debut fr 07 - African Economic Outlook

Transcription

2007
African Economic Outlook
The African Economic Outlook combines the expertise of the OECD – which produces the OECD Economic
Outlook twice a year – with the knowledge of the African Development Bank on African economies.
The objective is to review annually the recent economic situation and the short-term likely evolutions of
selected African countries. The Outlook is drawn from a country-by-country analysis based on a unique
analytical design. This common framework includes a forecasting exercise for the current and two following
years using a simple macroeconomic model, together with an analysis of the social and political context.
It also contains a comparative synthesis of African country prospects, placing the evolution of African
economies in the world economic context. This edition includes a special focus on water and sanitation
issues. A statistical appendix completes the volume.
African
Economic
Outlook
This volume will be of significant interest to decision makers in African and OECD countries, both in the public
and private sectors, such as aid agencies, investors, and government officials of aid-recipient countries.
The African Economic Outlook is a joint project of the African Development Bank and the OECD
Development Centre, with generous support from the European Commission.
This publication provides dynamic links (StatLinks) for graphs and tables. These StatLinks direct the user
to a web page where the corresponding data are available in Excel® format.
COUNTRIES COVERED
• ALGERIA • ANGOLA • BENIN • BOTSWANA • BURKINA FASO • CAMEROON • CHAD • CONGO • CÔTE D’IVOIRE
• DEMOCRATIC REPUBLIC OF CONGO • EGYPT • ETHIOPIA • GABON • GHANA • KENYA • MADAGASCAR
• MALAWI • MALI • MAURITIUS • MOROCCO • MOZAMBIQUE • NAMIBIA • NIGER • NIGERIA • RWANDA
• SENEGAL • SOUTH AFRICA • TANZANIA • TUNISIA • UGANDA • ZAMBIA
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2006/2007
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Également disponible en français sous le titre :
PERSPECTIVES ÉCONOMIQUES EN AFRIQUE
© OECD, African Development Bank (2007)
No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications
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© AfDB/OECD 2007
THE AFRICAN DEVELOPMENT BANK GROUP
The African Development Bank Group is a regional multilateral development finance institution the members
of which are all of the 53 countries in Africa and 25 countries from Asia, Europe, North and South America.
The purpose of the Bank is to further the economic development and social progress of African countries,
individually and collectively. To this end, the Bank promotes the investment of public and private capital for
development, primarily by providing loans and grants for projects and programmes that contribute to poverty
reduction and broad-based sustainable development in Africa.
The non-concessional operations of the Bank are financed from its ordinary capital resources. In addition,
the Bank’s soft window affiliates – the African Development Fund and the Nigeria Trust Fund – provide
concessional financing to low-income countries that are not able to sustain loans on market terms.
By the end of 2006, the African Development Bank Group cumulatively approved 3 102 loans and grants
for commitments of close to $59 billion. The commitments were made to 52 regional member countries and
institutions to support development projects and programmes in agriculture, transport, public utilities, industry,
education and health services. Since the mid-1980s, a significant share of commitments has also gone to promoting
economic reform and adjustment programmes that help to accelerate socio-economic development. About 60
per cent of the total Bank Group commitments were financed on non-concessional terms, while the balance benefited
from concessional financing.
3
© AfDB/OECD 2007
Foreword
Foreword
The African Economic Outlook project is a joint initiative of the African Development Bank and the OECD
Development Centre. The Report was essentially drafted by a core team drawn from both institutions, supported
by resource people in selected countries.
A generous grant from the Commission of the European Communities was essential to initiating and
sustaining the project.
4
© AfDB/OECD 2007
Table of Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Part One: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part Two: Country Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
• Algeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
• Angola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
• Benin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
• Botswana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
• Burkina Faso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
• Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
• Chad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
• Congo Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
• Congo Dem. Rep. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
• Côte d’Ivoire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
• Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
• Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
• Gabon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
• Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
• Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
• Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
• Malawi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
• Mali . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
• Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
• Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
• Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
• Namibia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
• Niger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
• Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
• Rwanda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
• Senegal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
• South Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
• Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
• Tunisia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515
• Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531
• Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545
Part Three: Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563
© AfDB/OECD 2007
5
Acknowledgements
Acknowledgements
The African Economic Outlook was prepared by a team led by Kenneth Ruffing. The core team was composed of Peter Ondiege, Barfour Osei, Mohammed Salisu, Audrey Verdier-Chouchane and Beejaye Kokil at the
Chief Economist Complex of the African Development Bank and Céline Kauffmann, Federica Marzo, Nicolas
Pinaud and Lucia Wegner at the OECD Development Centre.
The comparative synthesis of the Report was drafted by Céline Kauffmann and Kenneth Ruffing with
inputs from: Andrea Goldstein, Federica Marzo, Audrey Verdier-Chouchane and Lucia Wegner.
The country notes were drafted by Farid Benyoucef, Federico Bonaglia, Andrea Goldstein, Sana Harrabi,
Céline Kauffmann, Federica Marzo, Ida Mc Donnell, Peter Ondiege, Felix N’Zue, Barfour Osei, Stephen
Owusu, Nicolas Pinaud, Mohammed Salisu, Désiré Vencatachellum, Audrey Verdier-Chouchane and Lucia
Wegner.
The work on the country notes greatly benefited from the valuable contributions of local consultants: Rose
Aiko (Tanzania), Oluyele Akinkugbe (Botswana), Salmata Ouedraogo (Burkina Faso), William Bekoe (Ghana),
Abderrazak Zouari (Tunisia), Youcef Benabdallah (Algeria), Tabo Symphorien Ndang (Chad), Carlos Nuno
Castel-Branco (Mozambique), Emilio Dava (Mozambique), Klaus Schade (Namibia), Malak Reda (Egypt),
Eric Hazard (Senegal), Yaro Jinjiri (Nigeria), Serge Kpassokro (Côte d’Ivoire), Teigist Lemma (Ethiopia),
Oumar Makalou (Mali), John McGraph (Malawi), Mohamed Derrabi (Morocco), Michel Matamona (Congo),
Thierry Mutombo (Democratic Republic of Congo), Patrick Musila Mwaniki (Kenya), E.S.K. Muwanga-Zake
(Uganda), Robert Ngonthe (Cameroun), Francis Gatare (Rwanda), Chiwama Musonda (Zambia), Modeste
Mfa Obiang (Gabon) and Abdoulaye Zonon (Burkina Faso). The Angola country mission benefited greatly
from the support of Massimo Pronio from the European Commission delegation in Luanda.
The committee of peer reviewers of the country notes included: Maria João Azevedo, Sylvain Dessy, Paul
Koffi Koffi, Anne-Marie Geourjon, Stephen Golub and Arne Wigg.
6
Valuable statistical inputs were provided by Hilaire Kadisha, Koua Louis Kouakou and Fetor Komlan at the
AfDB Development Research Department.
The macroeconomic framework used to produce the forecasting was updated and managed by Céline
Kauffmann and Federica Marzo at the OECD Development Centre and Beejaye Kokil at the African
Development Bank. The statistical annex is the product of a joint work carried out by Beejaye Kokil and
Federica Marzo.
The project also benefited from crucial research assistance provided by Ralph Christian Maloumby-Baka
and Yvette Chanvoédou at the OECD Development Centre and Rhoda Bangurah, Nelson Abiana, Koua Louis
Kouakou and Fetor Komlan at the AfDB Development Research Department. Michèle Girard, Librarian at the
OECD Development Centre, was also of assistance.
The country maps were produced by Roland Pourtier. The maps and diagrams used in this publication in
no way imply recognition of any states or political boundaries by the African Development Bank Group, the
European Union, the Organisation for Economic Co-operation and Development, the Development Centre
or the authors.
A large number of African government representatives, private-sector colleagues and civil society members
provided extremely valuable inputs and comments, including all the participants in the joint AfDB/OECD
Development Centre expert meeting on: Access to Drinking Water and Sanitation. Several institutions also
contributed to the project at various stages: the AfDB country operations departments, the AfDB Water and
sanitation Department, the European Commission delegations in Africa, the African Partnership Forum
Support Unit, the OECD Economics Department, the OECD Development Co-operation Directorate, the
OECD Environment Directorate, the OECD Directorate for Financial and Enterprise Affairs and the World
Bank Economic and Prospects Group. The OECD Development Centre’s Communication Unit, led by Colm
Foy and Sheila Lionet, was responsible for transforming the manuscript into the publication.
Graphic design and layout were done by Vif Argent Communication, Paris
The Outlook was prepared under the overall guidance of Javier Santiso, Chief Development Economist,
OECD Development Centre, Louis Kasekende, Chief Economist, AfDB and Temitope Waheed Oshikoya,
Director, AfDB Development Research Department.
© AfDB/OECD 2007
Preface
Preface
This year’s edition of the AEO contains, once again, grounds for optimism regarding the continent’s sustained
economic development. Backed by favourable commodity prices, increased aid flows, debt forgiveness and, most
importantly, the implementation of needed reforms, economic performance improved in many African countries
in 2006.
Many African governments have taken promising steps towards restructuring their countries’ economies. In
many countries, democracy is becoming deeply rooted, leading in turn to increased participation by civil society
in the political process. Substantial progress has been achieved towards regional co-operation supported by the
NEPAD initiative, under the auspices of the African Union. We are also pleased to note that the first three of
the African Peer Review Mechanism (APRM) reviews have been completed, signifying in concrete terms the
beginnings of a sustained commitment to improved political and economic governance. Furthermore, there appears
to be a resurgent commitment on the part of the international community to support African efforts to mobilise
resources for investment in infrastructure through the Infrastructure Consortium for Africa. These recent
developments provide a sound basis for future economic progress.
Access to drinking water and sanitation is the topic of special focus for this edition of the report. It is to be
deeply regretted that few African countries are on track to reach the Millennium Development Goals set for these
areas. In order for sub-Saharan African countries to reach the drinking water MDG by 2015, annual growth in
the number of people provided with access to safe drinking water would need to triple. For the same countries
to meet the MDG for access to sanitation, a further 35 million people annually would need to be provided with
access to it; this is to be compared with the current pace of 7 million. Financing remains a major issue: government
financing, private-sector participation and development assistance have been largely insufficient to cover the scale
of investments needed.
Within this generally disappointing panorama, many outstanding examples of good performance have
nevertheless been identified. The experiences of the good performers in water and sanitation show that moving
forward requires ambitious reforms in institutions, legal frameworks and policies in order to change the structure
of incentives. They also point to the enormous benefits of strengthening capacity on the ground, notably at local
level where most water management is undertaken, and developing monitoring mechanisms to follow progress
and adopt corrective measures as necessary. They also demonstrate the need for cross-subsidisation between
wealthier and poorer users, and between water and sanitation, as well as the identification of those polluting industries
that should bear the costs of abatement. On the issue of financing, public-private partnerships need to be encouraged
and international effort has to be redoubled to mobilise resources for water and sanitation in Africa.
Looking ahead, economic prospects for 2007 and 2008 are in aggregate positive, though, in view of the likelihood
of a softening in non-oil commodity prices, substantial differences are expected between the experiences of net
oil-exporters and oil-importers. Resource-rich countries will need to ensure that a large part of the windfall gains
now accruing to their treasuries due to favourable terms of trade is directed towards supporting medium- and
long-term development: emphasis will need to be placed on investments in infrastructure and human capital.
Net oil-importing countries will need to ratchet down inflation to single-digit levels while minimising the impact
on growth.
Though the economic prospects are broadly favourable, most countries are of course starting from a very low
base. Human security continues to be severely affected by the vulnerability that accompanies extreme poverty.
Exacerbated by weak governance structures and by internal conflicts, this vulnerability is holding back privatesector development and continues to impede the integration of African countries into the global economy. The
added impetus to the international community’s support to Africa given by the G8 Summit in St-Petersburg has
therefore been essential; the decision of the German presidency of the European Union to maintain this impetus
at Heiligendamm is to be warmly welcomed.
We are pleased that our two organisations have succeeded over the past six years in steadily increasing the
usefulness of the AEO in improving understanding of the changes that are shaping the economy of Africa. We
are proud to announce that this collaboration will continue in the future with the African Development Bank
taking the lead role in this partnership beginning with the 2007/2008 edition.
Donald Kaberuka
President, African Development Bank
Tunis
Louka T. Katseli
Director, OECD Development Centre
Paris
April 2007
© AfDB/OECD 2007
7
.
Part One
Overview
The African Economic Outlook is based upon the
experience and skills of the OECD and the African
Development Bank to provide an annual snapshot of
the economic condition of African countries. It is,
therefore, a reference point and a health check for the
continent as a whole, taking account of the international
situation and the influences of both internal factors
and of the global economy. In this Overview, we
provide an overall analysis of the state of Africa’s
economies in a continental and global context,
identifying and examining key features applied to the
review of each country making up our sample. In this
year’s edition, the special focus is on access to drinking
water and sanitation.
The 31 countries examined in this sixth edition of
the African Economic Outlook account for some 86 per
cent of Africa’s population and 91 per cent of its
economic output. The countries are classified by subregion:
• In North Africa: Algeria, Egypt, Morocco and
Tunisia.
• In West Africa: Benin, Burkina Faso, Côte
d’Ivoire, Ghana, Mali, Niger, Nigeria and Senegal.
• In Central Africa: Cameroon, Chad, the Republic
of Congo, the Democratic Republic of Congo,
Gabon and Rwanda.
• In East Africa: Ethiopia, Kenya, Madagascar,
Mauritius, Tanzania and Uganda.
• In Southern Africa: Angola, Botswana, Malawi,
Mozambique, Namibia, South Africa and
Zambia.
Ours is a comparative assessment and provides a
continent-wide perspective, drawing on the country
studies and supplementary analysis from the OECD
Development Centre and the African Development
Bank.
Economic activity in Africa is estimated to have risen
by nearly 5.5 per cent in 2006, and is expected to
© AfDB/OECD 2007
remain high, at 5.9 per cent and 5.7 per cent in 2007
and 2008, respectively. Oil-exporting countries, however,
are outpacing others by a substantial margin. Moreover,
some countries continue to face serious problems –
including the humanitarian catastrophe in the Darfur
region of Sudan, the economic collapse in Zimbabwe,
conflicts and political unrest in Ethiopia, Côte d’Ivoire,
Somalia, and security problems in the oil-rich delta
region of Nigeria, which are likely to dampen their
growth prospects. Nonetheless, the outlook for much
of Africa continues to be highly favourable. The
continued global expansion – albeit slowing somewhat
– continues to sustain demand for oil and other
industrial raw materials at relatively high prices. At the
same time, a significant increase in official development
assistance (ODA) to Africa, driven largely by debt relief
and emergency assistance, and improving
macroeconomic stability have all contributed to this
positive economic outlook. In addition, increased oil
and mineral production in Southern and Central Africa
and some improvements in the security situation have
boosted growth.
Inflation, however, has returned to double-digit
numbers in net oil-importing countries, mainly due to
increasing oil prices. Current account balances have
improved in many countries, with the largest gains for
exporters of oil and metal ores, while some countries
were adversely affected by higher import bills and lower
prices for some agricultural products, cocoa and cotton
in particular. The windfall gains from commodity prices
have improved public finances, notably in net oil-exporting
countries. These gains will need to be managed carefully
with a sizeable proportion used for investment in transport
and other infrastructure and in human resource
development to lay the basis for sustained economic
growth once the current commodity boom has run its
course. In that respect, the Outlook identifies recent efforts
by a number of oil-exporting countries to improve the
transparency of their petroleum-sector operations and
introduce fiscal rules for the use of oil revenue.
13
Overview
The challenge for net oil-importing countries is
altogether different. While GDP growth is expected to
remain buoyant in 2007 and 2008, inflation is now
running at double-digit levels, mainly due to a more
complete pass-through to consumers of the oil price
increases, and reducing inflation to single-digit levels
may have adverse consequences for growth. Moreover,
the GDP growth forecasts in this edition of the AEO
are associated with increases in current-account deficits
that result from sustained higher oil prices even while
the boom in non-oil commodity prices appears largely
to have run its course. Thus, the forecasts assume that
the additional funds required to finance the deficits will
be forthcoming. This set of challenges for
macroeconomic policy is one of the risks that must be
borne in mind in assessing the current economic outlook
for Africa.
14
Another challenge is associated with the widening
of the large imbalances in the global economy. Should
these unwind in a disorderly fashion, with sharp sudden
movements in exchange rates, a precipitous decline in
world output and, thus, demand for African exports,
cannot be excluded.
After a significant decline throughout much of the
last decade, aid levels have increased in recent years
and Africa is the continent that has benefited the
most. The launch of NEPAD, the Monterrey
consensus on financing for development in 2002,
and the implementation of the Enhanced Heavily
Indebted Poor Countries (HIPC) initiative and the
commitments made at the G8 Gleneagles Summit
(2005) which are expected to further ease external
debt burdens significantly – have all played important
roles in increasing flows of development finance to
Africa. Nonetheless, it remains to be seen whether the
amount of aid will continue to increase, once the
temporary surge in debt relief and emergency aid has
passed. The question is, therefore, whether donors will
be able to mobilise sufficient resources to meet their
commitments, which already fall well short of the
amounts required to help most countries attain the
Millennium Development Goals (MDGs) by 2015.
Thus, an assessment of progress on the MDGs
confirms the diagnosis of last year’s AEO; on recent
trends, only six African countries – most of them in
North Africa – are likely to meet the key target of
halving the share of the population living on less than
one dollar a day.
In this regard, the years 2005 and 2006 witnessed
the development of a series of new initiatives aiming
at providing increased and more effective aid in the run
up to 2015. Outside the Doha Round, the lifting of
quota restrictions on trade in textiles and clothing from
the beginning of 2005 has presented a difficult challenge
to textile-exporting countries in Africa (including North
African countries, Madagascar, and Mauritius), due to
their vulnerability to competition from Asian countries,
and, in particular, China.
With the recognition of its critical role in economic
growth and poverty alleviation, the focus on promoting
good governance has intensified in recent years. The
NEPAD has played an important role here. Thus, the
African Peer Review Mechanism is expected to provide
a candid assessment of African countries and to foster
progress in governance. Ghana, Kenya and Rwanda have
already completed such a review. The Outlook notes that
democracy has started to take root in a number of
countries in the last decade, through, for example,
substantial progress in the electoral process, while
conflicts have started to subside. Corruption, however,
continues to be prevalent in many countries and, despite
progress in macroeconomic management and the
regulatory environment, more needs to be done to
ensure an environment conducive to private-sector
development.
International Environment
Growth in the OECD Area
GDP growth strengthened somewhat to 3.2 per cent
in 2006, the fifth year of the current expansion in
OECD countries, up from 2.7 per cent in 2005 despite
the persistence of sharply higher oil prices. Prospects
are for some slowing of growth, to 2.5 and 2.7 per
cent in 2007 and 2008, respectively (Figure 1), with
growth rates becoming more similar across OECD
© AfDB/OECD 2007
Overview
regions1. A sharp slowdown of growth in the United
States was precipitated by a sharp correction in
residential investment that began in the second quarter
of 2006 and is expected to continue in 2007. However,
other components of domestic demand remain robust.
The expansion in Japan, led initially by exports, has
spread to fixed investment by enterprises and household
consumption, but GDP growth is expected to be
considerably slower than in 2005 and 2006. Domestic
demand in the euro zone accelerated markedly in the
second half of 2006. Investment followed by
consumption is now driving growth as the employment
performance has strengthened. By and large, GDP
growth in the OECD countries in the near term is
expected to exceed or closely approach potential growth,
thus eliminating the output gap and leading to an
increase in fixed capital formation. Growth has
continued to be underpinned by accommodative fiscal
policies, low long-term interest rates, and a stable
outlook for inflation. However, prospects for 2007
and 2008 are for some tightening of monetary policies
in most countries and less expansive fiscal policy.
Outside the OECD area growth has continued to be
especially buoyant in Asia, led by continued rapid
growth in China and India. World trade growth
accelerated to 9.6 per cent in 2006, up from a strong
7.3 per cent in 2005 and is expected to remain buoyant
averaging about 8 per cent in 2007 and 2008.
