2014 - UNDP - United Nations Development Programme · Source: Data from domestic authorities;...

BURUNDI 2014

www.africaneconomicoutlook.org

Sibaye Joel Tokindang / [email protected] Daniel Gbetnkom / [email protected]

2 African Economic Outlook © AfDB, OECD, UNDP 2014

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Burundi

• Burundi’sgrowthaccelerated toanestimated4.6% in2013,up from4.2% in2012,thankstoincreasedactivityinthesecondaryandtertiarysectors.

• Governmentfinancesimproved,butthecountryisstillfacedwithmajorconstraintsduetothepoormobilisationofdomesticresourcesandthevolatilityofexternalaid;meanwhile,politicaltensionshavegrownintherun-upto2015elections.

• Progress in implementing thepolicyof freeprimary-school tuitionand freehealthcare,educationforchildrenunderfiveandpregnantwomenmovedBurundisevenplacesuptheHumanDevelopmentIndex(HDI)in2013.

Overview

A series of exogenous shocks (a rise in world oil prices and food prices and a decline in revenue) struck economic activity in 2013. Growth in GDP accelerated slightly from 4.2% in 2012 to 4.6%, inflation dropped from 18.2% to 7.8%, the fiscal deficit narrowed from 9.1% to 2% and the Burundian franc (BIF) depreciated by 5% against the US dollar (USD) from January to December.

The primary sector contracted by 2% in 2013, mainly due to the effects of rainfall on coffee production. The economy has slowly recovered over the past two years as services and the secondary sector have expanded, the latter having benefited from investment in industry, construction and public works.

The government has continued to implement the Extended Credit Facility (ECF) concluded with the International Monetary Fund (IMF) in January 2012. The programme was hit by the poor mobilisation of government revenue after legislation passed in 2013 significantly reduced the tax base on personal income tax. As a result, the government was forced to approve a supplementary budget in July 2013, with new measures to strengthen the mobilisation of tax revenue and reduce current expenditure.

Despite the tough economic climate, Burundi’s economic policy aims to provide the country with the necessary infrastructure and promote rapid, sustained growth in line with the strategic framework for growth and poverty reduction (Cadre stratégique de croissance et de lutte contre la pauvreté, CSLP II) adopted in February 2012. Major energy, transport, water, electricity and telecommunications projects began in 2013, and new programmes were presented to technical and financial partners at industry conferences in July and October 2013.

Given the uncertainty surrounding foreign aid over the next few years, the government intends to focus on mobilising domestic revenue by pursuing its taxation reforms. The measures it plans include simplifying procedures, introducing a flexible tax system, broadening the tax base, decentralising and modernising collection structures, and harmonising the tax system with the regulations of the East African Community (EAC).

3African Economic Outlook© AfDB, OECD, UNDP 2014

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Figure 1. RealGDPgrowth

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(e) 2014(p) 2015(p)

Real GDP growth (%) Africa (%) Eastern Africa (%)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomicindicators

2012 2013(e) 2014(p) 2015(p)

Real GDP growth 4.2 4.6 5.2 6.7

Real GDP per capita growth 1.0 1.5 2.1 3.6

CPI inflation 18.2 7.8 5.4 7.0

Budget balance % GDP -9.1 -2.0 -3.6 -3.9

Current account balance % GDP -15.3 -14.6 -15.0 -15.3

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

recent developments and prospects

Burundi has a poorly diversified economy, which, in the context of a sluggish international economic climate, resulted in growth of 4.6%, below initial projections of 5.2%. This performance reflects the fragility of an economy that, despite reforms, must deal with various constraints, including low investment, high production costs combined with low-skilled labour, and an unattractive business environment. In addition to the structural weaknesses, the economy is also hit by the consequences of climate change, low levels of production and volatile world coffee prices.

Growth in 2013 was driven by the secondary sector (16% of GDP) and tertiary sector (45% of GDP). Secondary-sector growth accelerated from 8.0% in 2012 to 9.5% in 2013, while tertiary-sector growth accelerated from 3.0% to 4.1% over the same period. Growth in the primary sector (39% of GDP), however, fell from 5.2% to 3.9%.

