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_________________________________________________________________________________________________________________________________________________________
Country Report
Benin
Generated on January 12th 2015
Economist Intelligence Unit20 Cabot SquareLondon E14 4QWUnited
Kingdom
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Benin
Summary Summary
Basic data
Political structure
Economic structure Annual indicators
Quarterly indicators
Comparative economic indicators
Outlook for 2015-16 Political stability
Election watch
International relations
Policy trends
Fiscal policy
Monetary policy
International assumptions
Economic growth
Inflation
Exchange rates
External sector
Forecast summary
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SummaryEditor: Bjorn Dahlin van Wees
Forecast Closing Date: December 17, 2014
Outlook for 2015-16
Although we expect the president, Boni Yayi, to remain in power
until the2016 poll, growing opposition to him and his
administration means thatpolitical stability will be fragile and
policymaking slow.Any effort to prolong Mr Yayi's stay in power,
either by delaying the nextpresidential election or by changing the
constitution to allow him to standagain in the 2016 poll, is likely
to trigger widespread public protests.The fiscal deficit will widen
gradually from an estimated 2.1% of GDP in 2014to 2.6% of GDP in
2016 as the gains from fiscal reforms are offset by risingpublic
wages, capital expenditure and election-related spending.Growing
cotton exports, expanding port activity and rising public
investmentwill help to maintain relatively robust real GDP growth,
which will average4.9% a year in 2015-16.We expect positive price
growth to return in 2015, averaging 0.4%, on theback of continued
growth in the public-sector payroll and a weaker currency.As world
food prices rise in 2016, inflation will quicken to 1.2%.The
current-account deficit will widen slightly, from an estimated
10.9% ofGDP in 2014 to 12% of GDP in 2016, as high public
investment and robustdemand pressures boost the import bill,
outweighing rising cotton exports.
Review
Benin's Constitutional Court has ruled that Article 42 of the
constitution,which limits presidents of the country to two
five-year terms, cannot beamended, appearing to rule out a third
term for Mr Yayi.Following street protests and fierce criticism of
the authorities' handling ofthe election preparations, the
government has transferred CFAfr3.15bn(US$6m) to the commission in
charge of updating the voter registration lists.Despite this,
anti-government protests have continued and oppositionparties
marched in Cotonou and Porto Novo in mid-December, in
protestagainst the authorities' failure to organise local elections
in a timely manner.The government has announced measures aimed at
trying to formalise thelarge informal sector in an attempt to boost
tax revenue collection.In October the regional central bank
announced the introduction of
mostlyfreebankingthroughouttheeightcountryUnionconomiqueetmontaireouest-africaine
in an attempt to boost financial inclusion.
Basic data
Land area
112,622 sq km
Population
10.3m (World Bank actual, 2013)
Main towns
Population in '000 (2012 World Gazetteer estimates):
Cotonou: 789.7
Abomey-Calavi: 468.6
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Porto Novo (capital): 271.1
Climate
Tropical, drier in the north
Weather in Cotonou (altitude 7 metres)
Hottestmonth,March,2628Ccoldestmonth,August,2325Cdriestmonth,December,
13 mm average rainfall; wettest month, June, 366 mm average
rainfall
Languages
French, Fon, Yoruba and others
Measures
Metric system
Time
1 hour ahead of GMT
Public holidays
Fixed: January 1st, January 10th (Vodoun Day), May 1st (Labour
Day), August 1st(Independence Day), August 15th (Assumption),
November 1st (All Saints' Day),December 25th
Variable (according to Christian and Muslim calendars): Eid
al-Adha (Tabaski),Prophet's Birthday, Eid al-Fitr, Easter Monday,
Ascension Day, Whit Monday
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Political structure
Official name
RpubliqueduBnin
Form of state
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Unitary republic
Legal system
Based on December 1990 constitution
National legislature
National Assembly with 83 seats, elected by universal suffrage
for a four-year term
National elections
March 2011 (presidential); April 2011 (legislative); next
legislative and presidentialelections due in April 2015 and 2016
respectively
Head of state
President, elected by universal suffrage for a five-year term,
for a maximum of twoterms
National government
President and his appointed government; the cabinet was last
reshuffled in August2014
Main political parties
ForcescaurispourunBninemergent(FCBE),createdinJanuary2007tosupportthe
president, Boni Yayi, holds 41 seats in the National Assembly; the
RenaissanceduBnin(RB)previouslysupportedthepresidentbutisnowdividedanditsallegiance
is uncertain; the main opposition alliance is Union fait la Nation
(UN),dominatedbyPartidurenouveaudmocratique(PRD)butalsoincludingPartisocialdmocrate(PSD)andMouvementafricainpourladmocratieetleprogrs(MADEP);
other smaller parties include the Alliance cauris 2 and Alliance
forcedansl'unit(AFU)
President: Boni Yayi
Minister of state
Highereducation&research:FranoisAbiola
Key ministers
Agriculture, livestock & fisheries: Issa Azizou
Communications & ICT: Jean Dansou
Culture, crafts, tourism & literacy: Jean-Michel
Abimbola