This strong growth in the OECD area and in Asia
has helped sustain African economic activity in 2005
and 2006, led by growth in export volumes, which
averaged about11.5 per cent per year. The robust growth
in import demand expected for the OECD countries
and Asia in 2007 and 2008 augurs well for sustaining
demand for African exports during the next two years.
15
Figure 1 - Growth in OECD Countries
—— United States
—— European Union
—— Total OECD
%
5
4
3
2
1
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006(e) 2007(p) 2008(p)
Source: OECD (2006), OECD Economic Outlook, December.
http://dx.doi.org/10.1787/735165510457
1. Source: OECD (2006), OECD Economic Outlook, December.
© AfDB/OECD 2007
Overview
Exchange Rates
Concerns over the sustainability of flows needed to
finance the US current account deficit persist. They had
already led to significant exchange rate adjustments,
which strengthened the competitiveness of US exports
vis-à-vis the euro area and Japan during the three year
period, 2002 – 2004. After strengthening by about
12 per cent against the euro in 2005 due to large inflows
of financial capital, the US dollar shed those gains in
the course of 2006 and continued to weaken in early
2007. Thus in January 2007, one euro purchased nearly
48 per cent more dollars than in January 2002
(Figure 2). Changes against other currencies, however,
have been more moderate; and, overall, exchange-rate
adjustments have remained orderly.
Figure 2 - US$ per Euro and per Rand
—— Euro
(base 100 in January 2001)
—— Rand
160
150
140
130
120
110
100
90
80
70
16
60
50
40
jan-01
july-01
jan-02
july-02
jan-03
july-03
jan-04
july-04
jan-05
july-05
jan-06
july-06
jan-07
Source: www.x-rates.com.
http://dx.doi.org/10.1787/330475308837
The weakening of the US dollar against the euro
during 2006 led to a modest appreciation of the effective
exchange rate in the Franc Zone, in the real effective
exchange rates of the West African Economic and
Monetary Union (WAEMU). However, the South
African rand and those countries whose currencies are
pegged to it weakened against the US dollar and even
more so against the euro. These developments partly
reversed the sharp appreciation of these same currencies
that had occurred in 2002/04, strengthening the
competitiveness of non-traditional exports.
Raw Material Prices
Strong world demand and supply shortages were
responsible for commodity prices rebounding sharply
during the global recovery. In nominal dollar terms,
metals and minerals, and oil prices increased the most
between 2000 and 2006 (up about 159 and 128 per cent,
respectively). In domestic currency terms, however,
the impact of these price hikes was dampened somewhat
for many countries because of the depreciation of the
dollar over the same period.
The general rise in global commodity prices has had
a positive impact on the trade balances of many African
countries, although higher oil prices have hurt oil
importers. The countries with the largest gains have
generally been exporters of oil and metal ore. For most
other countries, gains from higher-priced commodity
exports vis-à-vis the prices of manufactured imports have
been roughly equivalent to losses from higher priced
oil imports. However, a number of countries have faced
net losses reflecting lower prices for some agricultural
products – cocoa (down nearly 12 per cent between
2003 and 2005) and cotton (down about 14 per cent
over the same period). The dependence of many
countries on commodity market developments remains
© AfDB/OECD 2007
Overview
a key vulnerability over the medium term. Careful
management of the windfall gains from the increase in
commodity prices is key to avoiding boom-bust cycles
that can result from price volatility.
average $/barrel 60 per year in both 2007 and 2008.
High oil prices have slowed but not derailed the global
expansion; however, oil price uncertainty will continue
to be a major risk factor for economic growth in the
near term.
Oil
Metals
The rise in crude oil prices to record nominal
highs has been accompanied by higher price volatility
(Figure 3). This surge in prices in 2005, which was
largely unanticipated, reflected a number of factors,
including: the level and growth in the global demand
for oil as the global recovery has taken hold; the
disappointing growth in oil production and the
tensions in oil-exporting nations – particularly Iraq,
Nigeria, Russia and Venezuela – and a confrontational
stance with Iran; the low levels of spare oil production
and refining capacity temporarily aggravated by
hurricane-related damage in the Gulf of Mexico; and
the low inventories of crude oil in the OECD
countries. Weather-related problems did not figure in
2006, and there was some easing of political tensions.
But with excess capacity still very low, prices are likely
to remain high, especially if the global expansion
remains solid. The average crude oil price (Brent)
increased from $/barrel 38.2 in 2004 to $/barrel 54.4
in 2005 and $/barrel 65.2 in 2006. The assumption
used in this report is that it will fall back slightly to
Metals prices continued to increase in 2006 to
reach average levels 127 per cent higher than the average
price in 2000, in large part because of China’s high
demand for metals. They are expected to decline slightly
(by 6 per cent) in 2007 and by a further 17 per cent
in 2008, but to remain higher than in 2004. The price
of gold has escalated since mid-2001, triggered by the
reduction of producer hedging – as interest rates lowered
– and by international uncertainty; this benefited South
Africa, the world’s leading producer, and other African
gold producers, such as Ghana and Mali – although
the strength of the rand and the CFA franc dampened
the impact of buoyant commodity prices in South
Africa and Mali especially in 2005.
Prices of other metals also rose substantially in
2005 and 2006. Copper prices rose by 83 per cent in
2006 following a 28 per cent increase in 2005 as the
market remained in deficit on strong demand and
marginal growth in supply; since then, prices have been
Figure 3 - Prices of Oil and Metals
—— Petroleum
—— Gold
----- Copper
----- Aluminium
490
450
410
370
330
290
250
210
170
130
90
50
jan-01
july-01
jan-02
july-02
jan-03
july-03
jan-04
july-04
jan-05
july-05
jan-06
july-06
jan-07
Source: World Bank.
http://dx.doi.org/10.1787/824402588583
© AfDB/OECD 2007
17
Overview
volatile and began to decline in the second-half of
2006. Prices in 2007 are expected to fall by about
14 per cent and by a further 25 per cent in 2008. Gains
in aluminium prices have been more modest over the
last two years but continued to strengthen in 2006,
because of the large expansion of primary aluminium
capacity and exports to China. Zambia (for copper) and
to a lesser extent Mozambique, Ghana, Cameroon and
Guinea benefited from these increases. Metals prices
are expected to decline cumulatively by about 18 per
cent in 2007 and 2008.
Agricultural Products
Prices of tropical commodities have been volatile
and have generally performed poorly (Figure 4). Cocoa
prices reflected the uncertainties generated by the civil
conflict in Côte d’Ivoire, the world’s largest cocoa
producer and exporter. Following record lows in early
2000, prices recovered to reach new highs in early
2003, then fell sharply as a significant supply response
occurred, and fluctuated around a narrow range during
the period 2004/06.
Figure 4 - Prices of Tropical Beverages
—— Cocoa
----- Tea
—— Coffee (arabica)
----- Coffee (robusta)
300
250
200
18
150
100
50
0
jan-01
july-01
jan-02
july-02
jan-03
july-03
jan-04
july-04
jan-05
july-05
jan-06
july-06
jan-07
Source: World Bank.
http://dx.doi.org/10.1787/807530736514
The prices of coffee, exported by many African
countries, increased substantially in 2002; they held
fairly steady (increased for the Arabica variety) in 2004
and then increased sharply in 2005 (by 41 and 43 per
cent for Robusta and Arabica varieties, respectively),
recovering the levels of early 2000. They fluctuated
around these higher levels throughout 2006, with the
Robusta variety moving sharply upward in the second
half of the year. Little change in their current levels is
expected in 2007 and 2008 because the fundamentals
for coffee remain weak, with little growth expected in
consumption while global stockpiles remain abundant.
Tea prices in 2006 were little changed compared
with 2004 or 2005, but are still about 12 per cent
below their 2000 levels, and are expected to remain at
about the same levels in 2007 and 2008. The outlook
is not favourable, given the declining trend in
consumption growth and the continued growth in
output.
Cotton prices rose by slightly more than 4 per cent
in 2006 recovering a small part of the losses in 2004
and 2005. By the end of the year, they were about
where they had been in mid-2003 (Figure 5). They are
not expected to improve much in 2007 and 2008,
perhaps gaining another 3 or 4 per cent cumulatively.
This drop has substantially lowered export earnings in
countries like Mali, Benin, and Burkina Faso for the
past two years. The cotton price illustrates the problems
encountered by some of the poorest sub-Saharan
countries in the context of trade distortions. West and
© AfDB/OECD 2007
Overview
Central African countries produce low-cost, high-grade
cotton, but face unattractive world prices, which have
been dampened by the provision of substantial subsidies
from developed countries in recent years. An additional
burden for the cotton-producing countries in the CFA
zone has been the appreciation of the euro against the
US dollar since 2000.
The “cotton initiative” launched in September 2003
by four West African countries (Benin, Burkina Faso,
Mali and Chad) to end cotton subsidies in WTO
member countries was finally included in the WTO
General Council decision reached in mid-2004 on the
framework to proceed with agricultural negotiations.
At the WTO Ministerial Meeting in Hong Kong,
Figure 5 - Price of Cotton
130
120
110
100
90
80
70
60
50
19
40
jan-01
july-01
jan-02
july-02
jan-03
july-03
jan-04
july-04
jan-05
july-05
jan-06
july-06
jan-07
Source: World Bank.
http://dx.doi.org/10.1787/451820817024
further progress was made, including setting a timetable
for its implementation. However, with the suspension
of negotiations this potential improvement is on hold.
In the meantime, there is a need to speed up the
process of providing assistance to African producers
until the removal of subsidies results in higher world
prices. In the present situation of low prices, distorted
by subsidies, African production costs are above the
world price, which threatens cotton production in
countries where the sector is key – an estimated
12 million people are dependent on cotton for their
livelihood in West Africa.
Official Development Assistance (ODA)
Official Development Assistance has been
growing steadily since the beginning of the decade,
with net ODA disbursements reaching $107 billion
in 2005. This represents 0.33 per cent of the
combined gross national income of members of the
OECD’s Development Assistance Committee
(DAC), up from 0.26 per cent in 2004 and the
highest ratio since 1992.
About 70 per cent of the real increase between
2004 and 2005 ($18 billion out of $25 billion) is
explained by debt relief, heavily dominated by the
Paris Club settlements for Iraq and Nigeria. Thus the
increase was heavily concentrated by recipient country,
and delivered in a form which does not provide new
transfers to the recipient. Humanitarian aid also
increased for the second successive year. Much of this
increase was concentrated in Iraq and Afghanistan.
As a result, ODA other than humanitarian aid and debt
relief to the vast majority of recipients rose only very
slightly in real terms.2
2. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.
© AfDB/OECD 2007
Overview
If all the commitments made in 2005 to increase
aid are met, including the pledge to double aid to
Africa announced at the G8 summit in Gleneagles,
ODA from DAC donors alone will rise by almost
$50 billion in real terms between 2004 and 2010, to
nearly $130 billion (at 2004 prices and exchange rates)3.
Yet the expected increase of ODA is less impressive
when measured as a share of gross national income
(GNI). The estimated figure for 2010 (0.36 per cent
of total DAC GNI) would only marginally exceed the
average level of 1980-92 (0.33 per cent), and would
still fall short of the estimated financing required for
countries to attain the MDGs by 2015.
In addition, according a partial survey of DAC
members carried out in 2006, aid commitments to
2008 appear to fall well short of the trend increases
required by many DAC members to reach their 2010
targets. The sharp rise of ODA in 2005 is likely to be
short-term, since future debt deals are unlikely to match
the scale of relief granted to Iraq and Nigeria.
20
This issue is particularly worrying in the case of
Africa, to which donors have promised to double
ODA between 2004 and 2010. Debt relief to many
African countries is now complete, and total debt
relief is likely to fall sharply from 2007. To date, debt
reduction packages have been approved for 30
countries, 25 of them in Africa, providing $35 billion
(net present value terms as of the date of reaching the
decision point) in debt-service relief over time4. Other
forms of aid will therefore need to rise very fast – on
the order of 10 per cent per year in 2008-10 – to
compensate. This will mean increasing tax payerfunded aid faster than almost all other forms of public
expenditures in donor countries.
According to the DAC Development Co-operation
Report, a particularly significant test of donors’
intentions will be their willingness to increase the
funding for the next replenishments of the World Bank
and African Development Bank soft funds, the
International Development Association and the African
Development Fund. These institutions also need to
be compensated for the costs of the Multilateral Debt
Relief Initiative (MDRI)5.
Some encouraging signs of additional aid volumes
have come from the launch of innovative forms of
development assistance. In January 2006, six OECD
countries established the International Finance Facility
for Immunisation, which is expected to scale up the
annual spending on vaccines to $500 million, averting
up to 500 000 child deaths a year. 19 OECD and
non-OECD countries have undertaken initial steps
to introduce an air-ticket solidarity levy, and which
may raise a total of $1 to 1.5 billion a year for
development purposes. Three OECD countries have
also agreed on Advanced Market Commitments – a
market based mechanism to support research and
development of vaccines.
Flows from charitable and philanthropic
foundations are also on the increase, from $7 billion
in 2000 to over $11 billion in 2004. They seem likely
to continue to rise, especially in the areas of
humanitarian aid and research into vaccines and tropical
diseases (for example in 2004, the Bill and Melinda
Gates Foundation spent over $800 million on
international health programmes).
Although aid from DAC members will continue
to account for close to 90 per cent of total ODA, nonDAC members are also helping to increase total aid
volumes. For example, Korea has decided to increase
its ODA to 0.10 per cent of its GNI by 2010, which
implies more than doubling its aid to around $1 billion
in that year. Other non-DAC OECD member countries
3. OECD (2007), DAC, 2006 Development Co-operation Report, Paris.
4. IMF Fact Sheet December 2006
5. The MDRI was proposed by the G8 countries in June 2005 to cancel all the multilateral debt held by the World Bank’s International
Development Association (IDA), the IMF and the African Development Bank’s African Development Fund (ADF), incurred before 1
January 2005 with the IMF and the ADF, and before 1 January 2004 for the IDA.
© AfDB/OECD 2007
Overview
such as Turkey, Mexico and several European countries
also have ambitious plans to scale up their aid by 2010.
The non-DAC OECD members of the EU (the Czech
Republic, Hungary, Poland, and Slovakia) and the
other new EU members committed themselves to reach
0.17 per cent of GNI by 2010 and 0.33 per cent by
2015. Official flows from Middle East and other OPEC
countries are also expected to increase, mainly in the
form of loans for project finance. China is also becoming
an important donor. The November 2006 “Beijing
Action Plan” launched in the Forum on China-Africa
Cooperation (FOCAC) resulted in commitments to
double the size of China’s assistance to African countries
by 2009. Although increasingly important, China’s
ODA programmes are likely to be less significant to
developing countries than the effects of its trade, direct
investment and non-concessional financial flows. There
may be a risk, however, of compromising debt
sustainability efforts in the poorer and more aid
dependent countries.
While non-DAC and non-traditional donors are
augmenting the resources available to help developing
countries to reach all the MDGs, this recent trend
poses new challenges for harmonisation and alignment
with recipient country priorities. Non-DAC donors
are a heterogeneous group; the degree to which nonDAC donors apply DAC approaches and norms as
regards the provision of aid varies from country to
country. In addition, the limited data on non-DAC
ODA makes it difficult accurately to assess aid volume
and prospects from these sources.
Figure 6 - DAC Members’ ODA: 1990-2005 and Simulations to 2006 and 2010,
based on Commitments at Monterrey and Since
Total ODA (right scale)
ODA as a % of GNI (left scale)
Total ODA to Africa (right scale)
% of GNI
ODA ($ billion) 2004
150
0,40
0.36
0,35
0.33
0.33
120
0,30
0,25
0.26
90
0.22
0,20
60
0,15
0,10
30
0,05
0
0,00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: OECD/DAC statistics (2007)
http://dx.doi.org/10.1787/573526007704
© AfDB/OECD 2007
21
Overview
Growth of Aid to Africa
Africa’s share of total ODA, which had fallen to
36 per cent by 1999, recovered to 42 per cent in 2004056. This rise was driven largely by debt relief and
emergency assistance, which reached 27 per cent and
11 per cent of total ODA respectively in 2005, more
than tripling their shares since 2000. Emergency aid
from DAC countries, the World Food Programme,
the European Commission and UNHCR has been
channelled to relief and reconstruction in areas affected
by drought, especially in Southern and Western Africa,
and in fragile states, notably in Sudan.
22
Nigeria was the top recipient of ODA in 2005,
receiving about 16 per cent of total aid to Africa (about
$6 billion out of total commitments to Africa of
$37 billion). About 85 per cent of aid to Nigeria was
accounted for by debt relief. The other largest African
recipients included several among the 17 which have
achieved their Heavily Indebted Poor Countries
initiative (HIPC)7 completion point or are in the
process of doing so. Debt relief accounted for more than
50 per cent total aid in Zambia, about 40 per cent in
Ghana, and about 30 per cent in the Democratic
Republic of Congo.
The challenge of the HIPC initiative, and of the
Multilateral Debt Relief Initiative (MDRI), is to
ensure that the resources that are freed from debt
repayment are channelled to expenditures on health,
education and other social services. Although most
of the HIPC countries have increased their spending
in social sectors, difficulties remain to ensure that
money is redirected to social priorities in fragile states.
For example, in Rwanda and Ethiopia, large new
loans are being contracted to meet pressing
reconstruction needs while old debt is simultaneously
being retired. Other countries face challenges to meet
the criteria for reaching the HIPC decision point due
to uneven policy records or poor governance resulting
from civil conflict.
Finally, even after debt relief under the HIPC and
MDRI initiatives is fully implemented, maintaining a
sustainable level of debt service while seeking the
additional financing needed to make progress towards
the MDGs will be a challenging task. For example,
some countries might be tempted to use their improved
creditworthiness to access international capital markets
or export credits and loans with low levels of
conditionality, including from non-DAC donors, risking
a return to high and unsustainable debt levels.
Box 1 - Public Debt Management and Bond Markets in Africa8
The volume of government debt as a percentage of GDP varies across African countries. Some countries have low to moderate burdens,
while in others the level is well in excess of 100 per cent of GDP. In between are countries where the level is in line with that of many
OECD countries. The difference, however, is that the economies of African countries are typically more susceptible to shocks, which
affects the ability of governments to service their debt. This is the case even after benefiting from external debt relief, as many African
countries have under multilateral initiatives.
Modern public debt management practices are used by only a handful of countries. As a result government securities markets in
Africa generally remain rudimentary compared with markets in middle-income and more developed economies. Going forward, riskbased debt sustainability needs to remain a focus of debt strategy in Africa because volatility in the macroeconomic environment is high,
often due to external shocks.
6. Based on region-allocable ODA only.
7. The HIPC initiative, started in 1996, is a comprehensive approach to debt reduction for heavily indebted poor countries pursuing IMF
and World Bank supported adjustment and reform programmes.
8. This analysis is based on an OECD project on African Public Debt Management and Bond Markets. The authors, Greg Horman and
Hans Blommestein, are Financial Analyst and Project Manager, respectively.
© AfDB/OECD 2007
Overview
Box 1 - Public Debt Management and Bond Markets in
Africa8
(cont.)
Foreign-currency debt is more important than local-currency debt in most African countries. Foreign-currency borrowing typically
offers lower interest rates and longer tenors than local-currency borrowing. The predominance of foreign-currency debt in general reflects
the availability of, and continued reliance on, concessional multilateral and bilateral funding but this may entail a currency mismatch
with foreign exchange earnings that can increase a country’s vulnerability. The lack of a developed domestic debt market can lead to
budgetary volatility if the government is unable to draw on domestic funding sources in the event of drop-off in external funding or
grants. A few African countries borrow successfully on the international bond markets, but they tend to be the ones with more developed
domestic markets as well.
A number of African countries have used local-currency funding to some degree since the 1980s, and more recently many countries
have taken steps to develop their domestic markets. The few countries where local-currency debt constitutes the larger share of the debt
portfolio have higher levels of per capita GDP, investment, and savings; stronger financial and banking sectors; more diverse private sectors;
and a lower reliance on concessional funding from external sources.
In much of Africa, however, the issuance of debt in the domestic market often remains erratic and in small volumes, leading to
problems in developing liquid instruments and benchmarks. Local-currency debt is also primarily short-term. One consequence is that
African governments are exposed to significant levels of refinancing risk in respect of their local-currency debt.