The average weighted index for industrial production increased by 4.3%, thanks mainly to the food (+3.8%), chemicals (+9.3%) and building materials (+47.7%) sectors. The main cause of the primary sector’s decline was the fall in coffee production, which was a victim of the cyclical nature of the coffee harvest. Green-coffee production in the 2013/14 season contracted by 42.5% compared to the previous season, falling from 23 775 to 13 677 tonnes. Dry-tea production, on the other hand, grew by 1.4% from 9 040 to 9 164 tonnes. Food-crop production also increased by 3.5%.


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On the demand side, gross capital formation increased by 8.4% in 2013. Overall, however, the external sector made a negative contribution of 0.5% to growth due to low coffee production in 2013.

The CSLP II reforms are continuing in the same direction, and have made considerable progress, especially in improving the business environment. Nevertheless, Burundi is faced with major challenges, particularly the need to lay the foundations for accelerated economic growth to create jobs and sustainably improve living conditions. To achieve this, the government will expand the reforms already under way to consolidate the system of governance, improve the business environment and develop infrastructure in vital sectors of the economy, especially transport and energy.

The macroeconomic outlook remains precarious and depends largely on the external economic climate. Nevertheless, the authorities are projecting 5.2% growth in 2014 (slightly more optimistic than the IMF’s projection of 4.7% growth), based on 6.8% growth in the primary sector and 10.5% growth in the secondary sector, and despite a 2.8% contraction in the tertiary sector. These projections assume a recovery in agriculture through implementation of the government’s agricultural investment programme (Programme national d’investissement agricole), the development of agro-industry, and the start of mining operations, particularly for nickel and coltan. The tertiary sector will be boosted by the use of fibre-optics and investment in the telecommunications and tourism sectors, which should have a positive effect on growth. In addition, the commitments for an estimated USD 2.6 billion made by donors in October 2012 support these assumptions. The IMF also predicts a fall in world food and oil prices to reduce inflation to around 6%, which it says could stabilise the exchange rate between the Burundian franc and the US dollar, boosting domestic demand.

The main threat to medium-term growth is the economy’s high sensitivity to the vagaries of the weather. Instability in the east of the Democratic Republic of Congo (DRC) could also prove to be a destabilising factor, while the uncertain international climate could stem the flow of foreign aid. Finally, lower tax revenue as a result of the new income-tax law and pre-election spending pressures could renew tensions in the fiscal position and increase borrowing from the Bank of the Republic of Burundi (BRB), the country’s central bank.

Table 2. GDPbysector(percentage)2008 2013

Agriculture, hunting, forestry, fishing 41.4 39.4

of which fishing 0.6 0.3

Mining 0.7 0.6

of which oil

Manufacturing 11.7 11.0

Electricity, gas and water 0.9 0.4

Construction 3.5 3.9

Wholesale and retail trade, hotels and restaurants 6.7 8.3

of which hotels and restaurants

Transport, storage and communication 3.5 4.5

Finance, real estate and business services 16.0 15.5

Public administration, education, health and social work, community, social and personal services 7.3 8.0

Other services 8.3 8.4

Gross domestic product at basic prices / factor cost 100 100

Source: Data from domestic authorities.


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Macroeconomic policy

Fiscalpolicy

In response to the difficulties caused by lower tax revenue, the authorities took additional measures to pass a supplementary budget in July 2013, with a 1% downward adjustment in expenditure overall and a 2.4% fall in revenue and grants.

Burundi’s revenue-collection office, the OBR (Office burundais des recettes), has continued with reforms aimed at broadening the tax base and increasing the efficiency of tax collection. The measures taken have included restoring the food and oil tax and eliminating exemptions on all public contracts. A new decree establishing an intermediate rate of value-added tax (taxe sur la valeur ajoutée, TVA) was passed in 2013. Despite all these measures, domestic revenue has continued to decline, representing 13.7% of GDP in 2013 compared to 14.9% in 2011.