Decentralisation & local government: Isidore Gnonlonfoun
Defence:RobertThophileYarou
Development & economic analysis: Marcel de Souza
Economy&finance:KomiKoutch
Energy,oilexploration,mines&water:BarthlmyKassa
Environment, housing & urbanisation: Christian
Sossouhounto
Evaluation of public policy & privatisation: Antonin
Dossou
Family & social affairs: Naomi Azaria
Foreign affairs: Nassirou Bako Arifari
Health:DorotheKindGazard
Institutional relations: Gustave Sonon
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Interior & security: Simplice Dossou
Justice,legislation,humanrights&governmentspokesman:ValentinDjnontinAgossou
Labour, public service, administrative & institutional
reforms & social dialogue:Yaya Aboubakar
Maritime economy & port infrastructure: Rufu Orou Nan
Nansounon
Microfinance, youth employment & women's affairs:
Marie-Laurence Sossou
Publicworks&transport:AkNatond
Secondary education & professional training: Alassane
Soumanou
Trade,industry&SMEs:FranoiseAssogba
Youth & sports: Safiou Idrissou Affo
Governor of regional central bank (BCEAO)
KonTimokoMeyliet
Economic structure
Annual indicators 2010a 2011a 2012a 2013a 2014b
GDP at market prices (CFAfr bn) 3,250 3,440 3,851 4,104
4,322
GDP (US$ bn) 6.6 7.3 7.5 8.3 8.8
Real GDP growth (%) 2.6 3.3 5.4 5.6 5.1
Consumer price inflation (av; %) 2.3 2.7 6.8 1.0 -1.2
Population (m) 9.5 9.8 10.1 10.3 10.6
Exports of goods fob (US$ m) 1,282 1,251 1,443 2,322b 2,492
Imports of goods fob (US$ m) -1,775 -1,800 -2,002 -3,111b
-3,333
Current-account balance (US$ m) -618 -552 -577 -891b -956
Foreign-exchange reserves excl gold (US$ m) 1,200 887 713 695
1,089
Total external debt (US$ bn) 1.6 1.9 2.1 2.5b 2.7
Exchange rate (av) CFAfr:US$ 495.3 471.9 510.5 494.0 493.6a
Actual. b Economist Intelligence Unit estimates.
Origins of gross domestic product
2012
% of
total
Components of gross domestic product
2011
% of
total
Agriculture 32.4Private consumption 76.5
Industry 12.9Government consumption 11.6
Services 54.7Gross domestic investment 20.7
Exports of goods & services 14.3
Imports of goods & services 24.0
Principal exports 2013% of
totalPrincipal imports 2013
% of
total
Cotton 12.8Food 41.1
Re-exports 71.5Capital goods 16.4
Petroleum products 11.7
Main destinations of exports 2013a% of
totalMain origins of imports 2013a
% of
total
Lebanon 8.3China 37.1
China 8.3India 10.3
India 7.1US 7.5
Nigeria 1.9Malaysia 6.7
Niger 2.3Thailand 6.1a Based on partners' trade returns; subject
to a wide margin of error.
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Quarterly indicators 2012 2013 2014
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr
Prices
Consumer prices (av; 2005=100) 111.1 111.1 111.7 111.1 109.0
110.0 110.9 108.8
Consumer prices (% change, year on year) 7.3 2.6 1.9 1.3 -1.9
-1.0 -0.7 -2.0
Financial indicators
Exchange rate CFAfr:US$ (av) 505.6 496.9 502.1 495.3 482.0 478.9
478.4 495.2
Exchange rate CFAfr:US$ (end-period) 497.2 512.3 501.5 485.7
475.6 475.8 480.3 521.3
Deposit rate (av; %) 3.5 3.5 3.5 3.5 3.5 3.5 3.5 n/a
Discount rate (end-period; %) 4.0 4.0 3.8 3.5 3.5 3.5 3.5
3.5
M1 (end-period; CFAfr bn) 872 996 979 959 1,079 1,130 1,167
n/a
M1 (% change, year on year) 0.3 17.7 10.3 14.7 23.6 13.5 19.3
n/a
M2 (end-period; CFAfr bn) 1,463 1,615 1,570 1,587 1,717 1,788
1,920 n/a
M2 (% change, year on year) 6.2 19.1 9.5 12.5 17.4 10.7 22.3
n/a
Foreign trade (US$ m)a
Exports fob 179 187 283 229 185 180 330 n/a
Imports cif -2,133 -1,964 -2,293 -2,278 -2,255 -2,429 -3,281
n/a
Trade balance -1,953 -1,777 -2,010 -2,049 -2,071 -2,249 -2,951
n/a
Foreign reserves (US$ m)
Reserves excl gold (end-period) 713 677 836 801 695 836 949 n/aa
DOTS estimates.Sources: IMF, International Financial Statistics,
Direction of Trade Statistics (DOTS).
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Comparative economic indicators
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Outlook for 2015-16
Political
stabilityApproachingtheendofhissecondandunderthecurrentconstitutionfinalfive
yearpresidentialterm,BoniYayiiscomingunderincreasingpressure.Frequentpublic-sector
strikes have adversely affected government operations, and
popularfrustration with the slow pace of economic reforms and the
lack of improvements inliving standards is high. Moreover, several
of the parties in parliament, including
thepropresidentialalliance,theForcescaurispourunBninemergent(FCBE),areinternally
divided, making the exact balance of power in the legislature
uncertain.Indeed,wranglingintheNationalAssemblylessaboutpolicydifferencesthanaboutpoliticalelitestryingtoasserttheirdominanceisintensifyingaheadofthe2015
(legislative) and 2016 (presidential) elections, thus hindering
effectivepolicymaking and weakening political stability.
The sudden reshuffle of the government in both August 2013 and
August 2014,including the removal of several long-standing allies
of the president, and risingcriticism against Mr Yayi from within
the pro-presidential alliance are examples ofgrowing political
uncertainty. In line with Benin's history of volatile
patronage-based politics, allegiances change quickly. As the
election period draws closer andjostling for influence intensifies,
uncertainty will increase further. In addition, asThe Economist
Intelligence Unit expects Mr Yayi to step down at the end of
hissecond term, prospective successors, including within the FCBE,
will assertthemselves more strongly in order to boost their chances
in the 2016 presidentialelection, thus further undermining
political stability.