Although a few countries issue bonds with tenors of 10 or even 20 years, in many African countries government yield curves do not
extend beyond five years at the longest, and even in those countries where the curves do extend over longer periods, liquidity tends to
be concentrated in the shorter maturities.
Interest payments on local-currency debt often consume a higher share of the budget than interest payments on foreign-currency
debt, even though local-currency debt makes up a lower share of outstanding debt. This is because the interest rates in African domestic
markets tend to be relatively high compared with the interest rates prevailing for foreign-currency borrowing, although borrowing in
local currency has the advantage of avoiding exposure to exchange rate risk. An important policy question for African governments is
the appropriate balance between minimising cost and risk, in particular taking account of the major risks (interest rate, exchange rate,
and refinancing) and the possibility of other budgetary shocks, such as from a sudden drop-off in aid inflows.
In most African countries, local commercial banks represent the largest category of holders of government securities, often in excess
of 50 per cent of outstanding debt. Participation of institutional investors and non-residents is relatively limited in most countries. This
reflects, among other factors, capital account restrictions, limited information on creditworthiness, a perception of high country risk,
and weak legal and regulatory infrastructures. Narrow investor bases, a tendency to hold to redemption, and the absence of entities prepared
to commit risk capital to dealing in government securities contribute to a general lack of secondary market liquidity.
An important policy question for many African countries is what priority to give to stimulating a diverse investor base and developing
market-based instruments, trading facilities, and distribution networks that suit the needs of investors.
Source: Public Debt Management and Bond Markets in Africa, OECD, Paris (forthcoming).
Much of the recent increase in ODA to Africa was
accounted for debt forgiveness and emergency aid,
with loans and grants for programmes and projects
remaining almost unchanged in 2005 (see Figure 7).
The social sectors and governance accounted for about
30 per cent of ODA in 2005 while aid for economic
infrastructure and production sectors was about 17 per
cent, compared to 36 per cent and 18 per cent
respectively in 2004. Programme aid accounted for
about 9 per cent of total ODA compared to 12 per cent
© AfDB/OECD 2007
in 2004. It remains to be seen whether the absolute
amount of this core development aid will rise once the
temporary surge in debt relief and emergency aid has
passed.
The European Commission, France, the United
States, and the United Kingdom are the leading donors
in Africa, accounting for 51 per cent of total aid in the
region, followed by Germany, Japan and the
Netherlands.
23
Overview
Figure 7 - Net Official Development Assistance to Africa
■ Other ODA
■ Bilateral debt forgiveness
(all donors, constant 2004 $ billion)
■ Emergency aid
$ billion 2004
35
30
25
20
15
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: OECD/DAC statistics (2007)
http://dx.doi.org/10.1787/532023360860
24
Donors have continued to focus on a small number
of countries which have historically benefited from
large aid flows: Egypt accounted for 37 per cent of
flows to North Africa, while Nigeria, Ethiopia, Sudan,
the Democratic Republic of Congo, Tanzania, the
Republic of Congo, Mozambique and Zambia
accounted for half of total ODA to sub-Saharan
countries in 2005.
Declaration on Harmonisation of 2003 to reduce the
transactions costs associated with in aid, encourage
more harmonised, joint efforts among bilateral and
multilateral donors, and enhance aid effectiveness
through results-based approaches. It is particularly
noteworthy that all G-20 countries signalled their
support for the Paris Declaration at the G-20 meeting
in Melbourne in November 2006.
Despite the encouraging trend of increasing aid to
Africa, the MDGs remain underfinanced and most of
Sub-Saharan Africa is far from reaching most of the eight
goals.
The aid effectiveness agenda stresses ownership by
recipient countries, alignment of external aid to local
priorities and local delivery channels when these meet
adequate standards, harmonisation and simplification
of donor procedures, a stronger focus on achieving real
results by both recipient countries and donors, and
greater mutual accountability for those results. A set
of indicators has been established to measure progress
in this regard.
Progress in making aid more effective
In addition to the commitment by donors to
increase ODA volumes, steps have been taken by the
international community and African governments to
improve the quality of aid. The international effort on
aid effectiveness has been gaining momentum since
2005 when over 100 partner countries and donors
endorsed the Paris Declaration on Aid Effectiveness.
The participants renewed pledges made in the Rome
According to the 2006 Baseline Survey on
Monitoring the Paris Declaration, about 60 countries
have undertaken actions in support of the Paris agenda.
Substantial progress has been made in a number of
African countries including Burkina Faso, Ethiopia,
© AfDB/OECD 2007
Overview
Ghana, Mozambique and Tanzania in terms of
harmonisation actions (joint analytical work, joint
programming and assistance strategies, programmebased approaches, pooling of financing among donors
and use of country systems when feasible) which have
helped reduce transaction costs.
Nevertheless, the survey suggests that greater
attention is needed in aligning aid flows with national
priorities and improving the transparency of the flows.
There are still substantial discrepancies between the
funds disbursed by donors and the information recorded
in the recipient’s budget9. In addition, the survey
suggests that only a minority of countries have put in
place mechanisms of mutual review of progress on aid
effectiveness commitments.
Against the prospect of scaling up of aid, progress
in the Paris agenda and especially more co-ordination
among aid delivery channels (bilateral funds, multilateral
funds, global funds, and private funds) will be all the
more crucial. In particular, global funds need to support
country-led strategies and priorities and avoid
undermining the capacity of national authorities for
coherent planning, financing and service delivery.
The principles of the Paris declaration have been
put at the heart of the Aid for Trade Agenda, aimed at
helping developing countries benefit from WTO
agreements and expand their trade. The WTO tasks
force issued its recommendations in 2006, calling for
donors active in the provision of aid for trade to abide
by the principles enshrined in the declaration.
Box 2 - Dealing with Complexity: Health Financing in Ghana
The international development finance system has become complex, with a proliferation of financing instruments and new actors,
both public and private, entering the scene. How does this complexity affect a “donor darling” like Ghana, where ODA accounts for a
large percentage of GDP (12 per cent in 2003)?
A recent Development Centre case study identifies three major trends in Ghana’s health sector.
Firstly, donors have diversified their financing instruments. Secondly, household spending on health is growing and bypassing the
Ministry’s budget and purview. Thirdly, new actors have emerged as funding sources and implementing organisations.
This new complexity has important implications for policy makers in developing and donor countries alike. Firstly, they must work
together to strengthen information systems that can capture all flows and help craft effective policies. Strengthening information implies
building capacity in data collection and monitoring. More generally, it also requires that local actors and donor agencies recognise the
high potential of non-aid flows for development.
Secondly, further efforts are needed in implementing the Paris Declaration. Global programmes, for example, have attracted criticism
for contributing to a proliferation of co-ordinating mechanisms at country-level. HIV/AIDS matters, for instance, are now discussed in
meetings of the Ghana Aids Commission (GAC), the Partnership Forum, the Business Meeting, the UNAIDS Technical Working
Group, the GAC Sub-Committee, the Regional Aids Committee, and the District AIDS Committee.
Finally, it must be recognised that the major challenge for decision makers does not relate to finance alone, but to larger issues of
governance and administrative capacity. If recipient-country governments are to take the lead in managing development finance strategies,
they must improve co-ordination and communication between their own national public entities. As donors move to general budget
support in Ghana, for example, the Ministry of Health will need to develop new communication and negotiation skills vis-à-vis the
Ministry of Finance.
Source: Denis Drechsler and Felix Zimmermann, “New Actors in Health Financing: Implications for a Donor Darling”, OECD
Development Centre, Policy Brief No. 33, 2006.
9. OECD (2007) , DAC, 2006 Development Co-operation Report, Paris.
© AfDB/OECD 2007
25
Overview
Box 3 - Improving the Effectiveness of Aid for Trade in Africa
The international community has long recognised the need to provide targeted trade-related technical assistance and capacity
building to promote the integration of developing countries, especially the least developed ones, into the multilateral trading system.
Donors have always provided substantial support to productive sectors and infrastructure to varying degrees long before the emergence
of the Aid for Trade concept. New is the recognition of trade as part of the overall development strategies of countries. Moreover, there
is increased awareness in the trade community of the importance of the so-called “supply side” constraints that hamper the ability of
developing country enterprises to reap the opportunities created by trade liberalisation.
The Doha Development Agenda adopted at the 2001 WTO Ministerial meeting reaffirmed this commitment stressing that the
successful trade integration of LDCs “requires meaningful market access, support for the diversification of their production and export
base, and trade-related technical assistance and capacity building (paragraph 42)”. Following the launch of the Doha round, the OECD
and WTO improved the monitoring of aid flows to strengthen trade capacities, or “aid for trade” (http://tcbdb.wto.org). Provision of
aid for trade has expanded significantly over the last few years, witnessing an increase in funding and in the number of donors and agencies
with explicit strategies and guidelines for aid for trade.
According to the WTO-OECD database, Africa is the largest recipient of trade-related technical assistance and capacity building,
receiving one third of the world total. In 2005 the international community committed $1.03 billion to the continent, a 6 per cent
increase in nominal terms over 2004. Africa also received $3.8 billion of aid to finance infrastructure, placing it as the second largest
recipient after Asia.
Aid commitments for Trade Related Technical Assistance and Capacity Building
and Infrastructure to Africa ($ million, 2005)
26
$ million
Share of Global TRTA (%)
Trade Policy & Regulations
361
39.2
923
Trade Development
667
30.1
2 220
1 029
32.7
3 143
$ million
Share of Total Infrastructure (%)
Total Infrastructure
3 810
31.2
12 197
Total TRTA
Infrastructure
Global TRTA
Source: WTO/OECD Trade Capacity Building Database.
In October 2006, the WTO General Council endorsed the recommendations of the WTO Aid for Trade Task Force. The
recommendations make several proposals to broaden the scope and enhance the effectiveness of trade-related development assistance.
The Task Force also adopted a broader definition of aid for trade by adding to the “traditional categories” of trade-related technical assistance
(trade policy and regulations and trade development) four new categories: (1) trade-related infrastructure, (2) building productive
capacity, (3) trade-related adjustment and (4) other trade-related needs.
In particular, they called providers of aid for trade to abide by the principles agreed in the Paris Declaration on Aid Effectiveness
(including country ownership, aligning aid to national development strategies, donor co-ordination, and harmonisation of donor
procedures). The recommendations insist on improved mainstreaming of trade into national development strategies and in country structures,
using country-based processes such as PRSP and Consultative Groups. In addition, they include proposals for mainstreaming trade and
growth issues in donor programming, including strengthening the trade expertise of donors. At global level, the recommendations point
at strengthening monitoring and evaluation, including by establishing a monitoring body in the WTO, reporting by recipient countries
on trade mainstreaming, reporting by bilateral donors, multilateral and regional agencies and the private sector on aid-for-trade activities.
Source: WTO/OECD Trade Capacity Building Database; Aid for Trade: Making it Effective. OECD (2006); The International Architecture
of Aid for Trade, joint SECO-OECD Development Centre Report (2007), forthcoming.
© AfDB/OECD 2007
Overview
In parallel, with initiatives to improve aid effectiveness,
G8 Heads and African leaders agreed on a comprehensive
package of measures to support Africa’s development.
They set up the African Partnership Forum, a process
intended to give fresh political and strategic impetus to
the currents of cooperation for Africa.
Box 4 - The African Partnership Forum
The Africa Partnership Forum (APF) is a unique international body established following the Evian G8 Summit in 2003 as a way
of broadening the existing dialogue between the G8 and the New Partnership for Africa’s Development (NEPAD) to include other African
institutions and Africa’s major bilateral and multilateral development partners. Its core remit is to catalyse action at the highest political
level in favour of African development. The APF monitors progress achieved in delivering on commitments its membership have
undertaken, identifies bottlenecks, and signals priorities for follow-up action. Members of the APF include “Personal Representatives”
of the Heads of State and Government of African and G8/OECD countries, as well as representatives of the Chairperson of the African
Union Commission and of regional and international institutions. The Forum is governed by four co-Chairs, two from Africa and two
from development partners.
At their October 2006 meeting in Moscow, APF members assessed progress achieved to-date regarding infrastructure, HIV/AIDS
and agriculture across the African continent. The analysis indicated that while encouraging advances had been made in the first two
areas, progress in achieving higher agricultural output and food security – a critical sector for poverty reduction — was lagging behind.
It urged African governments to intensify their efforts and development partners to provide increased and more effective support to this
sector in line with Paris Declaration principles.
Two additional papers on energy poverty and infectious diseases – related to 2006 G8 St Petersburg discussion topics – were also
discussed, and the following recommendations were agreed:
• While energy issues in Africa have not been high on the international agenda, secure and sustainable access to energy is essential
to achieving the MDGs. Mobilising the necessary investment – from both public and private sources – will require African
governments and donors to take concrete steps aimed at improving financial viability in the sector, creating a more hospitable
business climate to reduce risk and attract investors, and bolstering regional co-ordination and integration.
• Infectious diseases impose a heavy burden on Africa: the continent accounts for two-thirds of global mortality from AIDS, malaria
and tuberculosis. While the APF applauded efforts to tackle the “big three” – including through concerted government policy
implementation and the creation for special delivery mechanisms and funds – it warned that the continuing neglect of other major
debilitating diseases constitutes a ticking time bomb. The importance of reinforcing human resources in the health sector was
stressed, as well as the capacity of health systems at national level to tackle the infectious disease burden. APF members acknowledged
the importance of addressing the worrying gender dimensions of the escalating increase in sexually transmitted diseases (including
HIV/AIDs), and asked members to work more resolutely on promoting women’s empowerment and self-determination.
The Africa Partnership Forum will maintain a watching brief on developments in these areas and will report back to the membership
at regular intervals. At its spring 2007 meeting in Berlin, the APF will address investment, climate change, peace and security, and gender.
APF reports may be accessed at www.africapartnershipforum.org
Foreign Direct Investment
After a downturn in 2002, FDI flows to Africa
recovered in 2003 (+ 39 per cent) and remained relatively
stable in 2004 ($18 billion)10. Still, Africa’s share in world
FDI inflows remained small at 3 per cent. High prices
for minerals such as copper, diamonds, gold and
platinum, and particularly for oil, along with the
resulting improved profitability of investment in natural
resources encouraged foreign investment in the region.
10. Sources: UNCTAD (2006a), World Investment Report, Geneva, and UNCTAD (2006b), Global Investment Prospects Assessment
2005-2008, Geneva.
© AfDB/OECD 2007
27
Overview
Inflows rose in 40 out of the 53 countries in Africa,
though they fell in 13, including in some of the region’s
top FDI recipients such as Angola, Morocco and
Nigeria. Cross-border mergers and acquisitions (M&As)
in the mining industry increased to more than three
times their 2003 value. The five top home countries
of FDI for Africa in 2004 were France, the Netherlands,
South Africa, the United Kingdom and the United
States, together accounting for well over half of the flows
to the region.
28
Africa received record high foreign direct investment
(FDI) inflows in 2005 of $31 billion, but this was
mostly concentrated in a few countries and industries,
says the UNCTAD World Investment Report 2006, FDI
from Developing and Transition Economies:
Implications for Development. A sharp rise in corporate
profitability and high commodity prices over the past
two years helped produce a growth rate of 78 per cent
in FDI inflows to the region. Prospects are good for
another increase in 2006 given high project
commitments, large numbers of investors eager to gain
access to resources, and a generally favourable policy
stance for FDI in the region. FDI continued to be a
major source of investment for Africa as its share in gross
fixed capital formation increased to 19 per cent in
2005. However, the region’s share of global FDI
remained low at about 3 per cent in 2005. In the
manufacturing sector, a number of transnational
corporations (TNCs) in the textile industry pulled out
of Africa because quota advantages for African countries
declined after the end of the Multi-fibre Arrangement
(MFA) in 2005.
South Africa was the largest FDI recipient in the
region in 2005, experiencing a sharp jump in inflows
to $6.4 billion from only $0.8 billion in 2004. South
Africa accounted for about 21 per cent of the region’s
total. This was mainly due to the acquisition of
Amalgamated Bank of South Africa by Barclays Bank
(UK) for $5.5 billion. Africa’s top 10 recipient
countries – South Africa, Egypt, Nigeria, Morocco,
Sudan, Equatorial Guinea, the Democratic Republic
of Congo, Algeria, Tunisia and Chad, in that order
– accounted for close to 86 per cent of the regional
FDI total. In eight of these countries, FDI inflows
exceeded $1 billion (more than $3 billion for Egypt,
Nigeria and South Africa in particular). Inflows to
South Africa were also the most diversified:
investment was channelled into energy, machinery
and mining, as well as into banking, which received
the largest share.
At the other extreme, FDI inflows remained below
$100m in 34 African countries. These are mostly least
developed countries (LDCs), including oil-producing
Angola, which witnessed a drastic decline in FDI
receipts in 2005. Many of the low FDI recipients in
the region have limited natural resources; lack the
capacity to engage in significant manufacturing, and,
as a result, are among the least integrated into the
global production system. Some countries have also
experienced political instability or civil war in the recent
past, which destroyed much of their already limited
production capacity.
FDI inflows to the region were concentrated in
a few industries, such as oil, gas, and mining. Six oil
producing countries (Algeria, Chad, Egypt,
Equatorial Guinea, Nigeria and Sudan, in descending
order of the value of FDI) accounted for about 48 per
cent of inflows to the region. Although countries such
as Kenya, Mauritius, Lesotho, Swaziland and Uganda
had begun to receive FDI for their textile and apparel
industries due to the African Growth and
Opportunity Act (AGOA), the trend changed
following the end of the MFA in 2005. In Mauritius
there was a 30 per cent contraction in the volume
of garments manufactured in 2005 following the
departure of Hong Kong (China)-owned companies.
In Lesotho, six textile TNCs closed, with a loss of
6 650 jobs. The setback demonstrates that the impact
of trade-related initiatives can be short-lived in
Africa, where domestic capabilities are inadequate
for quickly absorbing and continuing production
processes. It also underscores the fact that Africa’s
industrial progress requires competitive production
capacity, in addition to better market access and
more welcoming regulatory frameworks. The
persistence of the critical capacity problem may
continue to hamper the region’s ability to attack and
retain FDI in the manufacturing sector.
© AfDB/OECD 2007
Overview
FDI outflows from Africa in 2005 remained small
and originated from a few countries. Six home countries
– Egypt, Liberia, Libya, Morocco, Nigeria and South
Africa – accounted for over 80 per cent of total outflows.
The largest African TNCs are also from a small number
of countries. In 2004, Orascom Construction (Egypt)
also made it onto the list. South Africa’s top TNCs
were: Sasol Ltd (industrial chemicals); Suppi Ltd (paper);
MTN Group Ltd (telecommunications); Steinhoff
International Holdings (household goods); Barloworld
Ltd (diversified); Naspers Ltd (media); Nampak Ltd
(packaging); Gold Fields Ltd (metal and metal products)
and Datatet Ltd (diversified). (UNCTAD.org-World
Investment Report 2006)
Continued high demand for commodities, a more
stable policy environment and increasing participation
in infrastructure networks by African multinational
corporations (MNCs) boosted FDI in 2005. In the
short run, expectations for FDI inflows to Africa
remain fairly positive, although investment promotion
agencies are more optimistic than foreign MNCs.
Both experts and MNCs believe that North African
countries have greater potential to attract FDI than
those in sub-Saharan Africa. South Africa and China
were the most frequently cited as potential sources of
FDI. In recent years, Chinese MNCs have expanded
their resource-seeking and manufacturing activities
on the continent, and Indian firms have begun to
invest in IT-related services.
A relatively new phenomenon is the increase in
FDI outflows (as opposed to portfolio flows and
capital flights, that have long been worryingly high)
from African countries, which more than doubled in
2004. With the purchase of Italy’s second-largest
telecom operator in 2005, Orascom of Egypt joined
the list of African MNEs, hitherto largely limited to
South Africa.
Is Africa the next financial frontier to be explored
by private equity? CDC, an emerging markets private
equity investor owned by the UK government, and
Citigroup has agreed to invest at least $200 million.
They join a small group of specialists who put money
to work south of the Sahara.