Because of the volatility of foreign aid, the 2013 budget made non-priority spending subject to the receipt of budget support from donors. Ceiling commitments and rolling annual budgets have served as economic indicator dashboards. Expenditure declined from 36.0% of GDP in 2011 to 35.9% in 2012 and 35.2% in 2013. Ongoing recruitment in the health and education sectors increased the payroll from 8.1% of GDP in 2012 to 8.7% in 2013. Investment expenditure using own resources declined slightly from 13.7% of GDP to 13.3% of GDP over the same period. Pro-poor spending (health, education, transport, agriculture, etc.), meanwhile, was lower than expected, representing 8.8% of GDP (down from 11.5% in 2012). The measures agreed upon with the IMF as part of the Extended Credit Facility (ECF) reduced the budget deficit from 9.1% of GDP in 2012 to 2% in 2013.

Reforms have extended the use of expenditure commitment inspectors in key ministries to ten more administrations and have involved the successful implementation of a policy to abolish the fleet of government vehicles. An analysis of the impact of tax exemptions will be conducted in 2014 and could lead to the proposal of corrective measures to improve how tax exemptions are managed, particularly in the context of the revised investment code currently being drafted.

Table 3. Publicfinances(percentageofGDP)2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Total revenue and grants 19.2 25.4 27.3 26.8 33.8 32.3 31.0

Tax revenue 13.1 13.7 14.9 14.1 13.7 13.6 13.5

Grants 4.9 10.9 11.3 11.7 19.1 17.7 16.5

Total expenditure and net lending (a) 26.2 32.7 36.0 35.9 35.7 35.9 34.9

Current expenditure 19.3 22.1 23.7 22.3 22.3 22.5 22.1

Excluding interest 16.7 20.9 22.8 21.5 21.4 21.8 21.4

Wages and salaries 6.0 8.6 9.1 8.1 8.8 9.8 10.4

Interest 2.6 1.2 0.9 0.8 0.9 0.7 0.7

Capital expenditure 7.0 10.6 12.4 13.7 13.5 13.5 12.8

Primary balance -4.4 -6.1 -7.8 -8.3 -1.1 -2.9 -3.2

Overall balance -7.0 -7.3 -8.7 -9.1 -2.0 -3.6 -3.9

Note: a. Only major items are reported.Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Monetarypolicy

Monetary policy in 2013 was marked by a difficult global situation and by major internal shocks.

In response, the Burundian authorities adopted a more prudent policy to control the growth of monetary aggregates. The growth rate of the money supply (M2) accelerated from 10.5% in 2012


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to 11.7% in 2013, helped by domestic credit; that of quasi-money accelerated from 2.6% in 2012 to 4.7% in 2013; and that of M3 accelerated from 16.1% in 2012 to 23.6% in 2013. The interbank rate averaged 12.2% in 2013, up from 10.4% in 2012. Meanwhile, credit to the economy, consisting mainly of loans in the local currency, grew by an estimated 14.6% in 2013, compared to 13.3% in 2012.

To stabilise the exchange rate, the BRB stepped up its interventions on the interbank currency market to nearly USD 60 million during the final six months of 2013. The measures were taken, among other reasons, to limit margins on currency exchanges to within 1% of the reference value, remove the restriction on transactions on residents’ foreign-currency accounts, and prohibit exchange bureaux from purchasing currency from commercial banks. Thanks to these measures, the exchange rate in 2013 averaged BIF 1 550 to the US dollar. The Burundian franc lost 7.8% of its value against the US dollar in 2013, compared to a 14.4% drop in 2012. Thanks to this slight depreciation, the BRB managed to maintain reserves equal to 3.8 months of imports in 2013. Foreign-exchange reserves are expected to increase in 2014 to 4 months of imports.

In the wider region, the five member states of the EAC signed the Monetary Union Protocol in November 2013. The protocol will come into force when the single currency is introduced in 2017. Monetary union should, amongst others, reduce the cost of financial transactions for firms operating in the sub-region. However, member states will first need to consolidate the Common External Tariff, harmonise and co-ordinate their fiscal, monetary and exchange-rate policies, and meet the convergence criteria. An East African Monetary Institute with executive powers will play a supervisory role, while an EAC central bank will complement the work of national central banks. In this context, Burundi is working to harmonise its fiscal calendar with that of the EAC, and is revising its national constitution in consequence.