Adding to the turbulent political outlook is uncertainty over
the timing of upcomingelections. Local polls, now scheduled for
March 25th 2015, have been
repeatedlypushedbackofficiallybecauseofdelaysoverthevoterregistryrevisionprocess.There
is a growing perception that the authorities are dragging their
feet over theorganisation of the polls, perhaps in an attempt to
prolong Mr Yayi's stay in power,and several public protests against
the lack of clarity over the election calendarhave taken place in
2014. Responding to the protests, the authorities set April 26thas
the date for the next legislative election, and fears that Mr Yayi
will seek tochange the constitution to remove the presidential term
limit to allow him to standagain in the 2016 election have
diminished after the country's Constitutional Courtruled, in
November, that the term limit cannot be scrapped. However, Mr Yayi
hasmade ambiguous comments about the importance of holding
elections, and anyattempt to extend his hold on power would trigger
large demonstrations andundermine political stability. Moreover,
widespread frustration over frequent powercuts, continued
allegations of official corruption (and the government's
half-heartedattempts to address it), political interference in the
judicial system, patchy welfareprovision and a lack of jobs will
continue to lead to sporadic demonstrations or riotsin2015
16,althoughapopularuprisingalongthelinesseeninneighbouringBurkinaFaso
is unlikely given Benin's relatively strong democratic record.
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Election watchThe next legislative and presidential elections
are due on April 26th 2015 and inApril 2016 respectively. The
political scene in Benin is highly fragmented and nopolitical party
is likely to secure a clear victory in the legislative poll.
Instead, theoutcome will depend on the ability of the country's
disparate political groups toform united and stable alliances to
contest the poll. Given ongoing disagreementinside many political
parties and quickly shifting alliances, this will be difficult
toachieve, and policy uncertainty is likely to increase as the
polls draw closer. Giventhe waning popularity of Mr Yayi, a victory
of an alliance hostile to the currentpresident is looking
increasingly likely and this would slow down
policymakingfurther.
Although Mr Yayi has referred to his current term as his "second
and last", there iscontinuing speculation that he may still seek to
extend his hold on power. If so, thiscould place him on a collision
course with the Constitutional Court, which has
ruledthattheprovisionsrelatingtopresidentialtermlimits(amaximumoftwofive
yearterms) cannot be amended. As Mr Yayi's political backing is
weakening, we do notexpect him to succeed in abolishing the term
limits. Although political elites havebegun to jostle for position
ahead of the 2016 vote, official candidacies are yet to
belaunched.Astrongcontender,however,willbeAdrienHoungbdji,whocamesecond
in the 2011 poll and has been the leader of the opposition since
then,although his prospects will depend upon his ability to forge a
cohesive alliance fromthe country's many disparate political
parties.
International relationsMr Yayi will continue to strengthen
relations with Benin's neighbours and will seekincreasedeconomicco
operationwithothercountries,notablyChinaandIndia.Encouraged by
Benin's commitment to the economic reform programme drawn up inco
operationwiththeIMFandtheWorldBank,donorsespeciallytheEUcountrieswillmaintainsizeablebilateralandmultilateralaidpro
grammes.However, donors will remain wary of the slow pace of reform
and investmentimplementation, as well as signs of erratic
policymaking. Any attempt by Mr Yayi toprolong his stay in office
beyond the term limit in 2016 would probably lead to someaid
suspensions and complicate relations with Western donors. The
governmentwill seek to strengthen relations with Niger, with which
it is planning to build
acrossborderrailwayline.AproposedroadlinkingNigeriaandCted'Ivoirewouldenhance
regional commercial relations, but the benefits of this will not be
felt withinthe current forecast period.
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Policy trendsEconomicpolicyin2015
16will,asinpreviousyears,focusonstrengtheningpublicfinancial
management and speeding up the implementation of structural reforms
andpublic investment projects. Reform efforts will be centred on
expanding the revenuebase, streamlining customs administration,
bolstering tax compliance, modernisingthe civil service and
improving the efficiency of public investment and
state-ownedenterprises. To address governance concerns, the
administration has promised toreform the civil service and plans to
audit seven parastatal companies, beforeeventually expanding the
programme to other parastatals and governmentdepartments. However,
weak administrative capacities and a lack of political will, aswell
as labour and public opposition, mean that progress on reforms
andcontroversialrestructuringswillcontinuetobesluggish.Thecountry'sthree
yearprogrammewiththeIMFexpiredinmid
2014,butislikelytoberenewedin2015(theauthorities have requested a
new programme), maintaining Fund support for thegovernment's reform
efforts.
The capacity of Cotonou port, a key source of customs receipts
and servicesincome, is expanding on the back of efforts to
modernise facilities, streamlinecustoms procedures and extend the
port. The government has ambitious plans toinvest in several large
infrastructure projects, including boosting
power-generationcapacity, upgrading roads and railways, and
constructing new ports and a
newinternationalairport.DuringaroundtableconferenceinParisinmid
2014thegovernment secured pledges from donors and private investors
of nearly
US$12bntosupporttheseinvestmentplanswhichincludegreateruseofpublicprivatepartnershipsduringthe2014
18period.However,itisunclearhowmuchwillactually be disbursed, and
uncertainty over financing and weak implementationcapacity will
delay completion of these projects. The government's plans to
reduceits involvement in the cotton sector, in an effort to reduce
fiscal risks, have
beenderailedafteritretookcontrolofthecountry'smaincottonginner,theSocitdedveloppementducoton(Sodeco),inNovember2013,drawingaccusationsthatitexpropriated
private property and flouted the country's laws. Such
incidents,coupled with red tape, widespread corruption and
inadequate power supplies, willcontinue to affect investor
perceptions and weigh on private-sector growth.