Box 5 - Private Equity in Africa
Private equity funds raised $557 million in Africa in 2005, a decrease of 42.7 per cent from 2004. In 2005 government and aid agencies
were the largest source of capital. Over half the funds raised were for additional investments in companies by investors who had invested
in the same companies at an earlier stage (so-called late stage funds).
Direct and portfolio equity investment combined reached $948.3 million in 2005 across Africa, of which South Africa recorded the
largest amount. The vast majority of total investments (96.5 per cent) was provided by domestic investors. Transportation services overtook
consumer products to account for most of the value of investment, attracting 132 domestic investments.
In 2006, a handful of emerging market specialists active in Africa raised new funds in international capital markets. Ethos closed subscriptions
to a $750 million fund in October 2006, Aureos Capital, which already runs three funds which total $140 million, is aiming to raise $400 million
and Citigroup also established a dedicated fund to invest at least $200 million in Africa.
Source: African Venture Capital Association, 2006 Yearbook and other sources
On paper, Africa has attractions. It certainly needs
capital. Local equity markets, however, are small.
Excluding South Africa, sub-Saharan market
capitalisation is about $75 billion, even after some eyewateringly speculative recent rises. Raising debt,
© AfDB/OECD 2007
meanwhile, is a “major problem”, even for cashgenerative companies, says the founder of Celtel, a
private equity-backed mobile company recently sold
to Kuwait’s MTC for $3.4 billion. And private equity,
out of the public eye, may handle risk better than most.
29
Overview
Macroeconomic Performances in
Africa
Economic Growth
Africa as a whole exhibited real GDP growth of
5.5 per cent in 2006 – well above the long-term trend
for the fourth consecutive year – and GDP per capita
grew by about 3.5 per cent. The main factors supporting
this growth performance were strong external demand
for oil and non-oil minerals, increased investment in
these sectors, and good growing conditions for
agriculture in most countries. The continuation of
sound macroeconomic polices in most of the countries
in the continent has also increased business confidence
leading to a pickup in private investment generally.
Table 1 - Average Growth Rates of African Regions
Region
30
(annual % change)
1998-2004
2005
2006(e)
2007(p)
2008(p)
North Africa
West Africa
Central Africa
East Africa
Southern Africa
Total Africa
4.5
4.0
5.0
4.0
3.0
4.0
4.6
5.6
4.9
6.4
5.6
5.2
6.3
4.8
3.9
5.1
5.4
5.5
6.0
5.9
5.2
5.8
6.1
5.9
6.0
5.1
6.3
6.0
5.3
5.7
Memorandum Items:
Net Oil exporters
Net Oil importers
4.5
3.6
5.9
4.7
5.9
5.2
7.4
4.7
6.7
4.8
SANE * Countries
Other Countries
3.8
4.1
5.2
5.3
5.1
6.0
5.4
6.5
5.2
6.2
* South Africa, Algeria, Nigeria, Egypt
Note: Due to lack of data, these aggregates do not include Liberia and Somalia
Source: Various domestic authorities; IMF World Economic Outlook and authors' estimates (e) and projections (p).
http://dx.doi.org/10.1787/185107384555
Growth also appears set to accelerate somewhat on
average in 2007, and to remain buoyant in 2008
notwithstanding the recent softening of commodity
prices most of which are expected to weaken further
in the course of 2007 and 2008. However, this
continent-wide average masks considerable differences
between net oil-exporting and other African countries,
groupings that face very different challenges. The
challenge for the former and for some non-oil mineral
exporters is to ensure that a large proportion of the
proceeds from the minerals sector are invested in
infrastructure and human capital development to
support their medium- and long-term needs for
diversification. For many of the others, especially in
the second half of 2007 and in 2008, it will be to
contain inflationary pressures now running at doubledigit rates as a result of the recent oil price increases,
and to finance or contain the expected increases in their
trade deficits.
As in the previous two years, GDP growth was
particularly strong in net oil-exporting countries, at
5.9 per cent in 2006, the same as in 2005, largely due
to the increase in oil prices and, in some countries,
increases in production as well. However, the growth
differential between these and net oil-importing
countries remains large with average GDP growth in
the latter of 5.2 per cent in 2006 (4.7 per cent in 2005).
This generally strong GDP growth performance is
expected to strengthen somewhat in 2007, when the
average real GDP growth rate for the continent as a
whole is expected to be 5.9 per cent, with net oilexporting and net oil-importing countries exhibiting
real GDP growth of 7.4 and 4.7 per cent, respectively
– a growth differential of more than 2.5 per cent. The
projections for 2008 are for slightly lower growth for
the net oil exporters and about the same for the net oilimporters as in 2007.
© AfDB/OECD 2007
Overview
These forecasts are based on a number of plausible
but somewhat optimistic assumptions, suggesting that
they are subject to significant downside risk. Apart
from assuming continued moderate growth in the
global economy, they also assume that oil prices stabilise
at $60 per barrel in 2007 and 2008; that growing
conditions in agriculture will be favourable in 2007 and
2008; that oil output will increase in 2007 as stability
is restored to the Niger Delta region; that no new
regional conflicts having significant macroeconomic
impacts emerge; and that the worsening current account
balances forecast for many of the net oil-importing
countries will be fully financed. In this respect the
implementation of debt relief agreements for a number
of the HIPC countries that began in 2006 will continue
to be particularly helpful.
North Africa
Real GDP growth in North African countries
averaged 6.3 per cent in 2006, significantly higher
than the 4.6 per cent registered in 2005. It is expected
to remain high at.6 per cent, in both 2007 and 2008.
The high growth rates recorded in 2006 were largely
due to the exceptionally high growth rates estimated
for Mauritania (13.9 per cent) and Sudan (12.1 per cent)
mainly due to increases in oil and gas production, as
well as strong growth in Morocco (7.3 per cent) due
to a recovery of agricultural output with the ending of
the drought, as well as in Egypt (6.8 per cent). The 2007
and 2008 growth rates in most North African countries
are projected to be about the same as in 2006, or higher,
sustained by high prices for oil and gas, and strong
growth in tourism.
West Africa
Economic growth in the countries of West Africa
was 4.8 per cent in 2006, substantially less than in 2005;
it is projected to accelerate to 5.9 per cent in 2007 and
to remain high, at 5.1 per cent in 2008. In the West
African Economic and Monetary Union (WAEMU),
consisting of Benin, Burkina Faso, Côte d’Ivoire,
Guinea-Bissau, Mali, Niger, Senegal and Togo,
economic performance continued to be negatively
affected by the continued political turmoil in Côte
© AfDB/OECD 2007
d’Ivoire – the largest economy within WAEMU.
Growth also slowed in Senegal, due mainly to sharp
reductions in the output of cereals and groundnuts,
as well as industrial output, especially phosphates and
fertiliser. The major positive development in the
WAEMU was the sustained growth in agricultural
production in several of them. In addition to buoyant
agricultural output, Mali benefited from high gold
prices, with the result that GDP growth remained
high at 5 per cent in 2006 after an exceptionally strong
6.1 per cent in 2005.
Within the five non-WAEMU members (The
Gambia, Ghana, Guinea, Nigeria and Sierra Leone),
Nigeria – by far the largest economy in West Africa –
exhibited GDP growth of 5.3 per cent in 2006 down
from 6.5 per cent in 2005 due to disruptions of oil
production in the Niger Delta. Projections for 2007
indicate an acceleration of Nigeria’s growth rate to
7 per cent, mainly due to the recent increase in oil
prices, but also to increased production. Guinea’s growth
performance strengthened in 2006 (5 per cent up from
3.3 per cent in 2005), while Sierra Leone’s and Ghana’s
performance continued to be relatively strong in 2006
(7.4 per cent and 6.1 per cent, respectively) with
particularly good performance in cocoa production
and processing.
Central Africa
Average GDP growth in Central Africa slowed to
3.9 per cent in 2006. Projections indicate an increase
in real growth to 5.2 per cent in 2007 and an acceleration
of growth to 6.3 per cent in 2008. The slower growth
in 2006 was due mainly to an end of the rapid expansion
of oil production in Chad and Equatorial Guinea.
Thus, the trends among Central Africa’s ten countries
are very different, with the Central African Republic,
Rwanda and São Tomé and Principe showing clear
upward trends, while Chad, the Republic of Congo,
and Gabon are expected to exhibit GDP growth of
only about 2 per cent, at least in 2007. Growth is
projected to remain broadly at 2006 levels for the
Democratic Republic of Congo (6.2 per cent) due
mainly to donor-supported reconstruction efforts, and
to accelerate in Burundi (6.6 per cent in 2007 up from
31
Overview
6.1 per cent in 2006). The projections for Cameroon
and Equatorial Guinea show some strengthening of
growth for 2007 and 2008.
East Africa
32
Economic growth in East Africa averaged 5.1 per
cent in 2006, and is projected to accelerate to 5.8 and
6 per cent in 2007 and 2008, respectively. Ethiopia,
Tanzania, and Uganda continued to be the fastest
growing countries within East Africa, growing at 5.9 per
cent, 5.7 per cent, and 5.4 per cent, respectively, in 2006.
All three countries are also projected to broadly maintain
or increase these high growth rates in 2007 and 2008,
exhibiting broad-based growth, but led in some cases
(Uganda) by the agricultural sector. However, these
forecasts are subject to considerable uncertainties due
to the unstable political situation in some countries.
The Comoros, Djibouti, Kenya, Madagascar and
Mauritius, which have recently been exhibiting slow
growth, are expected to experience an acceleration of
GDP growth in 2007 and 2008, reaching about 5.2 per
cent on average in this period. The growth prospects
of Mauritius and Madagascar continue to be negatively
affected by the increased competition from Chinese,
Indian and Bangladeshi textile producers and the end
of the Multi-Fibre Agreement. Eritrea is projected to
improve its growth performance from 1.5 per cent in
2006 to 2 per cent and 3.3 per cent in 2007 and 2008,
respectively, while in the Seychelles GDP growth is
expected to be low as well.
Southern Africa
Economic growth in Southern Africa was 5.4 per cent
in 2006, about the same as in 2005, reflecting rapidly
increasing output from new oil fields in Angola and the
coming on stream of a large number of mega-projects
in the mining sector in Mozambique. In South Africa
growth – at 5 per cent, its highest since the end of
Apartheid – has been broad-based and mainly driven by
domestic demand. In Malawi and Namibia growth
increased as well in 2006, but it slowed in Botswana. In
2007 and 2008, Botswana is expected to grow by slightly
more than 4 per cent per year, and Malawi and Namibia
by about 5 per cent per year. In Zimbabwe, economic
activity continued to decline in 2006, contracting by
about 5 per cent. The projections for South Africa
indicate that GDP growth should remain robust at about
4.5 per cent in both 2007 and 2008, marking an
important break from the relatively slow growth rates
experienced over the past ten years. Overall, the average
growth rate for Southern Africa is projected to increase
from 5.4 per cent in 2006 to 6.1 per cent in 2007,
reflecting the projected near doubling of Angola’s growth
rate from 14.8 per cent in 2006 to 27 per cent in 2007
(largely due to rising oil sector activity in new oil fields,
and to a lesser extent by increased diamond mining).
Inflation
Following the historically low inflation rate of
7.5 per cent in 2004, inflation in Africa increased to
8.8 per cent in 2005 and to 9.1 in 2006, largely due
to the impact of increasing energy prices (although
partially offset by lower prices for imports of
manufactures), and by unfavourable weather conditions,
especially in Southern and West Africa which raised food
prices. This continent-wide average masks important
differences between net oil-exporters and net oilimporters. The latter experienced an upward surge of
inflation from 8.4 per cent in 2005 to 12 per cent in
2006, which is expected to increase further to 12.7 per
cent in 2007 and to 12.9 per cent in 2008.Although
low worldwide inflation still benefited countries with
pegged exchange rates (such as CFA franc countries),
this was far less the case in 2005 and 2006 than in earlier
years as the inflation differential between some CFA
countries and the Euro region increased considerably.
However, there were only 4 countries (Angola, DRC,
Guinea-Bissau, and Zimbabwe) that experienced
inflation rates at or above 20 per cent in 2005, and the
number remained the same in 2006 (DRC, GuineaBissau, São Tomé and Principe and Zimbabwe). The
forecasts assume that monetary authorities will not
need to tighten monetary policy significantly since oil
prices are not expected to increase further.
North Africa
Inflation in North Africa fell back to 4.3 per cent
in 2006 following a temporary increase to 5.9 per cent
© AfDB/OECD 2007
Overview
Table 2 - Weighted Mean CPI Inflation of African Regions
Region
(annual % change)
1998-2004
2005
2006(e)
2007(p)
2008(p)
North Africa
West Africa
Central Africa
East Africa
Southern Africa
Total Africa
4.4
9.4
33.5
5.5
16.3
10.0
5.9
13.6
9.1
8.2
10.7
8.8
4.3
7.7
9.5
9.9
16.5
9.1
4.6
5.7
4.2
5.7
20.1
9.2
4.3
6.7
4.2
5.5
21.3
9.5
Memorandum Items:
Net Oil exporters
Net Oil importers
11.6
8.8
9.4
8.4
5.7
12.0
5.3
12.7
5.5
13.0
SANE * Countries
Other Countries
6.3
14.5
7.1
10.9
4.8
14.2
5.3
13.8
5.3
14.2
Note: Owing to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/053866558216
in 2005 when inflationary pressures gained momentum
in Algeria, Egypt, and Mauritania. Inflation slowed in
Egypt (from 11.4 per cent in 2005 to 4.1 per cent in
2006) and in Mauritania (from 12.1 per cent in 2005
to 6.4 per cent in 2006). However, inflation increased
in Tunisia (from 2 per cent in 2005 to 4.5 per cent in
2006) and to a lesser degree in Libya (from 6.9 per cent
in 2005 to 8 per cent in 2006). The average rate of
inflation in North Africa is projected to remain low in
both 2007 and 2008.
West Africa
The average rate of inflation in West Africa declined
to 7.7 per cent in 2006 after experiencing inflation of
13.6 per cent in 2005. Increases in the prices of both
food, reflecting the impact of drought which provoked
a regional food crisis, and fuel in many WAEMU
countries had a negative impact on inflation.
Nevertheless, the WAEMU countries, whose currencies
are pegged to the Euro, still have a far lower average
inflation rate than the member countries of the West
African Monetary Zone (WAMZ)11, each of which
has inflation rates of at least 5 per cent. In Guinea,
inflation rates declined slightly from 31.1 per cent in
2005 to 25 per cent in 2006. The rate of inflation in
Nigeria also declined from 17.9 per cent in 2005 to
8.6 per cent in 2006. In Ghana inflation declined from
15.1 per cent in 2005 to 10.9 per cent in 2006 and in
Sierra Leone inflation declined from 12 per cent in 2005
to 9.5 per cent in 20006. In The Gambia inflation
rates were low in 2005 to 2006, at 3.2 and 2 per cent,
respectively. Projections for 2007 are for large decreases
in inflation rates, especially in Ghana and Guinea.
Central Africa
The average rate of inflation remained high in
Central Africa at 9.5 per cent in 2006 largely due to
continued high inflation in three countries: DRC
(22 per cent), Rwanda (9.3 per cent) and São Tomé
and Principe (19.8 per cent). In Burundi inflation
dropped from 13.5 per cent in 2005 to 5 per cent in
2006 as weather conditions normalised; and inflation
rates remained stable in the remaining Central African
countries (Cameroon, the Central African Republic,
the Republic of Congo, Equatorial Guinea, and Gabon).
The projections for 2007 and 2008 indicate that
inflation will decrease in Central Africa to 4.2 per cent,
much closer to the convergence target of 3 per cent,
largely due to a return to single-digit inflation rates in
all countries except São Tomé and Principe.
11. Nigeria, Ghana, Sierra Leone, Guinea and Gambia.
© AfDB/OECD 2007
33
Overview
East Africa
Except for Djibouti, Madagascar and Seychelles,
inflation in each of the other countries of East Africa
increased from 2005 to 2006. As a result, the average
rate of inflation in East Africa increased from 8.2 per
cent in 2005 to 9.9 per cent in 2006. In Madagascar,
where inflation had increased to 18.3 per cent in 2005
due to increases in both food and fuel prices, it decreased
to 11.4 per cent in 2006, with the resumption of a
normal rice harvest. In Uganda, inflation decreased
from 8 per cent in 2004/05 to 6.6 per cent in 2005/06
with the ending of the drought. Mauritius, however,
experienced an increase in inflation of 4 percentage
points from 2005 to 2006. The outlook in East Africa
for 2007 and 2008 is for gradual reductions in inflation
rates in every country, except for Seychelles where
inflation is expected to remain low at around 2 per cent.
Thus, the average rate of inflation in East Africa is
expected gradually to fall to 5.7 per cent and 5.3 per
cent in 2007 and 2008, respectively.
34
Southern Africa
Southern Africa’s experience was mixed in 2006,
with 6 countries experiencing higher inflation rates
and 4 countries experiencing stable or lower inflation
rates. Reflecting the relative sharp decreases of inflation
rates in Angola (which thanks to a less expansive fiscal
policy, together with currency appreciation, declined
from 23 per cent in 2005 to an estimated 10 per cent
in 2006) and accelerating inflation in Zimbabwe, the
average inflation rate in Southern Africa accelerated to
16.5 per cent in 2006 from 10.7 per cent in 2005.
Moreover the 2006 inflation rate exceeded 1 200 per
cent in Zimbabwe, clearly pointing to hyperinflation;
and inflation remained above 10 per cent in Angola,
Botswana, Malawi and Mozambique, posing the risk
of accelerating rates. In all countries where inflation has
been high (except Zimbabwe) it is expected to return
to single-digit levels in 2007, and to remain close to
5 per cent in Botswana, Lesotho, Namibia, South Africa
and Swaziland.
Public Finances
In 2006 the overall fiscal balance (including grants)
of the group of net oil-exporting countries exhibited
a surplus equivalent to 8.2 per cent of GDP due mainly
to higher oil prices but also to increases in production.
The group of net oil-importing countries increased its
overall deficit slightly to the equivalent of 2.3 per cent
of GDP in 2006 from 1.9 per cent in 2005. The low
deficit of the net oil-importing countries reflects good
macroeconomic management and a higher level of
grants, including a portion provided in the form of debt
relief. On the one hand, projections for 2007 show a
Table 3 - Average Budget Balance to GDP Ratio
Region
1998-2004
2005
2006(e)
2007(p)
2008(p)
North Africa
West Africa
Central Africa
East Africa
Southern Africa
Total Africa
-1.4
-1.9
-0.6
-3.5
-2.6
-2.0
3.2
5.5
6.5
-2.9
0.4
2.4
5.0
5.7
8.3
-4.7
0.2
3.2
5.3
2.6
7.7
-3.4
0.2
2.7
4.9
0.5
7.8
-3.4
-0.3
2.0
Memorandum Items:
Net Oil exporters
Net Oil importers
-0.8
-3.1
7.0
-1.9
8.2
-2.3
7.3
-2.2
6.1
-2.4
SANE * Countries
Other Countries
-1.8
-2.3
2.5
2.3
2.9
3.5
1.4
4.1
0.6
3.6
Note: Due to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/202878646475
© AfDB/OECD 2007
Overview
large but declining fiscal surplus for the group of net
oil-exporting countries (reaching 7.3 per cent of GDP)
and then declining somewhat in 2008. On the other
hand, the average deficit of the group of net oilimporting countries is expected to remain at about the
same level as in 2006 in both 2007 and 2008.
North Africa
In North Africa the average fiscal balance exhibited
a surplus equivalent to 5 per cent of GDP in 2006, as
the largest oil-exporting countries in the region, Algeria
and Libya, increased their surpluses to 13 per cent and
42 per cent, respectively. Egypt, Mauritania, Morocco
and Tunisia, on the other hand, experienced little
change in their fiscal deficits in 2006. Sudan is estimated
to have eliminated the small deficit exhibited in 2005.
In 2007 and 2008, nearly every country is projected
to improve its fiscal balance except for Algeria whose
fiscal surplus is expected to decrease somewhat.