Economicco-operation,regionalintegrationandtrade

Burundi’s economy has continued to open up to the outside in order to maximise the benefits of its membership of regional economic communities and regional intergovernmental organisations and to capitalise on its location in the Lake Tanganyika Basin. Within the EAC, Burundi has continued with its gradual integration into the common market by harmonising its immigration and labour laws, eliminating non-tariff barriers and completing the protocol on good governance.

Despite these efforts at regional integration, Burundi’s openness to trade remains low. Creating one-stop border posts at the Rwandan and Tanzanian frontiers did not help the country’s ranking for cross-border trade in the World Bank’s report Doing Business 2014, which placed Burundi 179th out of 189 countries.

Export destinations are few – the EAC region, the DRC and Europe (20% of exports) – and exports are still dominated by coffee (70%). Reflecting local industry’s lack of competitiveness, imports are mainly manufactured goods from EAC countries, the European Union (EU) and Asia.

Total imports in 2013 were an estimated 20.5% of GDP, down from 22.9% in 2012, while exports also declined, from 5.5% of GDP in 2012 to 4.3% in 2013. The low level of current transfers (7.2% of GDP in 2013, down from 7.4% in 2012 and 11.7% in 2011), combined with the trade and services deficit, led to a widening of the current-account deficit from 12.5% of GDP in 2011 to 14.6% in 2013. Projections for 2014 do not suggest any major changes to these indicators.


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Table 4. Currentaccount(percentageofGDP)2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Trade balance -11.5 -16.6 -19 -17.5 -16.2 -15.5 -14.8

Exports of goods (f.o.b.) 5.4 5.0 5.5 5.5 4.3 4.1 3.9

Imports of goods (f.o.b.) 16.9 21.6 24.4 22.9 20.5 19.7 18.7

Services -8.9 -4.4 -4.5 -4.6 -4.9 -5.5 -5.6

Factor income -1.6 -0.5 -0.8 -0.7 -0.8 -0.8 -0.8

Current transfers 21.4 6.7 11.7 7.4 7.2 6.8 5.9

Current account balance -0.5 -14.8 -12.5 -15.3 -14.6 -15 -15.3

Source: Data from the Central Bank and domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Debtpolicy

Ensuring debt sustainability is the cornerstone of Burundi’s fiscal policy as agreed under the ECF with the IMF. An updated analysis of debt sustainability shows a slight deterioration of the main indicators compared to the results observed in 2012, and that Burundi still has a “high debt distress level”. The main conclusion remains unchanged from previous assessments, since in the baseline scenario the present-value debt-to-exports ratio exceeds the tolerable threshold in the medium term. Burundi’s high debt distress rating justifies maintaining a grant element of 50%, the minimum requirement under the ECF.

In 2013 Burundi reduced its total debt from 35.2% to 31.3% of GDP and its domestic debt from 14.6% to 13.3% of GDP. Its debt-to-exports ratio (good and services), meanwhile, was cut from 226% to 187%.

An action plan based on the recommendations of the World Bank’s Debt Management Performance Assessment has been introduced to strengthen debt management and has led to significant progress. In addition, the Debt Management and Financial Analysis System (DMFAS) produces monthly reports. In the medium term, the government is committed to improving the legal framework for debt management and has produced a first draft of a bill on indebtedness. The Monetary and Fiscal Co-ordination Committee began its work in October 2013 and a report is produced quarterly.

Figure 2. Stockofexternaldebtanddebtservice

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Outstanding debt (public and private) /GDP Debt service/Exports

Source: IMF (WEO & Article IV).


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Economic and political governance

Publicsector

Made up of small and medium-sized enterprises, mainly in the informal economy, the private sector is still in the early stages of development. The sector comprises 3 250 companies in the formal sector, more than 80% of which are located in the capital Bujumbura. These companies employ less than 2% of the working population. More than 65% of these companies operate in the services sector and fewer than 10% have industrial activities.