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Fiscal policyRevenue growth will benefit from better
trade-monitoring procedures at
Cotonouport,whichwillreducelevelsofcustomsevasionandfraud.Improve
mentsinportproceduresincludingcomputerisationandtheestablishmentofa"one
stopshop"systemwillcontinuetoboosttrafficvolumesattheport,supportinggrowthincustoms
revenue. Rising cotton output will also support revenue growth,
althoughit will be moderated by low prices and disputes between
stakeholders in the cottonsector. Domestic revenue collection will
also continue to be hampered by weakadministrative capacity, the
large informal sector and too generous tax exemptions.External
grants will continue to account for up to 10% of total revenue,
althoughinflows may be moderated by donors' concerns over weak
public financialmanagement and erratic policymaking.
Expenditure growth will remain robust, as a result of a growing
public-sector
wagebillfurtherexacerbatedbythepromisemadein2014toraisetheminimumwageforgovernmentworkers,probablyfrom2015onwardsandmeasurestoincreasecapital
spending in order to address infrastructure deficits. The
administration haspromised to reduce subsidies, but public
opposition and heightened social tensionsmean that this will be
difficult to implement, particularly as elections loom in both2015
and 2016. Although spending is generally lower than budgeted, owing
tocapacity constraints, we expect the deficit to widen gradually
from an estimated2.1% of GDP in 2014 to 2.6% of GDP in 2016 as
salary costs rise, the publicinvestment programme is scaled up and
the elections boost spending pressures.The deficits will be
financed mainly with concessional borrowing from donors.Given the
country's relatively low public debt/GDP ratio (around 30%),
theauthorities have indicated that they may seek non-concessional
borrowing for someinfrastructure projects.
Monetary policyMonetary policy is determined by the regional
central bank, Banque centrale desEtats de l'Afrique de l'ouest
(BCEAO), which prioritises inflation-targeting in itseight member
countries, as well as maintaining the CFA franc's euro peg. Policy
istherefore influenced heavily by that of the European Central Bank
(ECB). InSeptember 2014 the ECB cut its refinancing rate by 10
basis points to a new recordlow of 0.05%, and we do not expect it
to be raised before 2017. The BCEAO's mainpolicy rate has remained
stable at 3.5% since September 2013, despite several ratecuts by
the ECB. Yet, given the BCEAO's history of tracking the ECB's
monetarypolicy and the benign inflation outlook in the region, the
BCEAO may decide tomake a small rate cut in 2015 or 2016.
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International assumptionsInternational assumptions summary(%
unless otherwise indicated)
2013 2014 2015 2016
Real GDP growth
World 3.0 3.1 3.8 3.8
OECD 1.4 1.8 2.4 2.3
EU28 0.1 1.3 1.6 1.7
Exchange rates
:US$ 97.6 106.0 124.0 127.0US$: 1.328 1.329 1.220 1.175SDR:US$
0.660 0.665 0.700 0.713
Financial indicators
3monthinterbankrate 0.22 0.21 0.10 0.38US$ 3-month commercial
paper rate 0.11 0.10 0.34 1.43
Commodity prices
Oil (Brent; US$/b) 108.9 99.4 80.3 84.0
Cotton (US cents/lb) 90.4 82.8 69.5 68.3
Food, feedstuffs & beverages (% change in US$ terms) -7.4
-5.4 -6.9 1.4
Industrial raw materials (% change in US$ terms) -5.9 -5.4 4.5
4.5
Note. World GDP growth rates weighted using purchasing power
parity exchange rates.
Economic growthAssuming normal weather conditions, cotton
output, which grew strongly duringthe 2012/13 and 2013/14 seasons
(April-March), will continue to expand, albeit at amore modest
pace, over the outlook period as the area planted expands and
farmers'access to credit and fertilisers improves on the back of
government subsidies
anddonorsupport.However,governmentinterferenceinthesectorashighlightedbythetakeoverofSodeco,aprivateginner,in2013hasledtodisputes,andthisislikely
to weigh on output growth during the current season.
Moreover,underinvestment and the authorities' inability to match
the subsidies enjoyed byforeign cotton growers will also moderate
the sector's prospects.
TheongoingexpansionandupgradeofCotonouporttheactivitiesofwhichaccountforaround60%ofGDPundertheprivatemanagementofFrance'sBollorGroup,
should underpin growth by increasing capacity to handle regional
trade.Benin provides important port services to Nigeria, Niger and
Burkina Faso,
andgrowthinthesecountriesisexpectedtoremainrobustin2015
16,althoughelectionrelated instability in Nigeria has the potential
to disrupt trade. Moreover, theworsening threat of piracy in the
Gulf of Guinea poses a risk to growth given thepotential impact on
activity at Cotonou port.
The government will continue with its efforts to improve the
unreliable powersupply, a major drag on economic growth, although
progress will be slow owing to alack of investors and weak
management in the sector. Private foreign directinvestment (FDI)
will remain depressed, deterred by the sluggish pace of
businessreformandpolicyuncertainty.Growthinconstructionwillcontinuein2015
16,supported by donor-financed public infrastructure projects,
while increasingcompetition in the telecommunications sector will
boost growth in the servicessector. Overall, real GDP growth, which
reached an estimated 5.1% in 2014, will
easeslightly,averaging4.9%ayearin2015
16,aspowershortagesanddisputesinthecotton sector moderate the pace
of expansion.