West Africa
In 2006, fiscal balances deteriorated in 4 countries
in West Africa. However, The Gambia, Guinea-Bissau,
and Sierra Leone registered substantial reductions in
their deficits. In spite of some improvement, 6 countries
registered deficits of 4 per cent of GDP or more (Cape
Verde, The Gambia, Ghana, Guinea-Bissau, Niger,
Senegal). The projections for 2007 and 2008 are for
stable or improving overall fiscal balances in most
countries. In the case of Nigeria, however, the currently
very high fiscal surplus is expected to decrease in both
2007 and 2008.
Central Africa
In 2006 the average fiscal position in Central Africa
improved substantially for the second year in a row as
all countries but one reduced their deficits or increased
or maintained large surpluses. Chad exhibited a small
deterioration. The Republic of Congo, Equatorial
Guinea and Gabon also improved their fiscal balances
significantly, and São Tomé and Principe continued to
register a large surplus in 2006 due to revenue received
from oil exports. Projections for 2007 and 2008 show
© AfDB/OECD 2007
little change in Central Africa’s average fiscal surplus
as a percentage of GDP.
East Africa
Fiscal balances worsened in East Africa in 2006,
reaching -4.7 per cent of GDP. The deterioration was
largely due to increased fiscal deficits in East Africa’s
three largest economies, Kenya, Ethiopia and Tanzania,
accounting for about two-thirds of East Africa’s GDP.
In Kenya, fiscal balances worsened from a small surplus
of 0.1 per cent in 2005 to a deficit of 3.5 per cent in
2006; in Ethiopia, the fiscal deficit increased from
4.7 per cent in 2004/05 to 7.4 per cent in 2005/06;
while Tanzania’s deficit increased from 4.6 per cent in
2005 to 6 per cent in 2006. In 2007 fiscal deficits are
expected to improve somewhat and to remain at about
the same levels in 2008.
Southern Africa
The average fiscal balance of the countries in
Southern Africa exhibited little change in 2006 with
reduced deficits in Malawi, Namibia, and Zimbabwe
offsetting reduced surpluses in Angola and Lesotho. The
projections for 2007 and 2008 show little change for
the region as a whole. However, the fiscal deficits of
Mozambique and Swaziland are expected to worsen,
while the fiscal surplus of Namibia is expected to give
way to a small deficit.
Balance of Payments
In 2006, Africa’s average current account balance
exhibited a large surplus equivalent to 4.7 per cent of
GDP. This overall figure, however, masks large
differences among countries. On the one hand, net
oil-exporting countries recorded a current account
surplus of 12.8 per cent in 2006 (up from 11.7 per cent
in 2005); on the other hand, the group of net oilimporting countries experienced a significant average
current account deficit of 3.9 per cent of GDP in 2006
compared with an average of 2 per cent in the period
1998-2004. These developments in current account
balances were also far more homogenous within the
group of net oil-exporting countries than in the group
35
Overview
of net oil-importing countries. Among the latter, only
two countries improved their current account balances
significantly (Botswana by 2.5 percentage points as a
share of GDP and Mauritania by 8.7 percentage points).
The surplus in the current account balances of net oil-
exporting countries is projected to decrease slightly in
2007 and further in 2008. Meanwhile the average
current account deficits of the net oil-importing
countries in 2007 and 2008 are expected to be about
the same as in 2006.
Table 4 - Average Ratio of Current Account Balance to GDP
Region
1998-2004
2005
2006(e)
2007(p)
2008(p)
North Africa
West Africa
Central Africa
East Africa
Southern Africa
Total Africa
2.9
-3.6
-4.0
-3.3
-1.8
-0.4
10.5
5.3
0.9
-5.5
-2.4
3.6
12.5
3.2
5.2
-6.1
-1.3
4.7
11.9
4.1
2.4
-6.7
-1.4
4.3
10.3
3.7
4.7
-7.1
-3.4
3.1
Memorandum Items:
Net Oil exporters
Net Oil importers
1.4
-2.0
11.7
-3.9
12.8
-3.9
12.1
-3.9
10.0
-4.3
SANE * Countries
Other Countries
0.7
-1.8
4.9
2.1
5.0
4.4
4.1
4.6
2.9
3.4
Note: Due to lack of data, these aggregates do not include Liberia and Somalia.
http://dx.doi.org/10.1787/431735236880
36
Africa’s overall balance of payments has benefited
from increased foreign direct investment flows and
significantly reduced debt service payments in many
heavily indebted poor countries (HIPCs) (see details
in previous section). As of end-2006, 17 African
countries had reached their completion points and 9
additional African countries had reached the decision
point under the enhanced HIPC Initiative.
North Africa
Northern African countries continued to display
large differences in their current account balances in
2006. While Algeria and Libya increased their trade
surpluses to about 24 per cent and 48 per cent of GDP,
respectively in 2006, Egypt and Morocco registered
small and declining surpluses, and Tunisia’s deficit
declined slightly. Mauritania made significant progress
in reducing its current account deficit from nearly
50 per cent in 2005 to 37 per cent in 2006, while
Sudan reduced its current account deficit from 10.6 per
cent in 2005 to 5.9 per cent in 2006. Largely due to
improvements in Algeria, Libya and Mauritania, North
Africa’s current account surplus improved from 10.5 per
cent in 2005 to 12.5 per cent in 2006. In 2007 and
2008 the current account balances of Libya, Mauritania,
Morocco and Sudan are expected to improve, while
those of Algeria, Egypt and Tunisia are expected to
worsen.
West Africa
In 2006, 11 countries in West Africa registered
current account deficits ranging from about 4 to 14 per
cent of GDP. Smaller deficits were registered only in
Cote d’Ivoire and Mali. The average current account
balance in West Africa is dominated by Nigeria where
the current account surplus was 8 per cent of GDP in
2006 down from about 12 per cent in 2005. Little
change is expected in 2007 or 2008 for most of the
deficit countries.
Central Africa
In 2006, the average current account balance in
Central Africa registered a further improvement reaching
a surplus equivalent to 5.2 per cent of GDP, largely due
to further large increases in the nominal value of oil
© AfDB/OECD 2007
Overview
exports, especially in Chad, the Republic of Congo
and Gabon. Four countries (Burundi, the DRC,
Rwanda and São Tomé and Principe) registered
deteriorations in their current account balances, while
the surplus of Equatorial Guinea remained high. In 2007
and 2008 the current account surpluses of most net oilexporting countries in Central Africa are expected to
decrease slightly.
East Africa
In 2006 the average current account deficit in East
Africa widened to reach 6.1 per cent of GDP compared
with an average of 3.5 per cent for the period 19982004. This was largely due to the sizeable deterioration
between 2005 and 2006 in the deficits of Ethiopia
(from 8.6 per cent of GDP in 2005 to 11.5 per cent
of GDP in 2006), Madagascar (from 10.1 per cent of
GDP in 2005 to 16.8 per cent in 2006) and Mauritius
(from 5.2 per cent of GDP to 7.4 per cent). Current
account deficits also widened in Kenya and Uganda.
Tanzania reduced its current account deficit from
7.6 per cent of GDP in 2005 to 5.7 per cent in 2006.
Prospects for 2007 and 2008 are for some further
worsening of current account deficits reaching 6.7 per
cent and 7.1 per cent of GDP in 2007 and 2008,
respectively.
Southern Africa
Among the countries in Southern Africa, Angola
experienced an increase in its current account surplus
to 14.5 per cent of GDP in 2006, up from 12.8 per
cent in 2005, as a result of rising oil production and
prices and of increased diamond production. Botswana
registered an increase in its current account surplus
from 8.1 per cent in 2005 to 8.8 per cent in 2006, and
Namibia also registered an increase in its current account
surplus from 5.7 per cent of GDP in 2005 to 10 per
cent in 2006. The current account deficit of
Mozambique was reduced substantially in 2006, thanks
to buoyant aluminium exports. Nevertheless, a new wave
of mega-projects is expected to result in a strong increase
in capital goods imports and a renewed deterioration
of the current account balance in 2007 and 2008.
Current account deficits in Lesotho and South Africa
© AfDB/OECD 2007
worsened slightly in 2006, but deficits fell in Zambia
and Zimbabwe. South Africa’s current account balance
is projected to remain nearly stable in 2007 and 2008,
while Angola’s very high current account surplus is
projected to narrow slightly in 2007 and then to decrease
substantially in 2008 with a slowdown in the growth
of oil exports.
The Millennium Development
Goals: Progress Report
In making progress towards achieving the
Millennium Development Goals (MDGs) Africa is
lagging behind other developing regions. On current
trends, the average number of targets likely to be met
per country is 2.4 out of 9 in Sub-Saharan Africa and
7.4 in Northern Africa. Nevertheless, those countries
that have adopted appropriate economic policies,
coherent poverty reduction strategies and have a record
of good governance have made considerable progress.
Two main issues appear of particular importance to help
African countries improve their social indicators. The
first one relates to foreign aid. Arguing that large
amounts of well-targeted aid could produce some
remarkable success stories the UNCTAD report
Economic Development in Africa 2006 calls for aid to
be dramatically increased, depoliticised and distributed
multilaterally instead of being concentrated on a
relatively small number of countries. The second issue
is the magnitude of the HIV/AIDS pandemic in Africa
which affects all aspects of socio-economic life, leading
to a decline in economic growth, productivity and
many social indicators. These effects flow from the
erosion of the most productive cohort of the labour force
which reduces total labour input, depresses fiscal
revenues and deepens the social crises of families.
Based on World Bank and UNDP data, Table 5,
Main Progress Towards Achieving the MDGs, shows only
the countries that have already achieved or are on track
to achieve the considered target. A country is “On
track” when the actual growth rate of the indicator is
equal or higher than the required growth rate to achieve
the target. One should note that any situation can be
reversed in the future; the trend from the baseline
37
Overview
scenario to 2015 is not necessary linear. In other words,
even countries that have not achieved or are not on track
to achieve the target this year, could reach it in the
near future. The satisfactory performance ratio is the
percentage of countries that has achieved or is on track
to achieve the target out of the 53 African countries.
Blanks may also indicate missing data.
Goal 1 – Reducing extreme poverty and
hunger by half
Monetary poverty
38
This first target refers to halving, between 1990 and
2015, the proportion of people whose income is less than
one dollar a day. Although Northern Africa (Algeria,
Egypt, Libya, Morocco and Tunisia) and some SubSaharan countries (Botswana, Burkina Faso, Cameroon,
Ghana, Lesotho, Mauritius, South Africa and Uganda)
are making good progress, other countries are not yet
making satisfactory progress. Overall, the poverty rate
in Sub-Saharan Africa has declined marginally, from
44.6 per cent in 1990 to 44 per cent in 2002.
2015. Millions of children presently are not attending
school, especially in rural areas, more than half of them
girls. All North African countries are on track to reach
the target with an average primary enrolment ratio of
94 per cent (64 per cent in Sub-Saharan Africa).
Countries that are “On track” have a ratio greater than
85 per cent and increasing.
Completion rates
Unfortunately, increased enrolment in primary
school has not often translated into increased completion
rates. Children who have not completed a full course
of primary education would not have become fully
literate. The three countries (Egypt, Mauritius, and
Seychelles) that have achieved the target had a
completion rate of at least 99 per cent in 2004.The
percentage of countries with a satisfactory performance
ratio for completion rates is 22.6 per cent. However,
considering both targets (primary enrolment and
completion rates), only Algeria, Cape Verde, Egypt,
Mauritius, Seychelles, Tanzania and Tunisia (13.2 per
cent of African countries) are likely to ensure that all
children complete primary school by 2015.
Hunger
Goal 3 – Eliminating gender disparity
In Africa, the proportion of people who suffers
from hunger has declined from 31.4 per cent in 1990/92
to 29.1 per cent in 2001/03. Hunger is still widespread,
particularly in rural Africa. However, over the same
period 20 countries managed to reduce the proportion
of people suffering from hunger by at least 22 per cent,
including three countries that have achieved the target
of a 50 per cent reduction. The prevalence of the
undernourished as a percentage of the population has
decreased from 53 per cent to 26 per cent in Djibouti,
from 10 per cent to 5 per cent in Gabon and from 37 per
cent to 12 per cent in Ghana.
Goal 2 – Achieving universal primary
education
Primary school enrolment
Only 24.5 per cent of African countries are likely
to achieve universal primary education by
One of the challenges for many African countries
is to ensure access to education for the girl-child.
For the female primary school enrolment ratio as a
percentage of the male ratio, the percentage of
countries with satisfactory performance (62.3 per
cent) is the highest of the nine targets. It was calculated
by considering all the countries that had a ratio of
greater than 85 per cent that was increasing. However,
in secondary education, only 37.7 per cent of
countries are on track. Only six countries (Botswana,
Lesotho, Libya, Mauritius, Namibia, Seychelles) have
achieved gender equality in both primary and
secondary levels of education as indicated in the
United Nations Millennium Declaration “preferably
by 2005”. Thirteen other countries seem able to
reach both targets by 2015 (Algeria, Cape Verde,
Egypt, Ghana, Kenya, Madagascar, Rwanda, São
Tomé and Principe, South Africa, Sudan, Swaziland,
Tunisia and Zimbabwe).
© AfDB/OECD 2007
Overview
Box 6 - Women in Sub-Saharan Africa
According to recent estimates, women provide approximately 70 per cent of agricultural labour and produce about 90 per cent of
all food. Women’s economic activity rate, which measures the percentage of people who furnish the supply of labour for the production
of economic goods, ranks highest compared to other regions of the world (including the OECD countries) with a value of 61.9. However,
women are predominantly employed in the informal sector and/or they occupy low-skill jobs. This can be illustrated by considering the
percentage of women in wage employment in the non-agricultural sector, which scores lowest among all regions of the world with a value
of only 8.5 per cent.
The weak status of women in the formal economy of Sub-Saharan Africa has many reasons. Insufficient access to the key resources
of education and health are two important contributing factors. As is illustrated by the Gender, Institutions and Development Data Base
(GID-DB) of the OECD Development Centre, primary education of females is still at a strikingly low rate of 67 per cent despite international
endeavours such as the second Millennium Development Goal to achieve universal primary education by the year 2015. Unsurprisingly,
illiteracy remains a major challenge. Among those above the age of 15, only 51 per cent of women are able to read and write compared
to 67.1 per cent of men. Improvements in maternal mortality also fall far short of international objectives. The African value of 866
deaths per 100 000 live births – partly due to dismal medical services which only guarantee 50.9 per cent of all births being attended by
skilled health personnel – is alarming and far worse than in any other region of the world.
Apart from these relatively obvious factors, the GID-DB also helps to identify and understand more hidden reasons that obstruct
the socio-economic development of women. The comprehensive data base compiles for the first time in a coherent and systematic fashion
information on inequalities that are based on social norms and traditions. The prevailing family code in many African countries, for
example, discriminates against women in preventing daughters from having an equal share of inheritance or parental authority over their
children after a marriage is dissolved. Similar to South Asian countries, girls often find themselves in arranged or even forced marriages,
into which they enter at very young ages. Compared to an OECD average of 27.4 years, girls in Sub-Saharan Africa marry at only 21.3
years. What is more, 28 per cent of all girls before the age of 20 have been married at least once in their life.
Polygamy is pervasive in many Sub-Saharan African countries and property rights over land are not granted equally to men and
women. Although women may have the right to obtain a bank loan on paper, customs still prevent females from having equal access to
credit in many rural areas in Africa. Other traditions such as female genital mutilation – which in some countries is reported to affect
more than 95 per cent of all women (e.g. in Guinea, Mali, Somalia and Eritrea) – are not only a violation against women’s basic human
rights but also impairs their health status and consequent chances in the labour market. Highlighting the important impact of social
norms and traditions may help to design better policies that can improve the socio-economic status of women in the long-run.
See www.oecd.org/dev/institutions/GIDdatabase for further information.
Note: Sub-Saharan Africa as defined by the World Bank (including Mauritania and Sudan).
Goal 3 also focuses on women’s empowerment in
the areas of employment and political decision making.
On the political front, the number of women in
parliaments has constantly increased over the years.
However, they are still under-represented in politics and
at the highest level of economic institutions and sectors.
Over the period 1990-2006, the share of women in
parliament has increased from 7 per cent to 16 per
cent in Sub-Saharan Africa and from 3 per cent to
7 per cent in Northern Africa. Rwanda is the only
African country which has come close to parity.
© AfDB/OECD 2007
Goal 4 – Reducing child mortality
In Africa, progress towards reducing under-five
mortality rates has been painfully slow. With only
20 per cent of the world’s children under age five, the
region accounted for half of total child deaths
worldwide. The percentage of countries exhibiting
satisfactory performance is particularly low (15.1 per
cent) and even lower (5.7 per cent) in sub-Saharan
Africa. Only three countries in sub-Saharan Africa
(Cape Verde, Comoros, and Eritrea) have managed to
39
Overview
reduce under-five mortality rate by at least 37 per cent
between 1990 and 2004. Due to the HIV/AIDS
pandemic or conflicts, several other countries have
even slipped back over the period 1990-2004 (Botswana,
Central African Republic, Côte d’Ivoire, Equatorial
Guinea, Kenya, Rwanda, South Africa, Swaziland and
Zimbabwe). The majority of children’s deaths can be
attributed to preventable diseases such as polio, smallpox
or parasites; this is due, at least in part, to that fact that
the percentage of children receiving vaccination was only
65 per cent in sub-Saharan Africa in 2004.
Goal 5 – Improving maternal health
40
Only 20.8 per cent of countries are on track to
meet the target of reducing the maternal mortality ratio
by three-quarters by 2015 and no country has yet
achieved the target. In 2000, more than 1 500 women
per 100 000 live births died during pregnancy or
delivery in Angola, Malawi, Niger, Sierra Leone and
Tanzania due to limited access to health care. The
provision of skilled care at childbirth is one of the key
elements necessary to reduce maternal mortality.
However, in sub-Saharan Africa the proportion of
deliveries attended by skilled health care personnel has
increased by only 4 percentage points, from 42 per
cent to 46 per cent, between 1990 and 2004; and
inequality between urban and rural care at delivery
is particularly significant. In contrast, the proportion
has increased from 40 per cent to 71 per cent in
Northern Africa.
Goal 6 – Combating HIV/AIDS, malaria and
other disease
The goal of halting and reversing the spread of
HIV/AIDS, malaria, tuberculosis and other major
diseases by 2015 appears daunting in Africa. Concerning
HIV/AIDS, although some prevention efforts are
proving successful in some places (urban areas of Burkina
Faso, Kenya, and Zimbabwe), deaths and new infections
continue to increase. The world-wide epidemic remains
centred in Sub-Saharan Africa. In 2005, the region
accounted for 64 per cent of HIV-positive adults
worldwide, and 90 per cent of children under 15 living
with the virus. In sub-Saharan Africa, more than
12 million children were AIDS orphans and 59 per cent
of HIV-positive adults were women. The apparent
stabilisation of the HIV prevalence rate in Sub-Saharan
Africa, at about 6 per cent, reflects the fact that as new
people acquire the virus, nearly the same number die
from AIDS. Concerning tuberculosis, Table 5 indicates
that 10 countries (among which six Sub-Saharan
countries) are on track to halve the spread of the disease
by 2015. However, new tuberculosis cases are on the
rise, not only because they are associated with HIV.
Excluding people who are HIV-positive, the number
of new tuberculosis cases per 100 000 has increased from
148 to 281 in Sub-Saharan Africa between 1990 and
2004. Concerning malaria, the fight against the disease
has taken off with the increased availability of insecticidetreated mosquito nets and effective anti-malaria drugs.
However, disparities between rural and urban areas in
sub-Saharan Africa remain large.
Goal 7 – Ensuring environmental
sustainability
Goal 7 embodies reversing the loss of
environmental resources, along with provision of safe
water, adequate sanitation and decent housing. Poverty
across Africa has led to continued loss of forests and
other precious environmental resources. The
proportion of land area covered by forests has decreased
from 29 per cent in 1990 to 27 per cent in 2005 in
Sub-Saharan Africa. The conversion of forests to
agricultural land and the use of fuel wood for heating,
cooking and lighting have caused extensive
deforestation. This in turn has increased drought and
flooding. Sub-Saharan Africa has made little progress
towards achieving the target of improving the lives of
at least 100 million slum dwellers. During the period
1990-2001, the number of people living in slums
increased at an annual average rate of 4.6 per cent.