Overall, private investment’s share of GDP has grown considerably, essentially thanks to tourism (hotels), banking and insurance. In 2000 private investment represented only 2.2% of GDP, but in 2013 it represented 16%. This figure, however, remains well below that of other countries in the sub-region. Furthermore, Burundi struggles to attract foreign direct investment, which represented less than 5% of GDP in 2013, hampered by high production costs and an insufficient energy supply.

The business environment has improved considerably over the past three years. Burundi’s Ease of Doing Business Rank in Doing Business 2014 climbed from 157th in 2012 to 140th in 2013. Ongoing reforms are, however, necessary to stimulate private-sector development further, especially the competitiveness of enterprises. The country is lagging behind other countries in the sub-region, ranking 146th out of 148 countries in the World Economic Forum’s Global Competitiveness Report 2013-2014 with an index of 2.85, compared to 2.9 in 2010. Based on the new private-sector development strategy adopted in 2013, the authorities have committed to tackling the many problems that are holding back the private sector. These include high transport costs, insufficient energy supply and a poorly qualified workforce.

Burundi has made huge strides in harmonising its legislation with regional laws since ratifying the treaty establishing the EAC. A new investment code (Code des investissements) will be adopted in 2014. The code contains measures to provide greater protection to minority shareholders and to provide priority sectors with tax incentives. In addition, a legal framework to facilitate public-private partnerships (PPPs) and a bill on promoting such partnerships are in the process of being adopted. Some sectors, such as mobile telecommunications, fibre-optics and electricity production are already open to PPPs.

Financialsector

Burundi’s financial system is composed of the BRB, 10 commercial banks, 2 financial institutions, 22 microfinance institutions and 6 insurance companies. The country continued to improve the stability of its financial system in 2013, adopting measures to repatriate export revenue from coffee and to open the market to commercial banks with cross-border financing. The opening of access to banks based in other countries in the region (KCB from Kenya and CRDB Bank from Tanzania) revitalised the sector through lending and an increase in the size of the securities market.

Despite these small improvements, the financial system is still not very diversified and is dominated by the banking sector. There is little long-term saving, which makes it difficult to finance investments. The weighted average rate of interest charged by banks, including value-added tax, was approximately 20% in 2013. Loans to the private sector are concentrated in the retail sector (around 60% of the total), which means that most loans (more than 63%) are short-term. Most transactions are done in cash and in person.

The recovery of bank liquidity in 2013 allowed the BRB to limit its interventions essentially to marginal lending and to lower interest rates on the money market. The average interbank market rate was 10.4% in 2013, down from 12.2% in 2012. The average marginal lending rate also fell, from


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14.5% in 2012 to 11.9% in 2013. Nonetheless, commercial banks raised the rates they charged to their customers from an average of 15.4% in 2012 to 16.1% in 2013, while the average deposit rate rose from 8.1% to 8.8%.

Total commercial-bank assets grew by 17% in 2013, partly thanks to a small 4.7% increase in credit to the economy. Customer deposits grew by 29.3%. By contrast, the loans-to-deposits ratio fell slightly from 95.0% in November 2012 to 76.9% year later.

The ratio of non-performing loans in the banking sector increased by around 30% between 2012 and 2013, while the rate of coverage of arrears by specific provisions has remained stable at around 80%. The increase in arrears and uncertainty concerning long-term changes in the macroeconomic environment are the main factors behind the high lending rates, which are considerably higher than deposit rates.

Publicsectormanagement,institutionsandreform

Since 2011, the authorities have developed several sector strategies with action plans to improve the quality of public-sector management and thus combat poverty effectively. Progress has been made in several sectors, especially public-finance management, health care, education and transport. In nominal terms, public revenue increased by 10% in 2012 and 2013 thanks to OBR interventions, but, relative to GDP, it shrank by 14% in 2012 and 13% in 2013.

