Bordered by Togo, Burkina Faso, Niger, and Nigeria, Benin has a 121-kilometer-long coastline on the Gulf of Guinea, a population of close to 11.53 million (2018), and an average life expectancy of 61.2 years. Benin’s economy is heavily reliant on the informal re-export and transit trade with Nigeria (estimated at approximately 20% of GDP), and on agriculture, especially cotton, which is the country’s leading export product.
Despite steady, robust economic growth over the past two decades, poverty remains widespread owing to limited growth in per capita terms (only 1.5% on average during the period 2008–2018). The national headcount poverty rate was estimated at 40.1% in 2015 as against 49.5% in 2008 (based on the international poverty threshold set at S$1.90 per person per day in purchasing power parity (PPP) terms).
Greater economic diversification, more efficient public spending, and a more equitable geographical distribution of resources would pave the way for lower poverty rates and more inclusive growth.
Political Context
Benin is a stable democracy, despite some tension surrounding the legislative elections held on April 28, 2019. The most recent presidential elections held in March 2016 were won by the multi-millionaire cotton tycoon, Patrice Talon. The government currently enjoys an absolute majority in Parliament (83 deputies). In accordance with the party system reform approved by the National Assembly in 2018, several political parties and movements were merged to comply with the new Charter of political parties. Benin now has around a dozen State-recognized parties compared to over 200 parties prior to the reform. The next commune-level and local elections are expected to be held in May 2020.
Economic Overview
- The short-term outlook is negative due to the global economic slowdown associated with COVID-19. External transmission channels will play a significant role, particularly the slowdown in the Nigerian economy in the wake of low oil prices and the overall drop in raw material prices, especially cotton. Based on estimates from the International Monetary Fund (IMF), investors have already withdrawn S$83 billion from emerging markets since the start of the COVID-19 crisis. Capital outflows are likely to lead to a sharp drop in foreign direct investment (FDI) and to increased financing costs. The impact of internal transmission channels – reduction in consumption and domestic investment – will depend on contagion risk and the public policy choices made to combat the pandemic.
- Before the spread of the coronavirus, a crisis that will have a negative impact on economic activity and government revenue, Benin had recorded solid economic outcomes between 2016 and 2019, with average real GDP growth of 5.5%. But the decision taken by Nigeria, Benin’s main economic partner, to unilaterally close its land borders with its neighbors in August 2019 has dealt a major blow to economic activity in Benin. Indeed, despite the country’s relative resilience, economic activity slowed to 6.4% in 2019 from 6.7% in 2018 (representing per capita GDP growth of 3.5%).
- On the supply side, growth was driven by agriculture, thanks to extensive cotton production (+18%) in the first half of the year. Industry and services also contributed positively to growth, thanks to the increase in locally-generated electricity following the opening of a new power station. On the demand side, consumer spending and private investment were the major contributors to economic activity. Inflation remained moderate at -0.9% in 2019 owing to heightened agricultural output despite the rise in fuel prices.
- The fiscal deficit (grants included) fell considerably from 2.9% to 0.5% of GDP between 2018 and 2019, driven by the limited execution of externally financed projects that led in turn to a reduction in investment spending, while domestic and non-tax revenue flows compensated in part for the shortfall in customs revenue caused by the closure of the border. The debt-to-GDP ratio was stabilized, moving from 41.5% in 2018 to 41.6% in 2019. The overall risk of debt distress remains moderate.
- The external current account deficit (including grants) widened from -4.6% of GDP in 2018 to -5.1% of GDP in 2019, driven by the drop in cotton prices and the increase in imports of construction inputs and energy products. The key export products were cotton and cashew nuts, while energy products, machinery and construction material made up the bulk of imports.
- Like the eight countries of the West African Economic and Monetary Union (WAEMU), Benin’s monetary policy is managed by the Central Bank of West African States (BCEAO), which keeps the CFA franc pegged to the euro. The BCEAO’s foreign exchange reserves were equivalent to 4.9 months of imports in 2019, against 4.5 months in 2018, owing primarily to community-wide fiscal consolidation and net capital inflows. The real effective exchange rate (REER) depreciated by 5% in 2019, driven by the nominal depreciation of the euro against the US dollar and the persistently lower inflation rate of WAEMU in relation to its trading partners.
The business environment improved in the formal sector but remains weak. Benin occupies position 76 on the Logistics Performance Index and ranks 149 out of 190 countries in the World Bank’s Doing Business report on business regulation. Benin has recently made progress in “starting a business” and “getting electricity,” but must, however, do more in the areas of “getting credit.” Moreover, despite the strides made, Benin continues to grapple with major corruption-related challenges, ranking 85 out of 180 countries on Transparency International’s Corruption Perceptions Index for 2018, with a score of 40/100.
Last Updated: Oct 02, 2020