These families face overcrowding, inadequate housing
and a lack of water and sanitation. However, there has
been progress towards meeting the target of halving
by 2015 the proportion of people without sustainable
access to safe drinking water and basic sanitation.
Five countries have already achieved the target for
improving access to safe drinking water (Egypt,
Malawi, Mauritius, Namibia and Tunisia), and
© AfDB/OECD 2007
Overview
15 countries are “On track”, bringing to 37.7
the percentage of countries with a satisfactory
performance. Concerning sanitation, progress has
been much slower. In sub-Saharan Africa the
proportion of population using improved sanitation
increased on average, from 32 per cent to 37 per cent
between 1990 and 2004, compared to the target for
2015 of 66 per cent. Rapidly growing populations and
wide disparities between rural and urban areas pose
daunting challenges to fully achieving the drinking
water and sanitation targets.
Goal 8 – Developing a global partnership for
development
This broad goal encompasses partnerships between
developed and developing countries through aid, debt
relief, trade, procurement of drugs, creation of work,
exchange of new technologies, etc. Official
development assistance (ODA) to Africa has started
to increase since 2001. It recovered from a low of
$15.3 billion in 2000 to $26.5 billion in 2004. In 2005,
debt relief accounted for three quarters of the aid
increase following the G8 Summit in July 2005
regarding debt cancellation. Other forms of aid rose
by 9 per cent in 2005 and donors have pledged to
double it by 2010. Unfortunately, debt relief as well
as emergency and disaster relief will not necessarily
release more money for poverty reduction and longterm development. Access to essential drugs has
significantly expanded in Sub-Saharan Africa, especially
those for treating HIV following availability of generic
drugs. The number of people on antiretroviral therapy
has increased from 100 000 in 2003 to 810 000 in
2005. Job prospects for youth have not kept pace with
population growth both in sub-Saharan Africa and in
Northern Africa: the rate of youth unemployment
has increased from 18 per cent in 1995 to 18.3 per
cent in 2005 in the former and from 33.9 per cent to
34.5 per cent in the latter. As regards international
trade, producer subsidies in developed countries, and
tariffs and quotas on imports, especially on strategically
important categories, such as clothing and farm
products, still restrict access for African products. The
challenge of the ongoing Doha trade negotiations is
to further reduce such trade barriers.
© AfDB/OECD 2007
Governance and Political Issues
Since the early 1990s, important progress has been
recorded in strengthening democracy, reinforcing the
judiciary and media, and lessening armed conflicts.
The promotion of good governance has also become
a mainstay in the policy dialogue between African
governments and international donors. Nonetheless,
few African political regimes have met the minimum
requirements of representative democracy and the
process of democratisation often suffers from
breakdowns and setbacks to varying degrees of severity.
In many countries the press is still controlled; and
corruption is often perceived as endemic and regarded
as one of the major hindrances to economic and human
development. Moreover, while civil and international
wars are less frequent and less intense than in the past,
Africa remains the world’s most unstable region.
Conflicts and Political Troubles
The AEO political troubles indicator (reported in
the Statistical Annex to this volume) shows a
continuation in 2006 of the long-term decline in political
instability that has been observed since 2002. In Algeria
political troubles have dramatically dropped since 2001,
and in Ethiopia and Kenya there has been an important
and recent decrease in ethnic clashes. In Uganda, the
government and the Lord’s Resistance Army (LRA)
rebels signed an historical truce in August 2006, which
marked a cessation of hostilities and the beginning of
peace talks between the two sides, although the latter
soon came to a halt. In a positive development for Côte
d’Ivoire, President Gbagbo and the chief of the rebels,
Guillaume Soro, signed an agreement on 4 March 2007.
This agreement, which came after months of negotiations
and is known under the name of “Accord Politique de
Ouagadougou”, possibly constitutes the first concrete
step towards the end of the crises that have beset the
country during the past four years.
More generally, the decrease of political instability
in the continent is reflected, among other things, by
the number of state-based armed conflict in sub-Saharan
Africa falling from 13 in 2002 to 5 in 2005, while
reported deaths decreased from 4741 to 1851 over the
41
102
161
163
131
174
169
144
106
172
171
132
140
167
164
148
111
120
157
170
124
155
136
160
173
152
149
999
Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Central African Republic
Chad
Comoros
Congo
Congo, Dem. Rep.
Côte d’Ivoire
Djibouti
Egypt
Equatorial Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea Bissau
Kenya
Lesotho
Liberia
HDI Rank
Indicators
Targets
42
Ensure that all children can
complete primary school
Halve the % of
people
suffering from
hunger
© AfDB/OECD 2007
On track
Achieved
On track
Achieved
On track
Achieved
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
Achieved
On track
On track
On track
Net primary
Children reach
enrolment ratio grade 5
(%)
(% of grade 1)
Achieve universal primary
education
Undernourished
people (%)
Goal 2
Goal 1
Eradicate
extreme
poverty and
hunger
On track
On track
Achieved
On track
Achieved
On track
Achieved
Achieved
On track
Achieved
Achieved
On track
On track
On track
On track
On track
On track
Achieved
Achieved
On track
On track
On track
On track
On track
Under five
mortality
rates
(per 1000 lives)
Female
Female primary
secondary
ratio as % of
ratio as % of
male ratio
male ratio
On track
Reduce by 2/3
under 5
mortality rates
Reduce child
mortality
Goal 4
Eliminate Gender disparity in all
levels of education
Promote gender equality and
empower women
Goal 3
On track
On track
On track
On track
On track
On track
On track
On track
On track
Maternal
mortality ratio
(per 100 000
live births)
Reduce
maternal
mortality
by 3/4
Improve
maternal
health
Goal 5
Goal 7
On track
On track
On track
Tuberculosis
incidence
(per 100 000
people)
Halt and
reverse spread
of
Tuberculosis
On track
On track
On track
Achieved
On track
On track
On track
On track
On track
On track
On track
Access to
improved
safe water
(%)
Halve the % of
people without
access to safe
water
Ensure
Combating
environmental
HIV/AIDS,
sustainability
malaria and
Target
other disease
Goal 6
Table 5 - Progress Towards Achieving the Millennium Development Goals
6 of 9
1 of 9
1 of 9
5 of 9
1 of 9
2 of 9
2 of 9
5 of 9
1 of 9
2 of 9
3 of 9
3 of 9
0 of 9
3 of 9
2 of 9
9 of 9
2 of 9
3 of 9
2 of 9
2 of 9
2 of 9
5 of 9
1 of 9
0 of 9
3 of 9
4 of 9
0 of 9
Number of
targets to be
achieved
Overview
© AfDB/OECD 2007
0
13
24.5%
3
17
37.7%
Satisfactory
Performance Ratio
On track
11
22
62.3%
22.6%
On track
3
9
On track
On track
On track
On track
On track
Achieved
On track
On track
On track
Achieved
On track
On track
Achieved
Achieved
On track
Achieved
On track
Achieved
On track
Achieved
On track
On track
On track
On track
Achieved
On track
On track
On track
Achieved
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
On track
Achieved
On track
Libya
Madagascar
Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique
Namibia
Niger
Nigeria
Rwanda
São Tomé and Principe
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Zambia
Zimbabwe
37.7%
13
7
On track
Achieved
Achieved
On track
Achieved
Achieved
Achieved
On track
Achieved
Achieved
Achieved
Achieved
On track
5
15
37.7%
18.9%
20.8%
15.1%
Achieved
On track
On track
On track
On track
On track
0
10
On track
On track
On track
Achieved
Achieved
Achieved
0
11
On track
On track
On track
On track
On track
On track
0
8
On track
On track
On track
5 of 9
3 of 9
4 of 9
1 of 9
2 of 9
6 of 9
4 of 9
1 of 9
5 of 9
0 of 9
2 of 9
4 of 9
5 of 9
2 of 9
6 of 9
1 of 9
0 of 9
4 of 9
2 of 9
2 of 9
4 of 9
1 of 9
7 of 9
2 of 9
2 of 9
2 of 9
http://dx.doi.org/10.1787/811258553025
Sources: Author's calculations based on data from UNDP (2006) Human Development Report, Oxford University Press, New York and World Bank (on line) World Development Indicators, Washington, D.C.
64
143
166
175
153
63
123
168
125
177
159
158
127
156
47
176
999
121
141
146
162
147
87
145
165
151
Overview
43
Overview
same period. There has also been a large decline in the
number of countries in the region experiencing statebased conflict over this period from 11 to 412.
Despite this generally positive evolution, some
countries experienced increasing troubles in 2006. In
Chad, the tensions generated by the neighbouring
Darfour crises and by internal opposition to the regime
have erupted in a coup attempt and an outbreak of civil
strife. In Nigeria, several rebel attacks against oil platforms
and kidnappings of firms’ foreign staff added to political
tensions, which were already increasing with the approach
of general elections. Finally, DRC is still experiencing
a difficult political transition, which could hopefully lead
to the end of the civil war. In February 2007, the UN
Security Council renewed the mandate of the MONUC,
United Nations Mission in the Democratic Republic
of the Congo, (in place since November 1999) which
provides for assistance to prevent and manage conflict,
support state institutions, monitor human rights abuses
and enforce the arms embargo. MONUC is the world’s
largest and most expensive peacekeeping operation.
Armed conflicts remain the strongest threat to
democracy and human rights, and violent conflicts in
relation to the number of states remain higher in subSaharan Africa than anywhere else13. In 2006, as in the
previous year, 74 political conflicts14 were recorded with
Figure 8 - Political Troubles in Africa, 1996-2006
Political troubles
Trend
600
44
500
400
300
200
100
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Note: the indicator has been calculated on the basis of 25 countries: Algeria, Botswana, Burkina Faso, Cameroon, Chad, Côte
d’Ivoire, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Mali, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal,
South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
Source: Based on Appendix Table 21.
http://dx.doi.org/10.1787/217725660146
12. According to Human Security Centre (2006), Human Security Brief 2006. Note that some countries have more than one conflict.
13. Heidelberg Institute for International Conflict Research (2006), Conflict Barometer 2006.
14. According to Conflict Barometer a conflict is “the clashing of interests (positional differences) over national values of some duration
and magnitude between at least two parties (organised groups, states, groups of states, organisations) that are determined to pursue
their interests and win their cases. A conflict is considered to be a severe crisis if violent force is repeatedly used in an organised way.
A war is a type of violent conflict in which violent force is used with a certain continuity in an organised and systematic way. The conflict
parties exercise extensive measures, depending on the situation. The extent of destruction is massive and of long duration”.
© AfDB/OECD 2007
Overview
three conflicts ending in 2005, and three new ones
emerging in 2006. No conflict ended in 2006. Of these
74 conflicts, two were wars (Somalia and Sudan) and
13 were severe crises. Thus, 15 were characterised by a
high level of violence, compared to nine in 2005. This
increase was largely due to the re-emergence of regional
conflicts. Besides the Darfour crises, the Horn of Africa
showed ominous signs of breakdown, with Somalia
experiencing all-out civil war, Eritrea arming the Union
of Islamic Courts, and Ethiopian troops entering Somalia
to restore the transitional federal government.
with the Western African Standby Brigade, building
on the peacekeeping experience gained by the
ECOMOG force in Sierra Leone, Liberia, and Côte
d’Ivoire. The European Union has extended $330 million
in aid to the force, which is also benefiting from the
Global Peace Operations Initiative (GPOI), a
multilateral, five-year programme led by the United
States to train and equip 75 000 peacekeeping troops,
a majority of them African, by 2010.
The Political Stance
In 2002, the Durban Summit of the African Union
endorsed the establishment of the African Standby
Force (ASF) as one of the cornerstones of a new African
security edifice. Phase two of ASF force development
has begun and will run until June 2010. During this
time, AU protocols state that the force will develop the
capacity to manage complex peacekeeping operations,
while the five regions will continue to develop the
capacity of their own forces. Progress is more advanced
In 2006, there was no improvement in the indicator
of political hardening (as defined in the statistical
annexes to this volume), as the sharp deterioration in
the political climate in a few countries offset the smaller
improvements in many others. A hardening of the
political stance has been provoked by the outburst of
new conflicts (such as in Chad), by the slow progress
in resolving ongoing crisis (such as Côte d’Ivoire),
sometimes by the holding of elections (such as in
45
Figure 9 - Political Hardening in Africa, 1996-2006
Hardening of the regime indicator
Trend
250
200
150
100
50
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Note: the indicator has been calculated on the basis of 25 countries: Algeria, Botswana, Burkina Faso, Cameroon, Chad, Côte
d’Ivoire, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Mali, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal,
South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
Source: Based on Appendix Table 23.
http://dx.doi.org/10.1787/488128413665
© AfDB/OECD 2007
Overview
RDC). In Guinea, a series of strikes that started towards
the end of 2006 provoked a harsh response from the
government in early 2007. The repressive means used
by the authorities caused the deaths of many civilians
who were demonstrating for the resignation of the
president, and raised concerns that the violence might
Table 6 - Political Governance Indexes for African Countries, 2005 and 2006
Country
46
Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Central A Rep.
Chad
Congo Rep. of
Congo, Dem. Rep.
Côte d’Ivoire
Djibouti
Egypt
Equatorial Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Libya
Madagascar
Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique
Namibia
Niger
Nigeria
Rwanda
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Zambia
Zimbabwe
Political Rights and
Change from
Civil Liberties 2006 (ranking) 2005 (value)
148=
148=
64=
64=
118=
111=
169=
130=
148=
140=
169=
169=
140=
148=
176=
176=
140=
140=
130=
52=
148=
111=
90=
80=
111=
185=
90=
118=
64=
140=
1=
130=
111=
64=
90=
118=
148=
64=
80=
90=
111=
176=
52=
185=
169=
111=
148=
148=
130=
118=
176=
0
0
0
0
-0.5
-1
0
-1
0
0.5
0
0
0
0
0
0
0
0.5
0.5
-0.5
0
-0.5
0
0
-0.5
0
0
0
0
-0.5
0
0
0
-0.5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Press Freedom
2006 (ranking)
Change from
2005 (value)
126
91
23
53
70
125
112
62
124
73
142
n/a
121
133
n/a
166
160
114
149
34
109
n/a
118
n/a
84
152
66
n/a
n/a
77
n/a
97
n/a
26
95
120
n/a
-0.33
3.5
0
-1
-3
16.83
7.75
-5.25
5.5
0
-6.33
-27.25
-4
-5.75
4
-2.25
33
2.5
13
-6.5
-1.5
-2.5
0.25
-3.5
-1.5
-26.25
-9.5
2.75
1
-22.5
0.5
-11.34
1
0.5
11.5
-6.52
3
n/a
n/a
n/a
n/a
44
139
127
88
n/a
148
116
n/a
140
-1.5
7.5
-13.5
-7.75
4.75
4.13
5.5
2.32
-8.75
-3.75
10.58
-0.5
-14.25
Source: Freedom House and Reporters sans frontières.
http://dx.doi.org/10.1787/611133186550
© AfDB/OECD 2007
Overview
escalate. Developments in Nigeria have, however, been
more positive. Some hardening of the political climate
with the approach of presidential elections in 2007
notwithstanding, the Senate refusal to modify the
constitution and, thus, preventing the incumbent
president from being re-elected for the third time, is a
sign of consolidation of parliamentary democracy.
including in Uganda, where no such polls had taken place
since 1986 and where the incumbent president was reelected with 59.28 per cent of votes. Finally, in Côte
d’Ivoire, where the situation remains extremely volatile,
the conduct of new presidential elections – already
postponed from December 2005 to October 2006 – is
now planned for October 2007.
The political freedom index from Freedom House
is based on measures of several components of political
freedom such as free and fair elections; honest tabulation
of ballots; the extent to which citizens are free to
organise in different political parties or other political
groupings of their choice; whether there is a significant
vote for the opposition and a realistic possibility to
gain power through elections; self-determination, and
freedom from any kind of domination; reasonable selfdetermination for cultural, ethnic, religious and other
minority groups; and the extent to which political
power is decentralised.
Africans rate the quality of their elections relatively
highly. These major achievements notwithstanding,
however, the ability of elections to provide voters with
either a real voice in government, or an effective means
for enforcing accountability on their representatives,
remains much less certain. In addition, while the state
enjoys a considerable degree of legitimacy, and there
is solid support for protection of individual freedoms
and enforcement of the rule of law, there is also a
sizeable and durable minority that appears willing to
compromise on these safeguards, either to protect the
state, or to “get things done”. It appears that the public
recognises the need for citizens to be more critical of
the state in principle, but does not always find itself
able to fulfil this duty in practice15.
Progress towards Democracy
The transition to competitive, multiparty politics
continued in African countries during 2006. Almost
59 million Africans participated in the presidential
elections held in ten African countries in 2006 (67.3 per
cent turnout rate). The incumbent head of state was reelected in nine cases, with margins ranging from 67 per
cent in the Gambia to 42 per cent in Zambia. In Senegal,
in the aftermath of a tense electoral campaign, Abdoulaye
Wade was re-elected in February 2007. The most
convincing victory was in Benin, where a new president
was elected with a 73 per cent second-round majority.
An historical achievement was the first free and fair
elections held in the DRC in 40 years in July 2006.
Despite accusations by Vice President Jean-Pierre Bemba,
one of the candidates, that President Joseph Kabila had
tampered with the first-round results, and the eruption
of violence in Kinshasa, the process ultimately succeeded.
Moreover, seven countries organised multiparty elections,
Corruption
Much has been said about corruption in Africa.
Transparency International data indicate that out of 42
African countries for which the 2006 CPI perception
index is available, only Botswana is listed in the world’s
top quartile, 11 countries are in the second, 14 are in
the third, and 15 in the lowest. Making comparisons
from one year to another is problematic. Nonetheless,
to the extent that changes can be traced back to
individual sources, Seychelles and Tunisia are noteworthy
examples of deteriorations between 2005 and 2006,
while improvements were recorded for Algeria and
Mauritius. More broadly, Africans themselves say they
perceive less official corruption today than six years ago.
This result runs counter to the popular wisdom that
corruption in Africa is entrenched and worsening16.
15. Carolyn Logan, Tetsuya Fujiwara and Virginia Parish (2006), “Citizens And The State In Africa: New Results From Afrobarometer Round
3”, Afrobarometer Network, Working Paper No. 61.
16. Bratton, Michael and Wonbin Cho (2006), “Where is Africa Going? Views From Below. A Compendium of Trends in Public Opinion in
12 African Countries 1999-2006”, Afrobarometer Network, Working Paper, No. 60.
© AfDB/OECD 2007
47
Overview
Table 7 - Elections in Africa, 2006-07
2006
2007
Presidential (5 and 19 March)
Parliamentary (May)
Presidential and parliamentary,
(to be confirmed)
Parliamentary (25 March)
Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Chad
Congo
Congo, Dem. Rep.
48
Côte d’Ivoire
Djibouti
Egypt
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea-Bissau
Kenya
Lesotho
Liberia
Madagascar
Mali
Mauritania
Mauritius
Morocco
Mozambique
Nigeria
Rwanda
Parliamentary (May)
Parliamentary (June)
Parliamentary (22 January) and
presidential (12 February)
Presidential (3 May)
Parliamentary (April)
Parliamentary (May)
Presidential (30 July and 29 October 29)
and parliamentary (30 July)
Presidential (November)
Parliamentary (17 December)
Presidential (22 September)
Parliamentary (25 January)
Presidential (December)
Parliamentary (17 February)
Presidential (3 December)
Referendum (25 June) and parliamentary
(19 November and 3 December)
Parliamentary (September)
Presidential and parliamentary (21 April)
Parliamentary (26 March)
and presidential (30 July)
Senegal
Seychelles
Sierra Leone
South Africa
Tanzania
Togo
Tunisia
Uganda
Zambia
Zimbabwe
Parliamentary
Presidential (29 April and 13 May)
and parliamentary (1 and 29 July)
Parliamentary (21 January)
and presidential (11 March)
Presidential and parliamentary
(25 February)
Parliamentary (November)
Presidential and parliamentary (28 July)
Presidential (July 28)
Parliamentary (24 June)
Presidential and parliamentary (23 February)
Presidential and parliamentary (28 September)
Source: www.electionguide.org and http://africanelections.tripod.com/
http://dx.doi.org/10.1787/131105245444
The African Peer Review Mechanism (APRM),
launched in July 2002 in the framework of the NEPAD,
constitutes an opportunity for African countries and
their leaders to show their commitment to improving
economic and political governance. In September 2006,
a declaration to accede was received from São Tomé and
© AfDB/OECD 2007
Overview
Principe, bringing to 26 the number of participating
members. Although half of them (13) have already
launched the process, the country review reports have
been finalised for four of them (Ghana, Kenya, Rwanda
and South Africa), and the draft report on Mauritius
has been completed. To date, Ghana and Kenya have
achieved stage five, with the country report and
programme of action having being published.