The introduction of a medium-term expenditure framework (MTEF) for preparing the budget marked a milestone in the introduction of budgeting based on sector policies. This MTEF tool has allowed the government to maintain pro-poor expenditure of 20% in every budget since 2010 (although the share was slightly lower in 2013), with satisfactory take-up rates of more than 90%. Nevertheless, the limited financing for non-salary expenditure restricts the quality of services that ministries can offer, especially non-priority ministries that do not receive foreign aid.

The government intends to continue implementing the good-governance and anti-corruption strategy it adopted in October 2011. This strategy involves creating anti-corruption committees in government ministries and institutions, involving the highest national authorities in the battle against corruption and economic mismanagement, and effectively engaging the bodies responsible for combating corruption, economic mismanagement and violations.

Naturalresourcemanagementandenvironment

Burundi has ratified the three Rio Conventions: on Biodiversity, Climate Change and Desertification. The Kyoto Protocol and the treaty appointing the Central African Forest Commission (COMIFAC) were also ratified. A bill to create and delineate protected areas was passed in 2011 and an environmental-protection police force was created. Other legal and policy frameworks introduced include the Land Code and the Forestry Code, but their implementation is being delayed due to the limited financial resources available.

In October 2013 the government adopted a new code for the mining sector, and regulatory texts are currently being written.

Despite the limited resources of the ministry responsible for the environment, it has undertaken several measures over the past two years. It has rehabilitated degraded areas through the National Reforestation Programme, planting more than 10 million forestry, agroforestry and fruit seedlings annually. It has assessed environmental impact study reports and monitored the environmental impact of development projects subject to the environmental impact study procedure. The ministry has also promoted and distributed improved cooking stoves to reduce wood usage and relieve pressure on forests, and rehabilitated degraded protected areas. It has extended the geodetic network in Gitega and Bujumbura, digitally mapped the city of Bujumbura and digitised multi-use plans and other historical maps. Finally, the ministry has collected, processed, published and distributed hydro-meteorological data.


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Politicalcontext

The political situation in Burundi has been stable since the last elections in 2010, and progress has been made to consolidate democracy and rebuild the country. The Inter-Burundian workshops held under the auspices of the international community in March and May 2013 involved all political parties, including the opposition in exile, and took place in a peaceful atmosphere. As a result of the workshop, political dialogue has been renewed in the run-up to the 2015 elections. The general convention on justice in July 2013 also provided the various stakeholders with the opportunity to put forward proposals to improve the legal system, and beyond that, the country’s governance. Despite this progress, new legislation on the press passed in June 2013 has raised concerns among some parts of the Burundian political class in terms of the legislation’s potential negative consequences for freedom of expression. Furthermore, the run-up to the 2015 presidential election has generated many political tensions, particularly concerning the government’s proposed amendments to the constitution.

In its efforts to bring good governance and tackle corruption, Burundi has made progress in the judicial system, the police force and the prosecution of economic mismanagement. But corruption remains a major concern. In Transparency International’s 2013 Corruption Perceptions Index, Burundi moved eight places up the ranking to 157th. The Burundian authorities have welcomed this progress, but wish to go further, particularly by implementing the Good Governance and Anti-Corruption Strategy (Stratégie de bonne gouvernance et de lutte contre la corruption), adopted in October 2011. This strategy reinforces the President of the Republic’s zero-tolerance approach to corruption.

Social context and human development

Buildinghumanresources

Efforts have focused on implementing the September 2013 law on the organisation of primary and secondary education. The action taken has improved access, equity and the quality of teaching. The gross enrolment rate in 2011/12 was 137.2%, fractionally below the 2010/11 figure of 137.7%, while the primary-school completion rate rose from 53.9% to 68.5% over the same period. There are slightly more girls than boys enrolled in primary schools.

Education spending – half of which went to primary – increased by 23% in 2013, representing a quarter of all government expenditure. Despite efforts by the Burundian authorities and support from the international community, the facilities for primary and secondary education are still too inefficient.