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InflationPositive price growth will return in 2015, although
inflationary pressures will bemoderated by lower international food
prices and improved domestic
agriculturaloutput.Moreover,weexpectfuelpricesinNigeriathesourceofmorethan80%ofBenin'sfuelconsumptiontoremainrelativelystableovertheoutlookperiodastheNigerian
authorities use easing world oil prices as a way to cut its
subsidies billrather than retail fuel prices (which are below
current market oil prices).Notwithstanding the Nigerian
government's attempts to crack down on illegal fuelsmuggling, this
should support price stability. However, on the back of
continuedgrowthinthepublicsectorwagebillwhichwillboostdemandpressuresandtheCFA
franc's depreciation against the US dollar, we expect average
annual inflationto pick up to an average of 0.4% in 2015. As world
food prices begin to rise and thefranc continues to weaken,
inflation will quicken to 1.2% in 2016. Domestic foodproduction
remains heavily dependent on weather conditions, so any
weather-related shocks mean that inflation could end up higher than
under our centralforecast.
Exchange
ratesTheCFAfranc,whichispeggedtotheeuroatCFAfr655.96:1,willfluctuateagainstthe
US dollar in line with the euro:dollar exchange rate (on the
assumption that theCFA franc:euro peg is maintained). We expect the
euro to weaken against the dollarin2015
16astheECBmaintainsaloosemonetarypolicyinresponsetolowinflation,
while the Federal Reserve (the US central bank) begins to tighten
itsmonetary policy stance. As a result, the average exchange rate
of the CFA franc willdepreciate from an estimated CFAfr494:US$1 in
2014 to CFAfr538:US$1 in 2015, andfurther to CFAfr558:US$1 in
2016.
External
sectorDespitefallingworldcottonprices,highercottonexportvolumesin2015
16ifnotrecoveringasstronglyasthegovernmentpredictswillhelptoboostexportsovertheoutlookperiod.Re
exportstoneighbouringNigeriawillalsoriseovertheoutlook period as
GDP growth there remains robust and modernisation projects
attheCotonouportboosttrade,althoughtheeffectofgrowingre
exportswilllargelybe offset by a rise in the import bill. Despite
improving domestic agriculturalproduction and lower global food
prices in 2015, rising capital imports on the backof higher public
investment and continued strong demand will lead to a widening
ofthe trade deficit. The porous nature of Benin's long land borders
and the high levelof corruption will make cracking down on
crossborder smuggling difficult, and theinformal trading sector is
expected to remain significant. The historical structuralservices
deficit will widen as growing trade services for Nigeria and Niger
are offsetby higher services imports for public investment
projects. The secondary
incomesurpluswillremainaround2.7%ofGDPin2015
16asaidinflowsstagnate(inrelative terms). Overall, we expect the
current-account deficit to widen slightly, froman estimated 10.9%
of GDP in 2014 to 12% of GDP in 2016. The deficits will befinanced
by concessional loans from multilateral and bilateral creditors, as
well asFDI inflows, the latter mainly driven by
infrastructure-related public-privatepartnerships.
Benin 15
Country Report 1st Quarter 2015 www.eiu.com
EconomistIntelligenceUnitLimited2015
-
Forecast summaryForecast summary(% unless otherwise
indicated)
2013a 2014a 2015b 2016b
Real GDP growth 5.6c 5.1 4.9 4.8
Gross agricultural production growth 5.2 4.0 3.8 3.7
Consumer price inflation (av) 1.0c -1.2 0.4 1.2
Central Bank discount rate (end-period) 3.5c 3.5 3.3 3.3
Government balance (% of GDP) -1.9 -2.1 -2.4 -2.6
Exports of goods fob (US$ m) 2,321.8 2,492.3 2,606.5 2,817.9
Imports of goods fob (US$ m) 3,110.8 3,333.4 3,445.6 3,717.5
Current-account balance (US$ m) -890.8 -956.4 -981.7
-1,073.0
Current-account balance (% of GDP) -10.7 -10.9 -11.3 -12.0
Exchange rate CFAfr:US$ (av) 494.0c 493.6 537.7 558.3
ExchangerateCFAfr:100(av) 506.2c 465.5 433.6 439.6
ExchangerateCFAfr:(av) 656.0 656.0 656.0 656.0a Economist
Intelligence Unit estimates. b Economist Intelligence Unit
forecasts. c Actual.
Benin 16
Country Report 1st Quarter 2015 www.eiu.com
EconomistIntelligenceUnitLimited2015
SummaryBasic dataPolitical structureAnnual
indicators2010a2011a2012a2013a2014bGDP at market prices (CFAfr
bn)3,2503,4403,8514,1044,322GDP (US$ bn)6.67.37.58.38.8Real GDP
growth (%)2.63.35.45.65.1Consumer price inflation (av;
%)2.32.76.81.0-1.2Population (m)9.59.810.110.310.6Exports of goods
fob (US$ m)1,2821,2511,4432,322b2,492Imports of goods fob (US$
m)-1,775-1,800-2,002-3,111b-3,333Current-account balance (US$
m)-618-552-577-891b-956Foreign-exchange reserves excl gold (US$
m)1,2008877136951,089Total external debt (US$
bn)1.61.92.12.5b2.7Exchange rate (av)
CFAfr:US$495.3471.9510.5494.0493.6a Actual. b Economist
Intelligence Unit estimates.
