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Benin WT/TPR/S/131

I. ECONOMIC ENVIRONMENT

(1) OVERVIEW

1. Benin covers an area of 112,622 km2. It is bordered by Burkina Faso and Niger to the north, Nigeria to the east, the Atlantic Ocean to the south, and Togo to the west. In 2003, its population was approximately 7 million, of whom 44 per cent lived in urban areas. Per capita GDP in 2001 was US$380.1 The rate of demographic growth is fairly high (the birth rate being 2.6 per cent per annum) and average life expectancy is 53 years.

2. Since its trade policies were first reviewed in 1997, Benin has modified its development programme by adopting a Poverty Reduction Strategy Paper (PRSP) in 2002.2 It has also continued with its macroeconomic stabilization and structural reform programme, with the support of a Poverty Reduction and Growth Facility (PRGF) from the IMF, which was renewed in May 2003. Benin’s principal objectives under the PRSP are to control government finance, support the common monetary policy of the West African Monetary Union (WAMU), and to speed up structural reform (cotton subsector and public sector).3 In 2003, Benin met the eight trade criteria monitored by the West African Economic and Monetary Union (WAEMU).

3. Economic growth mainly depends on trends in the primary sector, which fluctuate considerably due to climate variations; the services sector has become more important, to the detriment of other sectors. Average rates of economic growth of 7 to 8 per cent over the period 2000-2014 would be needed to double the per capita gross domestic product (GDP), but the growth rate forecast for 2003 will not enable this goal to be met. The informal sector remains important, but its total size has not been determined.

4. According to the UNDP, Benin is 159th out of 175 countries as far as its human development level is concerned.4 Under the Heavily Indebted Poor Countries Initiative (HIPC), since 2003 Benin has been granted relief amounting to US$124 million (in nominal value), equivalent to US$84.4 million in net present value terms.5 This relief has been granted as a result of the sustained efforts at reform and in order to ensure that the indebtedness criteria do not exceed the thresholds set under the HIPC following the fall in cotton prices.

(2) RECENT ECONOMIC PERFORMANCE6

(i) Growth, employment and poverty

5. Since the first review, the economy has moved ahead in fits and starts (Table I.1). This is due to the difficulties caused by the macroeconomic imbalance and the deeply-rooted structural weaknesses, to which should be added the decline in international prices for cotton (Chapter IV(2)(iii)). According to the authorities, growth in GDP in 2002 was 4.6 per cent and 6.7 per cent in 2003.7 The GDP

1 IMF (2003b).2 Government of Benin (2002).3 IMF (2003b).4 The human development indicator assesses the level reached in terms of life expectancy, education

and adjusted real income. UNDP (2003).5 According to the IMF, to date, the reduction in Benin’s external debt has been US$460 million (IMF

Press Release No. 03/42 of 25 March 2003).6 The main sources consulted were: IMF (2003b); and IMF (2002).7 According to the IMF, growth in GDP in 2002 was some 6 per cent, and the growth forecast for 2003

was 5.6 per cent. IMF (2003b).

WT/TPR/S/131 Trade Policy Review

growth forecast for 2004 is 6.4 per cent, but achievement of this growth objective will depend on the structural reforms introduced under the Poverty Reduction Strategy Paper.

Table I.1Basic economic indicators for Benin, 1997-2004(Share of GDP)

1997 1998 1999 2000 2001 2002 2003 2004a

(percentage of annual change)GDP (percentage) 5.77 4.5 5.0 4.9 6.2 4.6 6.7 6.4

(percentage)Primary 35.8 36.6 35.8 34.9 34.5 33.8 33.8 33.6Agriculture 25.2 26.4 25.5 25.1 24.6 23.8 23.8 23.6Livestock and fisheries 10.6 10.2 10.3 9.8 9.9 10.1 10.0 9.9Secondary 13.5 12.6 12.8 12.9 13.4 13.6 13.7 14.0Mining and manufacturing 8.9 8.3 8.3 8.4 8.7 8.7 8.6 8.8Electricity, gas and water 0.7 0.7 0.8 0.8 0.9 1.1 1.3 1.3Construction and public works 3.9 3.6 3.7 3.7 3.7 3.8 3.9 3.9Tertiary 45.0 44.7 44.4 44.6 44.6 45.0 44.9 45.0Trade 6.4 6.3 6.1 6.8 7.1 7.2 7.6 7.8Transport and telecommunications