In 2006, unfortunately, no new country deposited
its ratification of the African Union Convention on
Preventing and Combating Corruption, adopted in
Table 8 - Corruption Perception Indexes (CPI) for African Countries,
2005 and 2006
Country
Global Rank 2006
CPI 2006
Global Rank 2005
CPI 2005
37
42
51
51
55
63
70
70
70
79
79
79
84
84
84
90
93
93
99
99
105
105
105
111
121
121
121
121
130
130
130
130
130
138
138
142
142
142
142
142
151
151
156
156
156
160
5.6
5.1
4.6
4.6
4.1
3.6
3.3
3.3
3.3
3.2
3.2
3.2
3.1
3.1
3.1
3.0
2.9
2.9
2.8
2.8
2.7
2.7
2.7
2.6
2.5
2.5
2.5
2.5
2.4
2.4
2.4
2.4
2.4
2.3
2.3
2.2
2.2
2.2
2.2
2.2
2.1
2.1
2.0
2.0
2.0
1.9
32
51
46
43
47
55
70
65
78
70
70
78
97
97
88
107
88
88
97
117
97
117
107
88
103
83
130
137
107
137
126
151
130
144
152
126
152
152
158
144
144
-
5.9
4.2
4.5
4.9
4.3
4.0
3.4
3.5
3.2
3.2
3.4
3.2
2.8
2.8
2.9
2.6
2.9
2.9
2.8
2.5
2.8
2.5
2.6
2.9
2.7
3.1
2.3
2.2
2.6
2.2
2.4
2.0
2.3
2.1
1.9
2.4
1.9
1.9
1.7
2.1
2.1
-
Botswana
Mauritius
South Africa
Tunisia
Namibia
Seychelles
Egypt
Ghana
Senegal
Burkina Faso
Lesotho
Morocco
Algeria
Madagascar
Mauritania
Gabon
Eritrea
Tanzania
Mali
Mozambique
Libya
Malawi
Uganda
Zambia
Benin
Gambia
Rwanda
Swaziland
Burundi
Ethiopia
Togo
Zimbabwe
Cameroon
Niger
Angola
Congo, Rep
Kenya
Nigeria
Sierra Leone
Côte d’Ivoire
Equatorial Guinea
Chad
Congo, Dem. Rep.
Sudan
Guinea
Source: Transparency International.
http://dx.doi.org/10.1787/063811658136
© AfDB/OECD 2007
49
Overview
Table 9 - African Index of Economic Freedom for 2000-07
50
World
rank
Country
34
38
52
55
59
64
65
69
82
86
88
91
92
93
96
101
103
105
106
111
113
114
116
117
118
123
124
126
127
128
129
130
131
134
136
137
139
141
146
147
148
149
151
154
155
Mauritius
Botswana
South Africa
Namibia
Uganda
Swaziland
Madagascar
Tunisia
Kenya
Senegal
Cape Verde
Ghana
Zambia
Gambia, The
Morocco
Mozambique
Tanzania
Côte d’Ivoire
Malawi
Guinea
Burkina Faso
Benin
Ethiopia
Cameroon
Lesotho
Mali
Niger
Mauritania
Egypt
Equatorial Guinea
Gabon
Djibouti
Nigeria
Algeria
Rwanda
Togo
Sierra Leone
Burundi
Chad
Guinea Bissau
Angola
Congo
Zimbabwe
Libya
Sub-Saharan Africa
North Africa
2007
Score
2006
Score
2005
Score
2004
Score
2003
Score
2002
Score
2001
Score
69.0
68.4
64.1
63.8
63.4
61.6
61.4
61.0
59.4
58.8
58.4
58.1
57.9
57.6
57.4
56.6
56.4
55.5
55.5
55.1
55.0
54.8
54.4
54.4
54.1
53.7
53.5
53.2
53.2
53.2
53.0
52.6
52.6
52.2
52.1
50.3
49.8
48.4
46.8
46.4
45.7
43.5
43.0
35.8
34.5
66.5
70.3
66.3
60.9
64.9
62.2
63.0
59.2
60.0
57.4
60.3
56.7
59.1
57.9
53.0
55.1
59.3
56.8
57.9
53.7
55.7
54.3
53.4
54.2
57.0
54.1
53.6
55.6
52.2
50.2
54.9
55.0
48.8
53.4
54.3
54.8
48.5
46.7
49.6
49.4
47.1
43.3
43.6
34.0
34.3
64.3
69.8
61.5
60.0
61.4
58.0
61.6
56.7
56.0
56.6
59.7
55.1
54.5
56.3
54.0
54.6
54.0
54.9
53.4
55.8
54.6
49.7
50.1
49.7
52.9
56.6
51.2
57.0
52.7
50.6
52.3
56.4
45.8
50.3
48.5
53.6
46.8
43.4
n.a.
48.7
41.2
n.a.
43.0
33.9
28.4
64.3
69.5
65.0
61.6
61.6
56.8
59.1
59.4
55.4
57.3
59.5
56.5
51.9
53.7
58.1
55.5
57.3
56.2
52.0
54.0
55.8
52.5
52.3
50.1
48.6
55.7
51.4
59.0
53.5
49.2
54.3
55.3
47.3
54.9
50.2
54.7
45.8
42.6
n.a.
49.8
39.3
n.a.
41.2
31.6
28.9
64.5
68.5
66.0
66.5
57.9
60.1
62.9
59.2
55.8
56.1
53.5
56.0
53.5
54.8
59.4
58.1
54.1
55.2
51.3
54.7
55.4
52.3
46.6
50.1
50.7
57.8
51.1
56.0
51.7
49.0
56.5
54.1
48.5
54.0
44.9
57.3
45.6
41.1
n.a.
49.3
40.0
n.a.
42.4
33.9
31.8
65.4
60.9
62.8
64.2
58.8
60.2
56.5
60.3
55.3
56.5
56.8
56.6
57.7
56.3
59.3
56.8
57.7
55.9
54.1
52.9
56.3
54.4
47.1
50.8
49.1
60.3
45.3
52.3
50.5
42.2
55.9
56.3
49.8
60.0
47.6
57.0
44.0
n.a.
n.a.
45.9
38.2
n.a.
40.9
33.9
31.7
66.7
62.7
60.6
63.7
61.2
63.7
54.0
60.8
55.8
58.4
56.2
61.7
57.4
54.1
63.7
55.7
55.7
53.8
52.3
56.2
53.9
58.3
48.6
50.8
52.3
60.6
47.2
48.9
48.7
44.7
54.7
57.0
52.3
55.2
44.9
n.a.
42.9
n.a.
n.a.
44.2
40.3
n.a.
42.2
37.0
32.2
54.7
51.7
55.2
50.4
53.5
48.4
53.5
51.0
53.5
51.2
53.3
52.4
53.6
52.1
Source: The Heritage Foundation/The Wall Street Journal, 2007 Index of Economic Freedom.
http://dx.doi.org/10.1787/451816350127
© AfDB/OECD 2007
Overview
2003, which remains four ratifications short of the 15
needed for it to enter into force. Fourteen African
countries are members of the EITI (Extractive Industry
Transparency Initiative).
Economic Governance
Economic freedom suffered a minor setback in
Africa (Table 9)17 according to the 2007 Index of
Economic Freedom published by the Heritage
Foundation and the Wall Street Journal. The 2007
index fell to 54.3 per cent, down slightly from the
54.6 per cent of the 2006 index. The decline in subSaharan Africa (-0.5 per cent) more than offset the
improvement in North Africa (+1.3 per cent). Even so,
the scores for both of these two years were higher than
those recorded in any of the earlier years for which the
index was compiled.
Of the 39 countries graded numerically in the 2007
Index, none is classified as a “free” or “mostly free”
economy. The bulk of countries—32 economies—
have freedom scores of 50–70 per cent. Seven are
“moderately free” (scores of 60–70 per cent) and 25 are
“mostly unfree” (scores of 50–60 per cent). Only 8
countries have “repressed economies” with scores below
50 per cent, although this represents 40 per cent of the
economies around the world which are classified as
such. Among specific economies during the past seven
years, the scores of 29 countries are now higher, and
the scores of 9 countries are worse.18 Thanks to reforms
to financial, monetary, and trade policies, Mauritius
surpassed Botswana as the region’s economically freest
country. Nigeria recorded the largest improvement,
graduating from repressed to “mostly unfree” status.
Zimbabwe continues to be the least free country in the
region and the gap vis-à-vis the second worse performer,
the Republic of Congo, widened further.
Access to Drinking Water and
Sanitation in Africa
Access to safe drinking water and sanitation is
essential to human health and well-being, and thus
the direct concern of two of the MDGs, but it also
contributes indirectly to achieving many of the other
MDGs. Unsafe drinking water and inadequate
sanitation cause illness and generates high health costs
Box 7 - Definitions
Access to safe drinking water is measured by the percentage of the population using improved drinking water sources. Similarly,
access to sanitary means of excreta disposal is measured by the percentage of the population using improved sanitation facilities. Improved
sanitation facilities are those more likely to ensure privacy and hygienic use. Improved drinking water technologies are those more likely
to provide safe drinking water than those characterised as unimproved.
Improved drinking water sources: Household connection / Public standpipe / Borehole / Protected dug well / Protected spring /
Rainwater collection
Unimproved drinking water sources: Unprotected well / Unprotected spring / Rivers or ponds / Vendor-provided water / Bottled
water / Tanker truck water
Improved sanitation facilities: Connection to a public sewer / Connection to a septic system / Pour-flush latrine / Simple pit
latrine / Ventilated improved pit latrine
Unimproved sanitation facilities: Public or shared latrine / Open pit latrine / Bucket latrine
Source: WHO/UNICEF Joint Monitoring Programme
17. Although the methodology used for measuring freedom was revised this year, previous scores were also revised to be consistent across
time.
18. The decline occurred in Central African Republic, Djibouti, Gabon, Ghana, Guinea, Malawi, Mali, Swaziland, and Zimbabwe
© AfDB/OECD 2007
51
Overview
with negative impacts on economic activity. Children
are particularly vulnerable to water scarcity and poor
quality. In the latest Human Development Report19,
the UNDP estimates that access to safe drinking water
would diminish the risk of diarrhoea by close to 70 per
cent in Ghana, and that improved sanitation would cut
the risk of infant mortality by 40 per cent in Uganda.
In water-scarce situations, women and girls also generally
bear the burden of carrying water long distances to
their homes and are as a result excluded from other
economic activities or education.
As discussed in an earlier section of this Overview
chapter, however, progress remains inadequate in relation
to needs and the likelihood of reaching the access
targets for drinking water and sanitation of 78 per cent
and 69 per cent, respectively, by 2015 is low. SubSaharan Africa has the lowest drinking water coverage
and the lowest sanitation coverage in the world, with
over 322 million people without access to safe drinking
water sources and 463 million without access to
improved sanitation. The deficit in sanitation remains
much larger than for water because efforts have been
less intense. However, if progress in access to water is
not matched with corresponding measures for sanitation
and effluent management, the volume of sewage
produced will proportionally increase with negative
consequences for human health and natural ecosystems.
Over the last 25 years water has become embedded
in the sustainable development agenda. Substantial
analysis has been conducted and many examples of
Box 8 - Milestones in the Building of an International Consensus
and African Responses to Water Development Challenges
52
1981-90 – UN International drinking water supply and sanitation decade
1992 – UN Conference on Environment and Development, Rio de Janeiro: set the stage for subsequent discussions on water.
1992 – International Conference on Water and the Environment, Dublin: four guiding principles on water
1996 – Formation of the Global Water Partnership to implement holistic approach to water, concretised in the concept of Integrated
Water Resource Management
1996 – Formation of the World Water Council, think tank on international water policy issues, leading organiser of the World Water
Forum held every 3 years
1997 – First World Water Forum, Marrakech
1997 – Formation of World Commission for Water in the 21rst century: A Water Secure World indicated that an additional annual $100 billion
investment in the water sector was required
2000 – Second World Water Forum, The Hague: Adoption of the African Water Vision for 2025
2001 – UN Millennium Declaration: setting of the water target of reducing by half the proportion of people without sustainable access
to adequate quantities of affordable and safe water
2001 – NEPAD and the Water and Sanitation Infrastructure Programme
2002 – Establishment of the African Ministers’ Council on Water (AMCOW) to provide political leadership, policy direction and
advocacy in the provision, use and management of water resources.
2002 – UN Conference on Finance of Development, Monterrey: new commitments on the part of
donors to raising official development assistance
2002 – UN World Summit on Sustainable Development, Johannesburg: MDG targets extended to sanitation and recognition of the
need for water storage and hydropower development.
2003 – Report of the World Panel on Financing Water Infrastructure (known as the Camdessus Panel)
2003 – Third World Water Forum, Kyoto
2004 – Establishment of the UN Secretary General’s Advisory Board on Water and Sanitation (UNSGAB)
2006 – Report of the task force on Financing Water for All (known as the Gurría Panel)
2006 – Fourth World Water Forum, Mexico
2006 – Human Development Report on Beyond Scarcity: Power, Poverty and the Global Water Crisis
2008 – UN International Year of Sanitation
2009 – Fifth World Water Forum, Istanbul
19. UNDP Human Development Report, 2006. Beyond scarcity: power, poverty and the global water crisis.
© AfDB/OECD 2007
Overview
good practice highlighted. Improvements are needed
in several key areas, notably in the management of the
water sector, the institutional set up, and strategic
policy setting. Government budgets and development
assistance have also been insufficient so far to cover the
investment needs. Insufficient financial discipline and
accountability combined with inadequate maintenance,
deficient billing and poor collection rates have prevented
the establishment of effective cost recovery mechanisms
by water utilities in most countries. The water and
sanitation sector has also been the infrastructure sector
least attractive to private investors. Ensuring adequate
financing remains a key challenge for improving water
and sanitation coverage.
I - Taking Stock of Resources and
Access
The minimum supply of safe water for domestic use
is commonly estimated by WHO at 20 litres per person
per day for drinking and personal hygiene. Factoring
in bathing, cooking and laundry brings the figure up
to around 50 litres per day. Domestic needs increase with
development; European households consume on average
about 200 litres per person per day, for example. In
turn, development has an ambivalent impact on
availability, both increasing the pressure on resources
through increased activity and facilitating the
development and implementation of new technologies
to exploit water better. However, in nearly all countries
there is more than enough fresh water available to meet
the needs of households for drinking water. The following
section gives an assessment of resource availability and
population access based on the latest available data by
FAO and the WHO/UNICEF Joint Monitoring
Programme (JMP). A word of caution is needed,
however, because the quality of data and especially
information regarding access remains problematic.
Nevertheless, the JMP data provide useful information
on global trends and as such are used in the section to
take stock of global progress. When calling on specific
examples, however, the following sections will refer to
alternative sources of information as appropriate such
as the AMCOW, AfDB, EUWI, UNDP, WSP and
UNDP MDG Country Status Reports.
Box 9 - The Quality of the JMP Data and Initiatives to Improve Information
and Comparability
Data collection and treatment in Africa is generally poor and in some cases distorted for political use. It is consequently difficult to
assess the progress made to extend coverage but also to draw comparison across countries. For example, in Angola the national UNICEF
MICS survey of 2001 estimated the percentage of population with access to safe water at 62 per cent. A later UNICEF estimate however
suggests that just 34 per cent of urban population has access to safe water, this figure rising to 39 per cent for rural areas. Since almost
70 per cent of Angolans are urbanised, it is unlikely that the national coverage could be higher than 35 per cent. Meanwhile, the joint
monitoring programme provides a global estimate of 53 per cent for 2004. Similarly, in Mozambique, current official figures report both
urban and rural water coverage rates of about 40 per cent. According to the latest household survey, however, rural water access is only
27 per cent while urban water access is much higher at 64 per cent.
The data collected by the Joint Monitoring Programme and meant to monitor the progress of countries towards the water related
MDGs, have been criticised for lack of accuracy. To help improve the monitoring, some donors have supported the development of
alternative figures based on wider consultation. Recently, AMCOW, the AfDB, the EUWI, UNDP, WSP and the UNDP20 have
collaborated with local sources to produce MDG Country Status Reports for 16 SSA countries (Benin, Burkina, DRC, Ethiopia, Ghana,
Kenya, Madagascar, Malawi, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia), assessing the probability
to achieve the MDGS for rural and urban areas respectively, not only looking at past trends in coverage extension, but also at investment
gaps and quality of institutional arrangement to ensure sustainability.
20. Getting Africa on Track to meet the MDGs on Water and Sanitation, a Status Review of Sixteen African Countries, 2006, a regional
initiative by AMCOW, AfDB, EUWI, WSP and UNDP
© AfDB/OECD 2007
53
Overview
1- Availability of Resource and Uses and
Perspectives for the Future
According to the FAO, some 14 870 m3/inhab/year
renewable water resources are available in Africa,
including internal and external resources at the national
level. These resources are considered overall abundant,
but are only marginally exploited under managed
conditions. One-third of countries experience some
pressure on their internal water resources as measured
by the volume of internal renewable water per capita
withdrawn annually. Over a quarter of the renewable
water used is imported from other countries. Water is
used primarily for agricultural purposes (68.4 per cent),
followed by households (24.1 per cent) and finally by
industry (7.5 per cent).
Water availability in Africa is characterised by
extreme variability (of rainfalls, rivers…). To cope
with this variability, important water conservation
and water storage measures are often needed. Water
resources in Africa are also very unequally distributed
Figure 10 - Renewable Water Per Capita (m3/inhab/year), 2003-07
North Africa
East Africa
54
Southern Africa
West Africa
Central Africa
Africa
0
10000
20000
30000
40000
50000
60000
Source: Aquastat, FAO: www.fao.org/ag/agl/aglw/aquastat/main/indexfra.stm
http://dx.doi.org/10.1787/603581614167
Figure 11 - Water Uses in Africa, 2003-07
Domestic use
24%
Agricultural use
68%
8%
Industrial use
Source: Aquastat, FAO: www.fao.org/ag/agl/aglw/aquastat/main/indexfra.stm
http://dx.doi.org/10.1787/006482437356
© AfDB/OECD 2007
Overview
among countries. Africa hosts both some of the driest
countries in the world (in Northern Africa), but also
some of the best endowed (in Central Africa). Egypt
and Libya receive very limited precipitation (some
51 and 56 mm/year respectively) and overall North
Africa receives less than 3 per cent of the total
precipitation of the continent. Central Africa, by
contrast, receives 37 per cent of the total precipitation
while accounting for only 20 per cent of land. DRC
alone accounts for 23 per cent of internal renewable
water resources in Africa. Consequently, most northern
African countries experience stress on their water
resources: especially Egypt, but also Libya and Sudan.
For example, Egypt meets some 97 per cent of its
water resources with imports.
Availability evolves with climate change impact,
demographic pressure and economic development. In
2003-07, some nine countries are estimated to face
water-scarce conditions with less than 1000 m3 of
renewable water resources per capita per year and eight
others have to deal with water-stress conditions with
less than 1700 m3/cap/year. According to a study by
UNEP21 up to 25 African countries could be subject
to water stress or water scarcity by 2025, the most
severe cases arising in northern Africa. As water becomes
relatively scarce, its use as an input in agriculture and
industry needs to be progressively re-directed toward
activities with high value-added per m3 of water used,
and demand management for household use becomes
more important as well. Tunisia manages to provide
nearly universal access to drinking water and sanitation
for its citizens despite having a resource endowment
of less than 500 m3 of water per person per year.