TitleQuarterly indicators2012201320144 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1
Qtr2 Qtr3 QtrPricesConsumer prices (av;
2005=100)111.1111.1111.7111.1109.0110.0110.9108.8Consumer prices (%
change, year on year)7.32.61.91.3-1.9-1.0-0.7-2.0Financial
indicatorsExchange rate CFAfr:US$
(av)505.6496.9502.1495.3482.0478.9478.4495.2Exchange rate CFAfr:US$
(end-period)497.2512.3501.5485.7475.6475.8480.3521.3Deposit rate
(av; %)3.53.53.53.53.53.53.5n/aDiscount rate (end-period;
%)4.04.03.83.53.53.53.53.5M1 (end-period; CFAfr
bn)8729969799591,0791,1301,167n/aM1 (% change, year on
year)0.317.710.314.723.613.519.3n/aM2 (end-period; CFAfr
bn)1,4631,6151,5701,5871,7171,7881,920n/aM2 (% change, year on
year)6.219.19.512.517.410.722.3n/aForeign trade (US$ m)aExports
fob179187283229185180330n/aImports
cif-2,133-1,964-2,293-2,278-2,255-2,429-3,281n/aTrade
balance-1,953-1,777-2,010-2,049-2,071-2,249-2,951n/aForeign
reserves (US$ m)Reserves excl gold
(end-period)713677836801695836949n/aa DOTS estimates.Sources: IMF,
International Financial Statistics, Direction of Trade Statistics
(DOTS).
TitleComparative economic indicators
Political stabilityApproaching the end of his second andunder
the current constitutionfinal fiveyear presidential term, BoniYayi
is coming under increasing pressure. Frequent public-sector strikes
have adversely affected government operations, and popular
frustration with the slow pace of economic reforms and the lack of
improvements in living standards is high. Moreover, several of the
parties in parliament, including the pro-presidential alliance, the
Forces cauris pour un Bnin emergent (FCBE), are internally divided,
making the exact balance of power in the legislature uncertain.
Indeed, wrangling in the National Assemblyless about policy
differences than about political elites trying to assert their
dominanceis intensifying ahead of the 2015 (legislative) and 2016
(presidential) elections, thus hindering effective policymaking and
weakening political stability.
The sudden reshuffle of the government in both August 2013 and
August 2014, including the removal of several long-standing allies
of the president, and rising criticism against MrYayi from within
the pro-presidential alliance are examples of growing political
uncertainty. In line with Benin's history of volatile
patronage-based politics, allegiances change quickly. As the
election period draws closer and jostling for influence
intensifies, uncertainty will increase further. In addition, as
TheEconomist Intelligence Unit expects MrYayi to step down at the
end of his second term, prospective successors, including within
the FCBE, will assert themselves more strongly in order to boost
their chances in the 2016 presidential election, thus further
undermining political stability.
Adding to the turbulent political outlook is uncertainty over
the timing of upcoming elections. Local polls, now scheduled for
March25th 2015, have been repeatedly pushed backofficially because
of delays over the voter registry revision process. There is a
growing perception that the authorities are dragging their feet
over the organisation of the polls, perhaps in an attempt to
prolong MrYayi's stay in power, and several public protests against
the lack of clarity over the election calendar have taken place in
2014. Responding to the protests, the authorities set April26th as
the date for the next legislative election, and fears that MrYayi
will seek to change the constitution to remove the presidential
term limit to allow him to stand again in the 2016 election have
diminished after the country's Constitutional Court ruled, in
November, that the term limit cannot be scrapped. However, MrYayi
has made ambiguous comments about the importance of holding
elections, and any attempt to extend his hold on power would
trigger large demonstrations and undermine political stability.
Moreover, widespread frustration over frequent power cuts,
continued allegations of official corruption (and the government's
half-hearted attempts to address it), political interference in the
judicial system, patchy welfare provision and a lack of jobs will
continue to lead to sporadic demonstrations or riots in 201516,
although a popular uprising along the lines seen in neighbouring
Burkina Faso is unlikely given Benin's relatively strong democratic
record.
Election watchThe next legislative and presidential elections
are due on April26th 2015 and in April 2016 respectively. The
political scene in Benin is highly fragmented and no political
party is likely to secure a clear victory in the legislative poll.
Instead, the outcome will depend on the ability of the country's
disparate political groups to form united and stable alliances to
contest the poll. Given ongoing disagreement inside many political
parties and quickly shifting alliances, this will be difficult to
achieve, and policy uncertainty is likely to increase as the polls
draw closer. Given the waning popularity of MrYayi, a victory of an
alliance hostile to the current president is looking increasingly
likely and this would slow down policymaking further.
Although MrYayi has referred to his current term as his "second
and last", there is continuing speculation that he may still seek
to extend his hold on power. Ifso, this could place him on a
collision course with the Constitutional Court, which has ruled
that the provisions relating to presidential term limits (a maximum
of twofiveyear terms) cannot be amended. As MrYayi's political
backing is weakening, we do not expect him to succeed in abolishing
the term limits. Although political elites have begun to jostle for
position ahead of the 2016 vote, official candidacies are yet to be
launched. A strong contender, however, will be Adrien Houngbdji,
who came second in the 2011 poll and has been the leader of the
opposition since then, although his prospects will depend upon his
ability to forge a cohesive alliance from the country's many
disparate political parties.
International relationsMr Yayi will continue to strengthen
relations with Benin's neighbours and will seek increased economic
cooperation with other countries, notably China and India.