16.7 16.4 16.5 16.7 16.7 16.8 16.5 16.5

Non-tradable services 11.1 11.0 10.8 10.4 10.1 10.1 10.0 9.8Other services 10.8 11.0 11.0 10.7 10.7 10.9 10.8 10.9

a Estimates.

Source: Ministry of Finance and the Economy, Economic Forecasting Department.

6. There have not been any major changes in the composition of the GDP since 1997; services and agriculture continue to dominate the economy while the manufacturing sector’s share of GDP remains modest. The role played by agriculture and livestock rearing (the largest employer) in total employment is rising, whereas in the other sectors it is stable or falling. These data cannot be considered wholly reliable because of the size of the informal sector.

7. In 2001, the Government and the parastatal sector employed 8.5 per cent of the working population, formal private enterprises employed 11.2 per cent and informal enterprises 80 per cent of the labour force. The unemployment rate is 5.5 per cent of the working population, but underemployment is estimated to affect 70 per cent of the labour force and is the major problem in the labour market rather than unemployment.8

8. A relatively high rate of demographic growth, together with fluctuations in economic growth, have led to an increase in poverty, especially in rural areas.9 The proportion of the population living below the poverty threshold has risen from 43.4 per cent at the time of the first review to 49 per cent, the majority of these being poor people living in rural areas (59 per cent of economically disadvantaged households). Around two-fifths of the population does not have access to drinking water. The literacy rate is high (compared with the rest of the region and other low-income countries at the global level), but disparities between women and men in terms of education are significant.

8 National Institute of Statistics and Economic Analysis (2002).9 Government of Benin (2002).

Benin WT/TPR/S/131

(ii) Inflation

9. Since 1995, consumer price inflation has fallen sharply, from some 13 per cent to below 3 per cent since 2002. The rise in prices in 2000 and 2001 was mainly caused by higher prices for fuel on the parallel market, which led to an increase in local transport costs, higher prices for pharmaceuticals and stronger demand for cereals. The slower pace of inflation in 2002 was above all due to lower transport costs. Estimates for 2004 show that the rate will remain below 3 per cent, as called for in the WAEMU’s Convergence, Stability, Growth and Solidarity Pact (Table I.2).

Table I.2WAEMU convergence criteria, 1997-2003(Percentage)

Standard 1997 1998 1999 2000 2001 2002 2003

Primary criteriaBasic fiscal balance with HIPC/nominal GDP

>=0 1.4 3.1 3.4 2.4 0.4 0.2 0.1

Basic fiscal balance excluding HIPC/nominal GDP

>=0 1.4 3.1 3.4 2.5 1.3 0.6 0.1

Inflation <= 3 3.3 5.8 0.3 4.2 4.0 2.4 2.8Outstanding debt/GDP <=70 65.3 60.6 59.3 57.5 56.1 56.7 54.3Payments arrears (in CFAF billions)

<= 0 7.9 0.0 0.0 0.0 0.0 0.0 0.0

Secondary criteriaPayroll as percentage of tax revenue

<= 35 39.0 35.1 33.0 31.7 32.7 31.9 31.0

Investment as percentage of domestic resources/tax revenue

>=20 7.5 8.2 11.4 11.5 22.4 19.3 20.8

Current external position excluding grants as a percentage of nominal GDP

<= 5 -7.8 -6.1 -7.6 -4.6 -6.3 -6.2 -5.0

Tax ratio >=17 12.0 12.6 13.1 13.7 13.5 14.4 14.6

Source: WAEMU (2003), Budgetary indicators and convergence criteria in the WAEMU zone.