Major progress was made in health care, particularly the implementation of the second five-year development plan for the health-care sector (2011-2015). The reforms have included improving the quality of services and governance, decentralising health services by setting up health-care districts, and developing several strategies for operating the health-care system. The results achieved included: an increase in the proportion of births attended by qualified staff from 66.6% in 2011 to 67.5% in 2012; an increase in the proportion of children receiving required vaccinations from 96% in 2011 to almost 100% in 2012; and an increase in health-care centres’ technical scores from 72% in 2011 to 80% in 2012. In 2013 the proportion of the budget allocated to health care was raised from 6% to 11%. This improvement in the results of the health care sector is largely thanks to a combination of performance-based financing (PBF) and free health care.

Burundi has also made considerable strides in preventing HIV/AIDS and caring for those infected, introducing a system for the accreditation of health facilities so that they can have access to testing equipment and the authorisation to provide antiretroviral treatment directly. The number of facilities increased from 125 in 2011 to 165 in 2012. Finally, the proportion of positive tests fell from 2.6% in 2011 to 2.1% in 2012.


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Povertyreduction,socialprotectionandlabour

Poverty remains a major concern, affecting 68% of the population (69% in rural areas, 34% in urban areas), according to data from the 2006 survey of well-being indicators. The poverty line is estimated at BIF 627 (USD 0.33) a day in urban areas and BIF 525 in rural areas. The Gini inequality index is an estimated 0.385. Resources from the Heavily Indebted Poor Countries (HIPC) Initiative were used to finance pro-poor programmes and are regularly monitored under the reforms supported by the IMF’s ECF and other technical and financial partners, including the African Development Bank, the World Bank and the EU. Large sums in this context have been allocated to various pro-poor programmes, such as free health care for children under five and pregnant women, free primary education, and assistance for the homeless and returnees.

The implementation of the CLSP II was marked by significant increases in the social and agricultural sectors, which accounted for 38% of public expenditure in 2013 (up from 32% in 2012 and 28.9% in 2006). As a result, Burundi gained seven places in the 2013 Human Development Index. The country’s Human Development Index is 0.355, placing Burundi 178th out of 186 countries. Despite these quantitative improvements, there are still major obstacles in terms of quality. Strategic guidelines on human development currently concern improving the quality of health care and education services.

To mitigate the effects of rising food prices on the poor, the zero-rating of tax on 13 food products introduced in 2012 was extended into the first six months of 2013, helping to stabilise inflation. The strategic pillars of CLSP II include strengthening social protection. Social welfare programmes provide support for the main vulnerable groups, but there is a certain amount of fragmentation among the programmes. To protect the most vulnerable sectors of the population, the government rolled out a health-insurance card in 2013 that provides 20% of the population with access to health care, but it is unclear whether the scheme is financially viable. Spending on all forms of social protection in 2012 was estimated at BIF 165 billion, or 4.65% of GDP. Introduced in 2013, the National Council for Social Dialogue (Conseil national pour le dialogue social) should help to strengthen the protection of labour regulations through dialogue among social partners.

Burundi’s uncompetitive economy is characterised by the prominence of the informal sector, which employs nearly 90% of the working population. The lack of private-sector development affects young people the most, with youth employment exceeding 50%. The wage cost of employing a worker is low, but the difficulty involved in firing staff makes companies reluctant to hire new people. There are no labour-regulation mechanisms other than provisions in the Labour Code that bestow certain rights on workers. There are also no legal provisions to protect people who have lost their jobs or are looking for work.

Genderequality

For the third year in a row, the Global Gender Gap Report has acknowledged the government’s efforts and praised the results achieved in reducing the gender gap. The 2013 report’s overall ranking placed Burundi 22nd out of 135 countries. This good result rewards the improvements made in providing women and children under five with access to health care, gender parity in primary-school enrolment since 2010/11, and, especially, the political empowerment of women since 2005.

The rate of labour participation among women (85%) is higher than among men (83%). Fewer than one in ten managers in formally registered businesses are women, but in the informal sector more than seven in ten managers are women.

Intermediate and senior positions of responsibility are still held by far more men than women. Lenders in Burundi also discriminate against women, who have very limited access to credit. Women were, however, recently given the right to take out a business loan or buy a house, and more specific products are being offered by microfinance institutions.


