moreover. The ratio of debt service to exports of goods and services stood at 5.1% in 2010 versus 4.1% in 2009, showing the low incidence that external debt service has on export revenues. In relation to tax revenues, the debt service ratio fell to 4.1% in 2010 from 6% in 2009.

Table 5: Current account (percentage of GDP)

Figures for 2010 are estimates; for 2011 and later are projections.

In 2010, implementation of the main reforms continued with, as its ultimate goal, consolidation of the macroeconomic framework and acceleration of growth. The government carried on with its reform of the cotton sub-sector by bringing into operation a new management structure and by transferring to a new mixed capital company, Société pour le développement du coton(SODECO), all the industrial assets of state-owned company, Société nationale pour la promotion agricole (SONAPRA). Also, in an effort to improve the competitiveness of the Port of Cotonou and the Benin corridor, construction of two new container terminals has been started and a concession agreement signed for the port’s main facilities. Work is also continuing to complete installation of a one-stop foreign trade counter at the Port of Cotonou as a means of improving competitiveness and combating fraud.

Similarly, work has started on concession of the former railway company, the Organisation commune Bénin Niger des chemins de fer (OCBN). Reforms in the energy sector are also in progress. Ultimately, the national distribution utility SBEE is to be split into two distinct entities, a public asset-holding enterprise and a mixed-economy enterprise for the distribution of electricity. In telecommunications, the process of opening up the capital of public sector operator Bénin Télécoms is continuing.

In the field of administrative and institutional reform, action is under way to strengthen public financial management, improve co-ordination of government action and steer the administrative and institutional reform programme overall. A strategic administrative reform plan was completed in 2010. Other realisations have been the detailed draft of a charter of governance for Beninese development, an outline text for the organisation of a round table of development partners for the financing of administrative and institutional reform and monographs regarding reforms to be carried out in the government’s 30 ministries.

Benin’s financial sector consists of 14 credit institutions (12 banks and two financial institutions), the national branch of the regional stock exchange (Bourse régionale des valeurs mobilières – BRVM), and three portfolio-management and stock-broking companies. Alongside these institutions, there are about 500 mutual or co-operative savings and credit banks covered by the so-called PARMEC law (passed by the CBWAS as a regulatory framework for microfinance institutions), more than a dozen insurance companies (comprising three life insurance companies, five general insurance companies and eight insurance-brokerages), and several informal structures.

One of the major events in 2010 was the Investment Consultancy and Computering Services (ICC Services) scandal. ICC Services was an informal funding institution promising small investors returns as high as 100%, which used the money of new depositors to pay returns to older depositors. The bubble eventually burst and ICC Services stopped making payments, which created panic among those who had invested their savings in it. A government audit revealed that total deposits amounted to more than XOF 161 billion. There has been no study so far to identify how this situation might have affected the country’s macroeconomic situation even though the deposits amounted to about 5.2% of GDP in 2009, nor to measure the effects of the fraud on the standard of living of the thousands of households involved. In any event, there would have been significant social consequences if the government had not reacted quickly to contain small investors’ anger by setting up a commission of inquiry, sequestering ICC Services’ accounts and making some arrests.

In the area of road infrastructure, out of the more than 6 000 kilometres of roads in the road network in 2010, 31% were in disrepair. There are 2 076 kilometres of surfaced roads, representing 0.26 kilometres per thousand inhabitants, and 4 000 kilometres of unmetalled roads. The general goal of the transport sector is to develop and manage the infrastructure and services in order to support economic growth and social well-being.

This policy includes the following goals, which are contained in the strategy for the sector included in the 201-15 SCRP: i) ensuring the mobility of persons and goods in satisfactory conditions of reliability, safety, comfort, cost and environmental protection; ii) supporting production and contributing to economic growth; iii) contributing to the reduction of urban and rural poverty; iv) increasing the international competitiveness of Benin’s transport system.

According to information collected by the government services involved in the management of these partnerships, Benin has set up a simple and non-binding operational framework. A request is generally submitted to the funds through which partner countries provide their support, then to their boards of directors. The emerging countries’ practices differ from those of traditional partners in several points. They do not always take part in general discussions between the government and its partners. They prefer bilateral co-operation meetings. Their approach seems to be more pragmatic, and they seem eager to place their contribution within a true partnership. Accordingly, they address the investment needs expressed by the country itself, while traditional partners tend to direct their aid to country needs that they themselves have targeted.

The period between the moment when the need is identified and the implementation of a project is much longer with traditional partners. According to an empirical estimate by the public services, such a period is on average five years for traditional partners and one year for emerging-country partners. In addition, the latter seem to be more dynamic in setting up financing. They are quicker to pass from cost evaluation to disbursement of funds and project start-up. This allows projects to achieve their goals completely or partially in line with projections. Partnerships with emerging countries are mainly expected to diversify Benin’s production capacities thanks to the development of basic infrastructure, and, in particular, an acceleration of the rate of rural electrification.

Emerging countries have not, however, replaced the traditional partners. They supplement them in areas for which the latter rarely provide aid, such as road infrastructure and other major public works. Through their co-operation with African countries, emerging countries are seeking to increase their influence on the continent. In the sub-region, there is no alternative to their aid as each country has its specific needs. Benin is involved in trade only with China among its new emerging-country partners but it cannot be said that this trade has helped to make it more competitive.

Since 2009, however, claims from certain professions and their political repercussions have paralysed part of the administration and this has had an effect on economic activity. There has also been a power struggle between the government and the parliament, which resulted in 2010 in the latter refusing to ratify international agreements. In December 2009, parliament had set the tone by rejecting the finance bill, judging it to be unrealistic, as was later confirmed by the drastic cuts that marked implementation of the budget. The government was nevertheless forced to legislate by decree, as it had already done to pass the supplementary budget in October 2008.

The political context in Benin was dominated in 2010 by preparations for the presidential and legislative elections scheduled for March and April 2011. In an attempt to improve electoral transparency and sincerity and strengthen the democratic process, the authorities have committed to setting up a permanent computerised electoral roll (Liste électorale permanente informatisée – LEPI). Although the project dates back to 1998, it was never implemented because of the failure of politicians to reach a consensus on it.

In primary education, the gross enrolment rate rose from 92.9% in 2006 to 109% in 2009, when the enrolment rate for girls alone was 104%. If these efforts are pursued, Benin could achieve the Millennium Development Goal (MDG) relating to universal access to primary education.

The national infant-child mortality rate was 136 deaths per thousand live births in 2006 on the basis of a reference period covering the ten years preceding the demographic and health survey. Compared with 2001, it had declined by 15%. In the maternal health field, substantial efforts have been observed in prenatal care. The proportion of childbirths assisted by qualified health staff (physician, midwife or nurse) reached 78.6% in 2009, which improved on the 74% figure recorded in 2006, thus contributing to a reduction in birth-related health risks. Notwithstanding this improvement, Benin will have to increase its efforts if it is to achieve the MDGs related to child and maternal health by 2015.

Although sanitation problems are still acute in Benin, access to safe drinking water has gradually become a reality. Assuming public policies are maintained, the MDG target for 2015 could be achieved. In 2010, the level of access to safe drinking water has been estimated at nearly 64% for the country as a whole but with major variations between different social categories.