(iii) Monetary and exchange policy

(a) Institutional arrangements

10. The countries belonging to the West African Economic and Monetary Union (WAEMU), including Benin, have common monetary and exchange policies.10 The WAEMU complements the West African Monetary Union (WAMU) by an economic integration component (Chapter II(6)(iii)(a)) and incorporates its provisions, including a common currency administered by the Central Bank of West African States (BCEAO), a specialized and autonomous institution of the WAEMU. 11 Benin, like the other member countries of the WAEMU, accepted Article VIII of the IMF’s Articles of Agreement on 1 June 1996.

10 The WAEMU Treaty was signed on 11 January 1994 by Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo; Guinea-Bissau acceded to the Treaty on 1 January 1997.

11 Monetary cooperation among member countries of the WAMU, set up in 1962 with a new Treaty signed in 1973, and France dates back to the colonial era. The BCEAO is the result of a monetary cooperation agreement signed with France in 1972 and supplemented by the transactions account agreement of 1973.


11. The franc of the African Financial Community (CFA) is the WAMU’s currency unit. Until 1 January 1999, when the euro became the currency of countries belonging to the European Monetary Union, the CFA franc had fixed parity with the French franc.12 The CFA franc now has fixed parity with the euro: CFAF 1,000 = €1.52449017.13 The introduction of the euro did not lead to any substantive changes as far as the arrangements in the franc zone are concerned.14

12. There is no monetary policy implemented at the national level as the BCEAO is responsible for issuing CFA francs and ensuring their stability. Its responsibilities are set out in its articles of incorporation as follows: to implement the monetary policy guidelines defined by the WAMU Council of Ministers; to transact exchange operations; to hold and administer member countries’ exchange reserves; and to promote the proper functioning of the Monetary Union’s system of payments.

13. The BCEAO defines its monetary policy in such a way as to maintain the rate of external cover for the currency at a satisfactory level and, in principle, to sustain economic activity in member countries without inflationary pressure. The BCEAO supports each member’s monetary policy by fixing objectives for the money supply and credit on an annual basis. These take into account the general financing needs of each member country’s economy and the resources needed to meet them, as determined by each national Credit Committee. There are ceilings for advances to national treasuries, which are subject to an interest rate fixed by the BCEAO, with a penalty if their ceiling is exceeded. Advances have now been frozen at the 31 December 2002 levels, pending the consolidation planned by the monetary authorities. The long-term objective is gradually to guide States towards financial markets by issuing public securities.

14. Maintaining a common monetary policy calls for financial discipline on the part of each country belonging to the Union, which retains its own decentralized economic policy. The WAEMU has established a Convergence, Stability, Growth and Solidarity Pact15, subject to multilateral monitoring since 2000. According to the latest data (2003), provided by the IMF and the WAEMU Commission, Benin meets the eight convergence criteria, with an inflation rate below the threshold of 3 per cent; a debt/GDP ratio below the limit of 70 per cent; and at least 20 per cent of government investment financed from domestic sources.16 The time-limit originally set for the year 2000 has been postponed until mid-2005 due to the problems encountered by some WAEMU member States in meeting the four main convergence criteria (Table I.2).

(b) Foreign exchange regulations17

15. Foreign exchange transactions between the BCEAO and Benin’s commercial banks are at a fixed rate, as are exchange operations by economic operators. In addition, the buying and selling rates for other currencies are determined on the basis of the rate for the euro on the foreign exchange market.

16. In Benin, exchange transactions must be conducted through intermediaries authorized by the Ministry of Finance. Banks and post offices levy a commission of 0.25 per cent for transfers outside the WAEMU and this is transferred to the Ministry of Finance.

12 When the CFA franc was devalued by 50 per cent in 1994, the fixed rate became CFAF 1,000 = F 10.13 The same parity applies to the CFA (Central African Financial Cooperation) franc, which is the

currency of the member countries of the Central African Economic and Monetary Union (CEMAC), whose structure is similar to that of the WAEMU.