Encouraged by Benin's commitment to the economic reform programme
drawn up in cooperation with the IMF and the World Bank,
donorsespecially the EU countrieswill maintain sizeable bilateral
and multilateral aid programmes. However, donors will remain wary
of the slow pace of reform and investment implementation, as well
as signs of erratic policymaking. Any attempt by MrYayi to prolong
his stay in office beyond the term limit in 2016 would probably
lead to some aid suspensions and complicate relations with Western
donors. The government will seek to strengthen relations with
Niger, with which it is planning to build a crossborder railway
line. A proposed road linking Nigeria and Cte d'Ivoire would
enhance regional commercial relations, but the benefits of this
will not be felt within the current forecast period.
Policy trendsEconomic policy in 201516 will, as in previous
years, focus on strengthening public financial management and
speeding up the implementation of structural reforms and public
investment projects. Reform efforts will be centred on expanding
the revenue base, streamlining customs administration, bolstering
tax compliance, modernising the civil service and improving the
efficiency of public investment and state-owned enterprises. To
address governance concerns, the administration has promised to
reform the civil service and plans to audit seven parastatal
companies, before eventually expanding the programme to other
parastatals and government departments. However, weak
administrative capacities and a lack of political will, as well as
labour and public opposition, mean that progress on reforms and
controversial restructurings will continue to be sluggish. The
country's threeyear programme with the IMF expired in mid2014, but
is likely to be renewed in 2015 (the authorities have requested a
new programme), maintaining Fund support for the government's
reform efforts.
The capacity of Cotonou port, a key source of customs receipts
and services income, is expanding on the back of efforts to
modernise facilities, streamline customs procedures and extend the
port. The government has ambitious plans to invest in several large
infrastructure projects, including boosting power-generation
capacity, upgrading roads and railways, and constructing new ports
and a new international airport. During a roundtable conference in
Paris in mid2014 the government secured pledges from donors and
private investors of nearly US$12bn to support these investment
planswhich include greater use of public-private partnershipsduring
the 201418 period. However, it is unclear how much will actually be
disbursed, and uncertainty over financing and weak implementation
capacity will delay completion of these projects. The government's
plans to reduce its involvement in the cotton sector, in an effort
to reduce fiscal risks, have been derailed after it retook control
of the country's main cotton ginner, the Socit de dveloppement du
coton (Sodeco), in November2013, drawing accusations that it
expropriated private property and flouted the country's laws. Such
incidents, coupled with red tape, widespread corruption and
inadequate power supplies, will continue to affect investor
perceptions and weigh on private-sector growth.
Fiscal policyRevenue growth will benefit from better
trade-monitoring procedures at Cotonou port, which will reduce
levels of customs evasion and fraud. Improvements in port
proceduresincluding computerisation and the establishment of a
"onestop shop" systemwill continue to boost traffic volumes at the
port, supporting growth in customs revenue. Rising cotton output
will also support revenue growth, although it will be moderated by
low prices and disputes between stakeholders in the cotton sector.
Domestic revenue collection will also continue to be hampered by
weak administrative capacity, the large informal sector and too
generous tax exemptions. External grants will continue to account
for up to 10% of total revenue, although inflows may be moderated
by donors' concerns over weak public financial management and
erratic policymaking.
Expenditure growth will remain robust, as a result of a growing
public-sector wage billfurther exacerbated by the promise made in
2014 to raise the minimum wage for government workers, probably
from 2015 onwardsand measures to increase capital spending in order
to address infrastructure deficits. The administration has promised
to reduce subsidies, but public opposition and heightened social
tensions mean that this will be difficult to implement,
particularly as elections loom in both 2015 and 2016. Although
spending is generally lower than budgeted, owing to capacity
constraints, we expect the deficit to widen gradually from an
estimated 2.1% of GDP in 2014 to 2.6% of GDP in 2016 as salary
costs rise, the public investment programme is scaled up and the
elections boost spending pressures. The deficits will be financed
mainly with concessional borrowing from donors. Given the country's
relatively low public debt/GDP ratio (around 30%), the authorities
have indicated that they may seek non-concessional borrowing for
some infrastructure projects.
Monetary policyMonetary policy is determined by the regional
central bank, Banque centrale des Etats de l'Afrique de l'ouest
(BCEAO), which prioritises inflation-targeting in its eight member
countries, as well as maintaining the CFA franc's euro peg. Policy
is therefore influenced heavily by that of the European Central
Bank(ECB). In September 2014 the ECB cut its refinancing rate by
10basis points to a new record low of 0.05%, and we do not expect
it to be raised before 2017. The BCEAO's main policy rate has
remained stable at 3.5% since September2013, despite several rate
cuts by the ECB. Yet, given the BCEAO's history of tracking the
ECB's monetary policy and the benign inflation outlook in the
region, the BCEAO may decide to make a small rate cut in 2015
or2016.
International assumptionsInternational assumptions summary(%
unless otherwise indicated)2013201420152016Real GDP
growthWorld3.03.13.83.8OECD1.41.82.42.3EU280.11.31.61.7Exchange
rates:US$97.6106.0124.0127.0US$:1.3281.3291.2201.175SDR:US$0.6600.6650.7000.713Financial
indicators 3-month interbank rate0.220.210.100.38US$ 3-month
commercial paper rate0.110.100.341.43Commodity pricesOil (Brent;
US$/b)108.999.480.384.0Cotton (US cents/lb)90.482.869.568.3Food,
feedstuffs & beverages
(%changeinUS$terms)-7.4-5.4-6.91.4Industrial raw materials (%
change in US$ terms)-5.9-5.44.54.5Note. World GDP growth rates
weighted using purchasing power parity exchange rates.