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Other discriminatory laws against women persist in the areas of inheritance, matrimonial regimes and grant elements. The perpetuation of sexual and domestic violence remains a serious concern.

Thematic analysis: Global value chains and industrialisation in Africa

The analysis of value chains in Burundi aims to: organise the population from the base up around high-growth-potential sectors; integrate persons demobilised and displaced by successive conflicts into producer and trader organisations to empower them; improve the population’s access to energy, social services and markets to support the development of value chains; and develop inclusive domestic markets in which the private sector contributes more to poverty reduction.

On a global scale, Burundi has a narrow, undiversified export base, and the few products it presents to the international market are exported in their raw states, with very low value added nationally. Upstream, the industrial system is not developed and is still in its infancy, but Burundi could take advantage of new developments within the framework of the EAC and prospects offered by the mining sector.

Given the absence of data on trade expressed in terms of value added for Burundi, this analysis is based solely on export data from the ITC Trade Map database.

Two companies can be considered models of success in the agri-food sector: Brarudi, a Dutch company that brews beer from wheat, and the Burundi Tea Board (Office du thé du Burundi, OTB), which processes tea. Both companies, however, are poorly integrated into the global value chain.

Coffee accounts for 70% of Burundian exports. Initiatives have been introduced to improve businesses’ value added, mainly by renewing high-quality coffee trees, fertilising soils, and improving hygiene at cleaning and hulling stations.

Tea is the second largest export crop. For a long time the tea sector was dominated by a single public enterprise, the OTB. Following the recent liberalisation of the sector, a new company, Prothem, has entered the market. Tea exports pass through the Kenyan port of Mombasa in their raw state, with low value added. Since the sector’s liberalisation, efforts have been under way to modernise equipment and improve the quality of the product.

Burundi has a considerable mining potential; mining is currently artisanal and informal. It has the world’s second largest nickel reserves and sixth-largest coltan reserves, but the extractive industries provide less than 1% of GDP. A mining code based on international standards has been adopted, and legislation is being drafted to improve the legal framework and cash in on the mining potential. Meanwhile, the government has addressed the country’s energy deficit by building new dams; in transport infrastructure, negotiations are under way to build a railway linking the EAC countries.

The only industries in the manufacturing sector are food and textiles. There is great potential for the food industry, with fruits, vegetables and milk. Some small fruit- and vegetable-processing units are beginning to achieve results. Burundi could export banana, pineapple, passion fruit and tomato juice to the sub-region and the rest of the world. The country has a large milk-production industry, but it has low technological processing capacities.

The Burundian economy has long been dominated by the primary sector, but evidence in the latest national accounts suggest it is turning towards the tertiary sector. Services have boomed in recent years, accounting for 40% of GDP in 2013. The boom has been most prominent in the banking, insurance, post and telecommunications, and hotel and restaurant sectors.

The boom in banking and insurance services is fuelled by the arrival of financial institutions from other countries in the sub-region (KCB and CRDB Bank) and from India (Diamond Trust Bank).


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The post and telecommunications sector, meanwhile, grew considerably thanks to the arrival of new operators using cutting-edge mobile-telecommunications technologies. The coming decades will be marked by intensive Internet use and better quality connections thanks to fibre-optic broadband installations. Despite the lack of statistics, it is clear that the telecommunications sector has contributed significantly to job creation in recent years. The post office has also diversified its range of products.

The hotel and restaurant sector has also boomed. Benefiting from tax exemptions on the construction of new hotels – a measure taken to promote tourism in Burundi – the sector has been growing by 15% a year since 2010, and in 2013 it represented 11% of GDP.

Despite these developments, Burundi is not well integrated into the value chain of the main economic sectors. The country’s only factor of production is its labour, with all other factors coming from abroad.

2014 - UNDP - United Nations Development Programme · Source: Data from domestic authorities;...

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Transcript of 2014 - UNDP - United Nations Development Programme · Source: Data from domestic authorities;...