14 Decision of the Council of the European Union of 23 November 1998 concerning exchange matters relating to the CFA franc and the Comorian franc (98/683/EC).

15 Additional Act No. 4/99.16 IMF (2003b).17 IMF (2003a).

Benin WT/TPR/S/131

17. Imports exceeding CFAF 500,000 (US$830) must be domiciled with an approved bank.

18. Payments (other than transactions in gold and the issue, advertising and sale of financial instruments) and transfers of capital within the WAEMU are free. The main provisions of the common regulations governing foreign exchange with third countries are the following:

- Sums needed to cover current transactions may be freely transferred subject to submission of supporting documentation;

- The obligation to repatriate earnings from exports to countries outside the WAEMU and their conversion into CFA francs within 120 days following the shipment of the goods;

- Capital may enter freely from any country; and

- Outflow of capital to countries outside the WAEMU is subject to verification based on the submission of supporting documentation (attestation and issue of a transfer authorization by the services of the Ministry of Finance).18

19. Benin allows foreign investors to repatriate capital invested and the profits from their operations, as well as savings on salaries by expatriate staff.

(iv) Budget policy

20. As regards the external economy, Benin still has a chronic deficit in the balance of goods and services, as was the case at the time of the first review of its trade policy (Table I.3). The deficit in commercial transactions of goods has increased sharply (around 44 per cent) since the first review as a result of the fall in global cotton prices, despite the expansion of domestic production of cotton (Chapter IV(2)(iii)). The deterioration in the terms of trade, the increase in the value of imports (petroleum products, intermediate goods, capital goods, services), the obsolescence and low level of diversification in production, together with the practice whereby goods are imported with a view to re-export that is not properly recorded, have also been contributory factors.19

18 According to the provisions of Article 6 of Regulation No. 09/98/CM/UEMOA on financial relations among member States of the WAEMU, investment, loans, deposits and in general all capital movements among member States of the WAEMU are free and not subject to restrictions, pursuant to Articles 76, paragraph (d), 96 and 97 of the WAEMU Treaty and Article 4 of the WAMU Treaty.

19 Ministry responsible for coordination of government action, planning, development and employment promotion (2001) and BCEAO (2002).


Table I.3Balance of payments, 1997-2004

1997 1998 1999 2000 2001 2002 2003 2004a

(CFAF billions)External economyCurrent transactions -64.5 -47.5 -67.8 -57.3 -54.8 -53.7 -65.7 -64.7- Balance in goods -75.3 -93.4 -131.6 -88.1 -131.5 -103.5 -121.4 -108.3- Exports, f.o.b. 233.2 244.4 259.5 279.3 273.9 312.3 322.3 363.8- Imports, f.o.b. 308.5 337.8 391.1 367.4 405.4 415.8 443.7 472.2- Net services -47.4 -36.2 -21.1 -48.3 -42.6 -38.7 -40.5 -51.0- Current transfers 58.2 82.1 84.9 79.1 119.3 88.5 96.2 94.6Debt reduction 1.8 0.0 11.8 4.9 16.6 17.8 0.0 0.0Overall total 0.4 29.7 154.4 63.8 130.2 -50.7 22.4 35.0

percentage of GDPMemorandum items:Trade balance -5.7 -6.4 -8.6 -5.2 -7.2 -5.3 -5.7 -4.6Current balance -4.9 -5.4 -4.4 -3.4 -3.0 -2.7 -3.1 -2.8

a Estimates.Source: Ministry of Finance and the Economy, Economic Forecasting Department.

21. According to estimates by the Government, the deficit in the current balance in 2003 represented 3.1 per cent of GDP (7.5 per cent according to the IMF), while the forecast for 2004 is 2.8 per cent of GDP, in line with the continuing decrease shown in Table I.3.20

22. Benin has seen a rise in revenue from import duties, from CFAF 82.7 billion in 1997 (US$138 million) to CFAF 145.9 billion in 2002 (US$233 million), resulting in particular from higher tariffs following the introduction of the Common External Tariff (Chapter III(2)(iii)(a)) on goods from countries outside the WAEMU zone.21 The IMF has estimated that in 2003 revenue accruing to the State was equivalent to 17 per cent of GDP, whereas in 1996 it had been some 15 per cent. As far as spending is concerned, the authorities wish to limit it to 16 per cent of GDP (2003), although it was 19 per cent in 1996. According to the Economic Forecasting Department at the Ministry of Finance and the Economy, the payroll will absorb around 22 per cent of expenditure in 2004.

