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Author: The World Bank Group
Affiliated organization: The World Bank Group
Publication site: https://www.worldbank.org/en/home
Publication type : Report, Country Assistance Strategy Document
Date de publication : June 6, 2018
Recent Economic Developments
Economic growth has been steady but too low to achieve sustainable poverty reduction. Benin is a low-income economy with a per capita income of US$770 in 2016. Real gross domestic product (GDP) grew on average by 4.2 percent annually during 2000–2016. Growth has accelerated slightly over the last five years (2012–2016) to around 4.9 percent and was estimated to reach 5.4 percent in 2017. Given rapid population growth (about 3.2 percent), average annual growth in GDP per capita was just over 1 percent for the period, below the Sub-Saharan African average and far below the best performing economies.
Informality predominates in the economy. The informal economy represents 65 percent of GDP engaging 90 percent of the labor force and more than 95 percent of the female labor force. Services and agriculture, accounting for approximately 50 percent and 25 percent of total value added, respectively, are both dominated by the informal sector. The large share of services reflects Benin’s role as a transit and trade hub for landlocked countries, primarily Niger and Burkina Faso, and the large amount of informal reexport trade and commerce with Nigeria, which amounts to some 20 percent of GDP and 25 percent of government revenue.
Economic growth has been steady but too low to achieve sustainable poverty reduction
Benin is a member of the West African Economic and Monetary Union (WAEMU), a group of seven Francophone countries and Guinea Bissau which share a common currency, the CFA Franc. WAEMU members work toward greater regional integration with unified external tariffs. WAEMU has established a common accounting system, periodic reviews of members’ macroeconomic policies based on convergence criteria, a regional stock exchange, and the legal and regulatory framework for a regional banking system.
The economy does not generate enough high-quality jobs for the rapidly growing population. The consistent decline of the manufacturing/industrial sector as a share of GDP over the few decades stands in contrast to most fast-growing developing countries at this stage of development, where labor typically leaves low-productivity agriculture and enters the higher productivity manufacturing sector. Decline in manufacturing employment was not compensated by improvements in services sector productivity as most of its expansion concentrated in the low-productivity and informal sector. Employment in modern services has risen rapidly in recent years but from too low a base to have a significant impact on total employment nationally. Job creation rates in productive sectors remain too low to actively absorb the increasing labor supply, forcing new labor force participants to settle in the informal and low-productivity commerce sector.
The informal economy represents 65 percent of GDP engaging 90 percent of the labor force and more than 95 percent of the female labor force
Fiscal discipline has ensured Benin’s macroeconomic stability over the past decade but with deviations associated with the political cycle. Benin’s fiscal stance had been prudent before the recent electoral period, with limited budget deficits (including grants) of 0.4 percent in 2012, 2.6 percent in 2013, and 1.9 percent in 2014. However, the fiscal deficit increased up to 8 percent of GDP in 2015 when the departing administration followed an expansionary fiscal policy before the 2016 Presidential elections. In addition, most of this additional spending was largely ineffective because of inefficient public financial management (PFM), public investment management (PIM) and procurement practices.
The rural economy has been dominated by low-productivity agriculture where steady output growth has been accompanied by a deforestation rate at over twice the Sub-Saharan average. Analysis of the trends in Benin’s rural natural capital shows increasing values of cropland, pastureland, and forests, indicating a solid foundation for higher productivity and income gains. Still, sustainability issues arise in both agriculture and forestry due to trends in resource degradation, unclear tenure rights, and water stresses exacerbated by climate change. Given the need for improved agricultural productivity and the reliance on these resources by most of the population, including the majority of the poor, these issues are of critical importance in sustainably achieving the twin goals.
Decline in manufacturing employment was not compensated by improvements in services sector productivity as most of its expansion concentrated in the low-productivity and informal sector
Debt is sustainable. The results of the external Debt Sustainability Analysis (DSA) carried out in March 2017 show that Benin’s debt dynamics are sustainable under the baseline scenario, facing a moderate risk of debt distress. Because of the recent debt increase, risk of debt distress is higher than in the 2015 DSA.
Fiscal discipline has ensured Benin’s macroeconomic stability over the past decade but with deviations associated with the political cycle
Real GDP growth is projected to accelerate and average 6.3 percent during the period 2018– 2020. Public investment and private investment, underpinned by improvements in the business environment, are expected to drive growth in the short term and medium term, respectively. Political stability and reforms to the business climate will lead to increase in private investment.
Growth in Benin has been reasonably inclusive, contributing to a marked decline in poverty between 2006 and 2015. World Bank estimates using the international poverty line show a decline in poverty from 61 percent to 50 percent. Despite this decline, the absolute number of poor increased from 5.0 to 5.3 million people, on account of a high rate of population growth of 3.2 percent. Inequality is moderate with a Gini index of 41 in 2015. The decline in poverty is corroborated by improvements in nonmonetary poverty indicators. Maternal mortality, for instance, fell from 498 (per 100,000 live births) in 1996 to 347 in 2014, as did infant and child mortality. Nutrition outcomes improved and so did access to education. The gross enrollment rate for primary education, for instance, increased from 98 percent to 122 percent between 2004 and 2014. Additionally, the poor are more exposed than average to the impact of floods which can be exacerbated by the effects of climate change.
Lacking employment prospects make it all the more difficult to escape poverty. Creation of good jobs, particularly for the poor, has been limited in the current economic structure. Only 13 percent of jobs are salaried positions that typically offer higher earnings and greater security. As two out of three people with salaried jobs have secondary education or higher, most of the poor do not possess the qualifications to compete for such posts. Furthermore, most wage workers come from households in which a parent is also employed in the formal sector. As a result, a majority of the workforce must resort to self-employment (81 percent of jobs), predominantly informal in nature with lower average earnings.
Growth in Benin has been reasonably inclusive, contributing to a marked decline in poverty between 2006 and 2015
The rural-urban poverty divide. The majority of the poor (65 percent) live in rural areas, where they are engaged in smallholder agriculture. Most rural poor are smallholders, cultivating maize and yam for own consumption and sale; and cotton, oil-palm, and fruits and vegetables as cash crops.
The fraction of poor residing in urban areas is relatively high at 35 percent, about three times higher than what is found in other countries in the region. The urban poor are largely engaged in the informal sector, particularly informal (fuel) trade with Nigeria.
Only 13 percent of jobs are salaried positions that typically offer higher earnings and greater security
Lagging regions and the north-south divide. The highest poverty rates are found in the remote departments in the north. Poverty tends to increase from south to north, albeit not uniformly. The northernmost departments have a poverty incidence of 60 percent or higher, but some departments in the south have comparable poverty rates, such as Couffo (57.5 percent). Not only does poverty incidence increase toward the north, the further one moves away from the coast, the less services become accessible. This holds not only for water, electricity, sanitation, and mobile phone coverage but also for social services such as health and education. Malnutrition rates are higher in the north than in the south, families are larger, and the average number of years of education in the north is lower than in the south. Nonetheless, the more heavily populated southern regions account for roughly half of the poor, despite their generally lower poverty rates.