TitleEconomic growthAssuming normal weather conditions, cotton
output, which grew strongly during the 2012/13 and 2013/14 seasons
(April-March), will continue to expand, albeit at a more modest
pace, over the outlook period as the area planted expands and
farmers' access to credit and fertilisers improves on the back of
government subsidies and donor support. However, government
interference in the sectoras highlighted by the takeover of Sodeco,
a private ginner, in 2013has led to disputes, and this is likely to
weigh on output growth during the current season. Moreover,
underinvestment and the authorities' inability to match the
subsidies enjoyed by foreign cotton growers will also moderate the
sector's prospects.
The ongoing expansion and upgrade of Cotonou portthe activities
of which account for around 60% of GDPunder the private management
of France's Bollor Group, should underpin growth by increasing
capacity to handle regional trade. Benin provides important port
services to Nigeria, Niger and Burkina Faso, and growth in these
countries is expected to remain robust in201516, although
election-related instability in Nigeria has the potential to
disrupt trade. Moreover, the worsening threat of piracy in the Gulf
of Guinea poses a risk to growth given the potential impact on
activity at Cotonouport.
The government will continue with its efforts to improve the
unreliable power supply, a major drag on economic growth, although
progress will be slow owing to a lack of investors and weak
management in the sector. Private foreign direct investment (FDI)
will remain depressed, deterred by the sluggish pace of business
reform and policy uncertainty. Growth in construction will continue
in 201516, supported by donor-financed public infrastructure
projects, while increasing competition in the telecommunications
sector will boost growth in the services sector. Overall, real GDP
growth, which reached an estimated 5.1% in 2014, will ease
slightly, averaging 4.9% a year in 201516, as power shortages and
disputes in the cotton sector moderate the pace of expansion.
InflationPositive price growth will return in 2015, although
inflationary pressures will be moderated by lower international
food prices and improved domestic agricultural output. Moreover, we
expect fuel prices in Nigeriathe source of more than 80% of Benin's
fuel consumptionto remain relatively stable over the outlook period
as the Nigerian authorities use easing world oil prices as a way to
cut its subsidies bill rather than retail fuel prices (which are
below current market oil prices). Notwithstanding the Nigerian
government's attempts to crack down on illegal fuel smuggling, this
should support price stability. However, on the back of continued
growth in the public-sector wage billwhich will boost demand
pressuresand the CFA franc's depreciation against the US dollar, we
expect average annual inflation to pick up to an average of 0.4% in
2015. As world food prices begin to rise and the franc continues to
weaken, inflation will quicken to 1.2% in 2016. Domestic food
production remains heavily dependent on weather conditions, so any
weather-related shocks mean that inflation could end up higher than
under our central forecast.
Exchange ratesThe CFA franc, which is pegged to the euro at
CFAfr655.96:1, will fluctuate against the US dollar in line with
the euro:dollar exchange rate (on the assumption that the CFA
franc:euro peg is maintained). We expect the euro to weaken against
the dollar in 201516 as the ECB maintains a loose monetary policy
in response to low inflation, while the Federal Reserve (the US
central bank) begins to tighten its monetary policy stance. As a
result, the average exchange rate of the CFA franc will depreciate
from an estimated CFAfr494:US$1 in 2014 to CFAfr538:US$1 in 2015,
and further to CFAfr558:US$1 in2016.
External sectorDespite falling world cotton prices, higher
cotton export volumes in 201516if not recovering as strongly as the
government predictswill help to boost exports over the outlook
period. Reexports to neighbouring Nigeria will also rise over the
outlook period as GDP growth there remains robust and modernisation
projects at the Cotonou port boost trade, although the effect of
growing reexports will largely be offset by a rise in the import
bill. Despite improving domestic agricultural production and lower
global food prices in 2015, rising capital imports on the back of
higher public investment and continued strong demand will lead to a
widening of the trade deficit. The porous nature of Benin's long
land borders and the high level of corruption will make cracking
down on crossborder smuggling difficult, and the informal trading
sector is expected to remain significant. The historical structural
services deficit will widen as growing trade services for Nigeria
and Niger are offset by higher services imports for public
investment projects. The secondary income surplus will remain
around 2.7% of GDP in 201516 as aid inflows stagnate (in relative
terms). Overall, we expect the current-account deficit to widen
slightly, from an estimated 10.9% of GDP in 2014 to 12% of GDP in
2016. The deficits will be financed by concessional loans from
multilateral and bilateral creditors, as well as FDI inflows, the
latter mainly driven by infrastructure-related public-private
partnerships.
Forecast summaryForecast summary(% unless otherwise
indicated)2013a2014a2015b2016bReal GDP growth5.6c5.14.94.8Gross
agricultural production growth5.24.03.83.7Consumer price inflation
(av)1.0c-1.20.41.2Central Bank discount rate
(end-period)3.5c3.53.33.3Government balance (% of
GDP)-1.9-2.1-2.4-2.6Exports of goods fob (US$
m)2,321.82,492.32,606.52,817.9Imports of goods fob (US$
m)3,110.83,333.43,445.63,717.5Current-account balance (US$
m)-890.8-956.4-981.7-1,073.0Current-account balance (% of
GDP)-10.7-10.9-11.3-12.0Exchange rate CFAfr:US$
(av)494.0c493.6537.7558.3Exchange rate CFAfr:100
(av)506.2c465.5433.6439.6Exchange rate CFAfr:
(av)656.0656.0656.0656.0a Economist Intelligence Unit estimates. b
Economist Intelligence Unit forecasts. c Actual.
Title