Economic Analysis
Benin

Benin

Population 11.1 million
GDP per capita 831 US$
B
Country risk assessment
C
Business Climate
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Synthesis

major macro economic indicators

  2016 2017 2018 2019 (f)
GDP growth (%) 4.0 5.8 6.5 6.5
Inflation (yearly average, %) -0.8 0.1 1.0 2.0
Budget balance (% GDP) -5.9 -5.8 -4.7 -2.7
Current account balance (% GDP) -9.4 -9.9 -8.9 -8.4
Public debt (% GDP) 49.7 54.4 54.6 54.0

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • High growth potential, low inflation Significant financial support from donors (ODA, HIPC, MDRI)
  • Strategic position (access to the sea for hinterland countries)

WEAKNESSES

  • High poverty, low government revenues
  • Narrow and volatile export base (dependence on cotton price fluctuations)
  • Erratic electricity supply
  • Governance gaps: corruption, rule of law, regulation
  • Impact on activity and tax revenues of Nigeria's economic policy decisions
  • Terrorist threat (Boko Haram) from neighbouring Nigeria
  • Low bank profitability

Risk assessment

The "Revealing Benin" program is boosting growth

Growth in 2019 is set to continue on its favourable trajectory, supported in particular by the continued implementation of the "Revealing Benin" development plan, which foresees investments worth USD 15 billion over 5 years (2016-2021). Flagship projects – such as the new international airport of Glo-Djigbé or the extension of the port of Cotonou – will continue to drive public investment. Private sector participation in investment is also set to be enhanced via the adoption of a PPP law (2017) and reforms to improve the business environment, such as the restructuring of the Investment and Export Promotion Agency, and a new investment code (2018). Cotton production, which accounted for more than 50% of export earnings in 2017, is expected to continue to increase in 2019, benefiting from reforms in the sector, efforts to improve yields, and favourable international prices. More generally, higher agricultural yields are expected to further boost export flows, which themselves should also continue to benefit from the (modest) recovery of neighbouring Nigeria. In addition, the remittances of expatriate workers from Nigeria, also expected to increase, will likely maintain the momentum of private consumption. Another contributing factor is low inflation: despite a likely increase in the price of imported products (including fuel), forecasts indicate it will remain below the 3% threshold set by the WAEMU.

 

Approaching compliance with WAEMU convergence criteria

In light of the WAEMU deficit convergence criteria of 3% of GDP, the government is likely to continue its efforts to reduce the budget deficit in 2019. Fiscal consolidation efforts are set to continue in line with the Benin authorities' commitments under the Extended Credit Facility provided by the IMF in April 2017. These efforts include the further rationalisation of current expenditure, which will enable the government to continue supporting economic growth through capital investment expenditure. These will be accompanied by a programme to improve the efficiency of public investment, which is set to continue throughout 2019. The elimination of certain fiscal exemptions and the modernisation of the tax administration should improve revenue collection. Fiscal consolidation should also help to curb the rapid increase in public debt, particularly in the regional market, which has been used to finance public investment in recent years.

The current account deficit is expected to keep declining in 2019, supported by a reduction in the large trade deficit. Exports will likely continue to grow thanks to the rapid increase in cotton production and dynamic external demand, particularly from China. Nevertheless, the trade balance is set to remain in deficit, burdened by a large import bill due to demand for capital goods. The transfer balance is also expected to contribute modestly to this reduction in the current account deficit; remittances from expatriate workers are expected to increase in line with the more favourable economic situation in Nigeria. Concessional borrowing will continue to finance the deficit, but FDI flows, through efforts to stimulate investment, and portfolio investment, buoyed by interest on Beninese debt, could play a larger role in financing the external deficit.

 

Persistent political tensions

At the end of the legislative elections (April 2019), only two parties from the presidential movement – the Progressive Union and the Republican Bloc – formed the Parliament. With the controversial reform of the electoral code, which tightens the conditions for standing as a candidate in the legislative and presidential elections, no opposition party was able to register in time. The opposition claimed that they were the victims of an administrative obstruction that had no other purpose than to eliminate them from the race. While the 83 newly elected deputies should support the President Patrice Talon's actions, the historical weakness of voter mobilization puts into question the legitimacy of this eighth legislature and reflects the collapse of the President's popularity. According to the National Autonomous Electoral Commission (CENA), only 23% of those registered took part in the vote, and yet most observers consider this figure quite inflated. In comparison, when President Talon was elected in 2016, he received more than 65% of the votes and a participation of nearly 65%. Severe post-election tensions have punctuated political and social life, leading to the death of several people and the encirclement of former President Yayi Boni’s house (2006-2016) by the army, the current president's main opponent. The latter situation ended with the medical evacuation of Yayi Boni to France, thanks to the mediation of some heads of state.

Given the regional context, the terrorist risk is very real in Benin, marked by the kidnapping of two French nationals in the north of the country by terrorist groups operating in the Sahel. They were then found by the French army in northern Burkina a few days later.

 

 

Last update : August 2019

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