(v) Transparency and governance

23. Issues relating to transparency and proper management of public affairs have a direct impact on the overall economic environment and on the conditions under which economic actors take their decisions and operate.

24. The Government of Benin is determined to prevent and combat all forms of corruption and to improve governance. For this purpose, a new strategy to combat corruption was adopted in July 2002. The Government’s objectives relate to the need to enhance transparency by preparing and publishing economic information and by managing public resources in such a way as to ensure responsibility,

20 According to the authorities, this situation is caused by the continuing deficits in the balance of goods and services, whereas current transfers mitigate the extent of the deficit in the balance of goods and services.

21 According to the authorities, the major problems encountered by the customs service in collecting revenue are: (i) the measures taken by the Nigerian authorities, which do not allow Benin to import into Nigeria some key products that to a large extent make up the customs revenue; (ii) the expansion of illicit sales of petroleum products; and (iii) the reduction in traffic in the port of Cotonou, principally as a result of freight going to the ports of Tema (Ghana) and Lomé (Togo), where goods are under-invoiced (Ministry of Finance and the Economy (2002a)).

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efficiency and control of government spending. In December 2003, Benin signed the United Nations Convention against Corruption. The first study on governance and combating corruption should be completed during the first half of 2004.

(3) TRENDS IN TRADE

Breakdown of trade

25. According to the statistics available (Chart I.1), Benin’s exports are as little diversified as they were at the time of the first review of its trade policy and the share of value-added products is still negligible. Although global cotton prices have reached their lowest level since 1994, cotton is still the main export, rising significantly from 46.3 per cent of total exports in 1998 to 65 per cent in 2002. Exports of manufactures still play a minor role despite the textile industry established in Benin (Chapter IV(4)).

26. The breakdown and geographical structure of trade is difficult to circumscribe because of the important role played by informal channels and re-export trade. Benin does not appear to have been able to take full advantage of the situation caused by the crisis in Côte d’Ivoire, especially as regards the re-export of goods arriving in the port of Cotonou and going to landlocked countries; this is due to the proximity of competitor ports, delays in the port of Cotonou and “incidental costs” (frequent road controls) (Chapter IV(5)(iii)(a)).

27. As far as destination is concerned, Benin’s exports have diversified considerably since the first review of its trade policy. Africa and Asia (particularly India) have become its leading export markets, followed by the European Union (Chart I.2). Trade with WAEMU and ECOWAS partners is moving ahead slowly (Chart I.3). According to the authorities, Nigeria is still an important customer, but the majority of trade is not officially recorded.

28. The breakdown of imports appears to have changed little and food products, fuel, electricity, chemicals, and transport machinery and equipment are still at the top of the list (Chart I.1). On the whole, the origin of the imports is still the same, with France occupying first place, followed by Asia, WAEMU member countries, and Nigeria (Charts I.2 and I.3).

Benin WT/TPR/S/131


(4) OUTLOOK

29. Despite some efforts at agricultural diversification, the economy still depends to an excessive extent on the production of cotton. The economy’s recovery seems to be well under way and Benin is the only member that meets all the convergence criteria set by the WAEMU. Nevertheless, the high cost of inputs and its energy dependence are an obstacle to Benin’s industrialization. The rate of economic growth is estimated to be 6.4 per cent for 2004, while the inflation rate will remain below the limit of 3 per cent. The State’s continued withdrawal from economic activities and the reforms undertaken in the public sector should make the economy more dynamic. The impact of the crisis in Côte d’Ivoire does not appear to have affected Benin to the same extent as other countries in the subregion.

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