Africa extracts only a marginal portion of its water
resources compared to the rest of the world and has the
lowest water storage capacity. Northern Africa and
southern Africa however constitute exceptions. In South
Africa, no fewer than 458 dams were commissioned
between 1950 and 2000, initially for irrigation purposes
and then shifted towards the provision of drinking
water. With demand growing, South Africa faces a
serious risk of shortages by 2020. In order to meet the
challenge, the country is investing both in water use
efficiency programmes (especially in the domestic and
agricultural sectors) and in alternative sources such as
re-use of water, desalination and development of further
water-resource infrastructure. The municipally of
Windhoek, in Namibia provides a successful example
of use of unconventional sources of additional water.
Windhoek was one of the first cities in the world to
introduce direct recycling of effluent for drinking
purposes. Extensive water quality monitoring
programmes are in place to ensure an appropriate
standard of water quality after each treatment process
and of the final water supply.
Water availability and quality are further affected by
industrial pollution, poor sanitation and sewage practices.
In Congo, only 68 per cent of water samples provided
by the Société Nationale des Eaux are estimated to comply
with the standard for good quality. Inefficient land use
and agricultural practices (use of fertilisers and pesticides)
also contribute to worsen the problem. In Ghana, for
instance, pollution is considered the most serious threat
to the sustainability of water resources. Pollution issues
are also serious in South Africa, where agriculture, mining
and energy sectors are key drivers of activity.
Box 10 - Increasing Available Supply in Tunisia
The country’s available water supply rose from 2.6 billion m3 in 1990 to 4.1 billion in 2005 and 11 major dams and 50 hill dams
are to be built in the next few years to increase it further. Demand still exceeds supply however and the government is trying to bridge
the gap by using treated sewage for agriculture, reusing drainage water and developing water-saving methods to prevent leakage between
production and use and to avoid waste by consumers. The authorities are steadily upgrading supply lines and distribution networks,
making taps and toilet-flushes more economical, educating major consumers such as hotels and companies and introducing sliding rates
that rise with consumption.
Source: see country notes in the body of the report.
21. UNEP, 2000. Global Environment Outlook: http://www.unep.org/Geo2000/english/0056.htm
© AfDB/OECD 2007
55
Overview
56
However, wastage is certainly taking the greatest toll
on availability. In most African cities over 50 per cent
of the water supply is wasted or unaccounted for. A
review of the water balance situation in Botswana
reveals that on average, more than 46 per cent of it is
wasted though leakage, lack of demand management
programmes and inefficient water use. In Mauritius,
47 per cent of water consumption is unaccounted for,
including 35 per cent due to pilferage and 7 per cent
due to leakages as a result of old pipes (more than 50
years old). Unaccounted-for water also reaches 50 per
cent in the cities of Cairo and Alexandria and 40 per
cent in Algeria. Thus, addressing water conservation,
demand management and efficiency of use could result
in significant savings. Demand-side management
programmes are becoming increasingly common since
they represent a low-cost alternative to capacity
development. They usually involve control measures
(in particular restrictions on certain uses of water,
rationing and supply intermittence), use of pricing to
rationalise demand, incentives to use water saving
devices, public campaigns to promote conservation
and close control of distribution system to detect
leakages.
In an effort to ensure a sustainable demand of water
in a context of scarcity, the municipality of Windhoek
introduced water demand management in 1994. The
strategy concentrates on changing consumer habits by
increasing public awareness on the importance of water
saving and the implementation of block tariff system
with a steeply rising water cost with increasing
consumption. Some other measures include the
reduction of residential plot sizes, implementation of
legislation to address water conservation in Windhoek,
improved maintenance and technical measures to reduce
leaks. In 2006, unaccounted-for water fell to 10.3 per
cent, well below the African average and a very good
performance by international standards (for reference
unaccounted-for water reaches some 10-15 per cent in
the United States and Canada and 15-20 per cent is
considered good practice).
2- Access to Drinking Water22
Most countries in Africa are making insufficient
progress towards achieving the water and sanitation
MDGs, as underscored by the WHO/UNICEF Joint
Monitoring Programme. In sub-Saharan Africa (SSA)
only 56 per cent of the population are served with
improved water and 322 million people are without
access to improved drinking water. Despite a
7 percentage point improvement between 1990 and
2004 in drinking-water coverage, the population has
grown even faster with the result that the absolute
number of unserved people has increased by about
60 million over the same period. Moreover, this number
is expected to increase by an additional 47 million by
2015. Although 10 million people have been provided
improved drinking water annually over 1990-2004,
this number would need to triple in order for SSA to
reach the water MDG by 2015.
Northern Africa presents a very different picture.
The level of access is, with Latin America, the highest
in the developing world at 91 per cent of the population
and the number of people without access to improved
water is expected to decrease further by one million by
2015. The region still remains slightly off track to
achieve the water MDG for the region which is 95 per
cent of total population. Within northern Africa,
Tunisia has already achieved the water-related MDG
and virtually all urban dwellers are connected to drinking
water (some 98.5 per cent through home connections).
Within SSA, Mauritius is a notable exception,
having advanced well beyond the MDG goals for
drinking water and sanitation. More than 99.6 per
cent of Mauritians have access to water while 99.9 per
cent of the population has access to improved sanitation
services in both the urban and rural areas. In the 10
years after the end of apartheid, South Africa has also
managed to increase access to safe water dramatically:
a total of 21.4 million people have been provided with
access to an improved water source since 1994, reducing
22. Country data are available in the statistical annexes.
© AfDB/OECD 2007
Overview
the percentage of people with no access from 39.9 to
7 per cent. In line with this active policy the Department
of Water Affairs and Forestry in 2003 established a
target of universal access to water by 2008, well above
the requirements of the MDGs (80 per cent of access
by 2015), which is likely to be reached by the end of
the decade.
However, most African countries remain off-track
and some are even receding. Among key obstacles to
sustainable increase in access, war is exacting a heavy
toll on water and sanitation infrastructure. In Côte
d’Ivoire for instance, the political crisis is leading to poor
maintenance of the water network and explains the
high percentage of deficient systems (60 per cent). In
DRC, the war has led to a drop in access to drinking
water from 37 per cent of the population in 1990 to
22 per cent in 2004. In Northern Uganda, civil conflict
constitutes a major hindrance to effective water and
sanitation services development. Even when existing and
not threatened by wars, water infrastructures in SSA
are usually aging and badly maintained leading to large
unaccounted for water and low quality of water.
Of course, conditions differ greatly, depending on
whether people live in major cities, in small towns, in
peri-urban areas or in rural areas. In general, coverage
in urban areas is far ahead of that in rural areas where
women and children often need to travel long distances
carrying heavy containers of water. However, most of
the population growth currently occurs in urban and
peri-urban areas, putting great pressure on existing
infrastructure and posing tremendous health risk. The
UN Population Division estimates that urban
population in Africa grows by some 15 to 20 per cent
every five years, amounting to a doubling between
2005 and 2030 (from 360 million to some 783 million
people)23. So if the rural population is certainly the most
deprived, people in informal settlements in peri-urban
areas are the most exposed to the consequences of
deficient networks. Within countries, the situation
also differs across different provinces. In Angola, for
instance, the huge provincial inequalities are due to the
extent to which different areas were affected by the
war, to the presence of national and international
NGOs, and to the different management models chosen
by each province in a context of incomplete
decentralisation. In Mali, regional inequality is high,
with the isolated, low population density regions facing
great difficulties in maintaining water facilities.
Between 1990 and 2004, some 62 million people
gained access to safe water supplies in rural areas of subSaharan Africa (corresponding to an increase in coverage
of 6 per cent) and a further 12 million people in North
Africa (a 4 per cent increase in coverage). By contrast,
high migration from rural to urban areas, combined
with demographic pressure led to a mere 1 per cent
increase in coverage for the urban population in North
Africa and even to a 2 per cent decrease in sub-Saharan
Africa. As a result, urban water coverage in Nigeria,
Algeria and Mozambique declined by over 10 percentage
point between 1990 and 2004.
There are nonetheless encouraging examples. On
current trends, Uganda is on course to achieve the
MDG target on access to water supply in urban areas.
In 2005/06, the government completed the construction
of 6 water systems, and construction of water systems
is in progress in another 13 towns. In the large towns
operated by the National Water and Sewerage
Corporation (NWSC), service coverage improved from
67 per cent in June 2005 to 70 per cent in June 2006
and new water connections increased from
approximately 22 000 in the 2004/05 financial year to
about 28 000 in 2005/06 due to a new customerfriendly connection policy. This growth trend is expected
to continue thanks to the emphasis being put on service
to the urban poor with the support of an OutputBased Aid programme of the World Bank. Benin has
improved considerably its rural sub-sector by putting
in place a coherent strategy and programmatic approach
that for instance ensures that sufficient funding is
channelled to rural communities bringing the MDG
target for access to drinking water within reach.
Even if the MDGs were to be reached by 2015, the
backlog of unserved people will remain substantial. It
23. Source: www.esa.un.org/unpp/
© AfDB/OECD 2007
57
Overview
is estimated by the Joint Monitoring Programme that
some 243 million people in Africa will be without
access to drinking water (among whom 234 million
located in sub-Saharan Africa) and 348 million without
access to sanitation (317 million in sub-Saharan Africa).
3- Access to Sanitation
58
The situation of sanitation in Africa is more dramatic
than water both in terms of the low level of access and
limited progress since 1990. In 2004, two out of three
people in SSA had no access to improved sanitation, with
the prospect of a further increase of 91 million people
without access to sanitation services by 2015. Very few
countries are on track to reach the MDG by 2015 and
if SSA were to reach the MDG some additional
35 million people would need to be provided with
access to improved sanitation annually compared with
the current rate of 7 million. Progress has been greater
in northern Africa, where coverage has increased by
12 percentage points between 1990 and 2004 to reach
75 per cent. The number of unserved people is also
expected to decrease by an additional 11 million by
2015. Thus, northern Africa appears to be broadly on
track to reach the 83 per cent sanitation target by 2015.
Rural sanitation coverage in SSA is half the urban
coverage, i.e. almost totally absent in most areas.
However, the negative consequences of insufficient
sanitation services are much more acute in slums because
of high population densities. High urban population
growth resulting from migration has led cities to grow
rapidly in a few decades. Consequently, existing facilities
have dramatically deteriorated where they existed and
infrastructure development has not kept pace with the
unplanned growth of informal peri-urban settlements.
Increasing population density associated with poor
sanitation habits (notably the flying toilets) have
contributed to deteriorating health conditions in these
settlements. A similar situation often prevails in the
refugee camps in many African countries.
Tanzania, however, demonstrates that progress is
indeed possible. There, access to some form of sanitation
is estimated at 90 per cent. The 2002 Census data
indicate that in Dar es Salaam only 1 per cent of
population had no toilet facility, while 83 per cent of
population had access to pit latrines and 14 per cent
of population had flush toilets. Most of the households
without access to some form of sanitation facilities are
in rural areas, where they account for 11 per cent of
the rural population. These figures are consistent among
several sources: the national census, the MDG Country
Status Report by AMCOW et al., and the country
status published by WaterAid. The quality of the facilities
has however been questioned and according to
AMCOW et al., a strict MDG definition would lower
the rate of coverage to about 50 per cent. However, it
would require only limited effort to upgrade the existing
facilities. These achievements did not happen over
Box 11 - Critical Situation of Sanitation in Chad
Except for some isolated projects, very few villages have improved traditional latrines, ventilated pit latrines or organised collection
of sewage or garbage and 88.5 per cent of households use the fields as toilets. Major village water projects do not always include sewerage,
which is fairly cheap but needs training and familiarisation of local people.
None of the country’s towns and cities have functioning systems for disposal or treatment of sewage, garbage and solid waste and
very few for rainwater. Those that do exist are antiquated. In February 1997, only N’Djamena, Moundou, Sarh and Abeche had urban
maps showing housing zones, transport networks and rainwater drainage facilities.
Hospitals and clinics have no established infrastructure or official ways of handling and disposing of biomedical waste, which often
ends up in the streets where it can be picked up by children and reused. Hospital sewage is similarly dumped untreated and can be reused.
In 2000, there was no regulation or standards applying to industrial waste and nearly all industries dumped their liquid effluent untreated
into waterways.
© AfDB/OECD 2007
Overview
night. An active government policy aimed at ensuring
a latrine for all households was initiated more than 30
years ago, in 1973, based on the “Mtu ni Afya”
programme (You are your health). Efforts to raise
awareness in households have been continuous, and
hygiene and sanitation programmes continue to be
well financed in government budgets.
II- Improving Management and
Shifting the Focus to Sanitation –
the Key Challenges
The above assessment clearly highlights the need
for improvement in the water sector in the countries
that have been lagging behind: improving institutions
Table 10 - Sustainability Scorecard (scores range from 0-100 per cent)
Countries
Rural
Water
Urban
Water
Rural
Sanitation
Urban
Sanitation
Overall
sector
BENIN
Institutional
Financial
67
73
74
51
78
54
76
54
76
91
BURKINA FASO
Institutional
Financial
70
57
47
40
69
30
34
13
45
82
DRC
Institutional
Financial
23
16
50
57
86
44
22
17
32
36
ETHIOPIA
Institutional
Financial
70
57
47
40
69
30
34
13
46
82
GHANA
Institutional
Financial
80
50
75
71
56
50
70
17
68
50
KENYA
Institutional
Financial
55
43
50
36
31
10
23
32
55
50
MADAGASCAR
Institutional
Financial
32
44
50
32
23
0
23
33
8
44
MALAWI
Institutional
Financial
40
28
31
36
6
10
18
8
27
12
MAURITANIA
Institutional
Financial
45
27
31
37
16
26
12
0
4
34
MOZAMBIQUE
Institutional
Financial
39
25
56
70
26
24
28
12
41
47
NIGER
Institutional
Financial
75
25
60
50
35
5
23
5
45
15
RWANDA
Institutional
Financial
75
25
60
50
35
5
25
5
45
15
SENEGAL
Institutional
Financial
75
57
81
86
50
40
59
58
86
75
UGANDA
Institutional
Financial
80
57
65
74
67
50
52
25
80
57
ZAMBIA
Institutional
Financial
47
53
74
32
43
31
32
34
63
42
All 15 countries
Total
Institutional
Financial
50.2
58.2
42.5
54.5
56.7
50.8
36.8
46.0
27.3
28.4
35.4
21.7
48.7
48.1
48.8
Source: Getting Africa on track to meet the MDGs on water and sanitation, a Status Review of Sixteen African Countries, 2006, Report on
a regional initiative by AMCOW, AfDB, EUWI, WSP and UNDP
http://dx.doi.org/10.1787/475735215038
© AfDB/OECD 2007
59
Overview
in both rural and urban areas and most notably
remedying the deficiencies of the sanitation sector.
Moving forward requires ambitious reforms in
institutions, legal frameworks, and policies in order
to change the structure of incentives. This is possible
in an African context as shown by the box on Senegal.
Progress also requires supporting these strategies with
adequate resources for their implementation. Table 10
ranks the institutional and financial sustainability
of sector strategies for 15 countries by means of a
scorecard system developed by AMCOW, AfDB,
EUWI, WSP and UNDP. It clearly shows that
sanitation is the sector for which improvements are
the least sustainable based on current strategies, the
worst case being the financial sustainability of urban
sanitation.
1- Implementing Integrated Water
Resource Management (IWRM)
60
Responsibility for water management is often split
among different government ministries, between
regional and local authorities as well as the private
sector, NGOs and donors which makes it difficult to
develop a coherent strategic approach to the sector.
Drinking water is also a basic need, but water is often
a scarce resource with several other competing uses:
hydropower generation, irrigation, and industrial.
Consequently, there is a need for a comprehensive and
integrated approach to ensure the sustainability of
expanding simultaneously access to drinking water and
sanitation while facilitating economic growth and
meeting ecosystem needs24.
The principles of a holistic approach to water were
established in 1992 at the International Conference on
Water and the Environment in Dublin and at the
United Nations Conference on Environment and
Development held in Rio de Janeiro. They led in 1996
to the creation of the Global Water Partnership whose
mission is to “support countries in the sustainable
management of their water resources”. In 2002, the plan
of implementation of the Johannesburg World Summit
on Sustainable Development aimed at stimulating the
adoption of IWRM by calling all countries to develop
integrated water resources management and water
efficiency plans by 2005.
IWRM is at various stages of implementation in most
African countries. In the table 38 countries are classified
in 3 categories, based on a survey conducted by GWP
in late 2005: i) 5 countries have plans incorporating the
Box 12 - The Successful Reform of Senegal’s Urban Water System
The grave financial crisis at the national water company SONEES (Societé National d’Exploitation des Eaux du Sénégal) caused by
excessively low rates and poor recovery of customer debts was the incentive for reform in 1995. This involved thorough reorganisation,
separating sanitation and drinking water supply and setting up a partnership between the government, a public water company, SONES
(Société Nationale des Eaux du Sénégal), and a private firm, SDE (Sénégalaise des Eaux). Development partners mostly provided the
funding for the new arrangement as part of clear sector policies – the Programme Sectoriel Eau (1995-2001) and its successor the Programme
Sectoriel Eau de Long Terme (2002-07). A new sector policy and an investment programme were drawn up in 2005 under the millennium
national drinking water and sanitation programme PEPAM (Programme national d’eau potable et d'assainissement du Millénaire). These
cover upgrading the network, providing connections for the poor and drafting a “second generation” of institutional reforms to meet the
sanitation needs of an expanding Dakar (including a new rates system that will raise more money to be spent on sanitation).
The 1995 reform law replaced SONEES by two bodies. The public firm SONES is franchised by the government and approves
three-year investment plans and supervises new investment, while the SDE is a private firm (part of the French group SAUR) operating
the network and selling its products under a leasing arrangement with the government and SONES, which also has a performance contract.
The leasing worked well and was renewed for five years in 2006, with the aim of balancing the books and improving drinking water
access for the very poor.
24. See African Development Bank (2000), Policy for Integrated Water Resources Management.
© AfDB/OECD 2007
Overview
Box 13 - Defining IWRM
IWRM is a process that promotes the co-ordinated development and management of water, land and related resources, in order to
maximize the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.
This approach promotes more co-ordinated development and management of land and water, surface water and groundwater, the river
basin and its adjacent coastal and marine environment, and upstream and downstream interests.
IWRM is also about reforming human systems to enable people to obtain sustainable and equitable benefits from those resources.
For policy making and planning, taking an IWRM approach requires that:
• Water development and management takes into account the various uses of water and the range of people’s water needs;
• Stakeholders are given a voice in water planning and management, with particular attention to securing the involvement of women
and the poor;
• Policies and priorities consider water resources implications, including the two-way relationship between macroeconomic policies
and water development, management, and use;
• Water-related decisions made at local and basin levels are along the lines of, or at least do not conflict with, the achievement of
broader national objectives; and
• Water planning and strategies are incorporated into broader social, economic, and environmental goals.
An IWRM approach focuses on three basic pillars that aim at avoiding a fragmented approach of water resources management:
• An enabling environment of suitable policies, strategies and legislation for sustainable water resources development and management
• Putting in place the institutional framework through which to put into practice the policies, strategies and legislation
• And setting up the management instruments required by these institutions to do their job.
Source: Global Water Partnership
61
IWRM principles in place or a process well underway
– level 1; ii) 21 countries are in the process of preparing
national strategies which require further work –
level 2; and iii) 12 countries are at a very early stage and
have not yet inserted IWRM principles in their national
policy and legal frameworks – level 3.
In the five countries highlighted by the GWP as
good performers the IWRM principles are part of the
main policy and legal frameworks, as well as in the
various official planning and development programmes
related to poverty reduction (PRSP for instance),
agriculture, energy and environment. Four out of the
five countries have put in place IWRM action plans:
Burkina in 2003, South Africa in 2004, Uganda in
1995 and Zimbabwe in 2001. Namibia does not have
a specific IWRM Action Plan but is implementing the
water policy through various programmes and basin
committees. The whole water-sector review process is
geared towards integrated water resources management.
All countries are characterised by strong participation
of all stakeholders from ministries to NGOs and strong
leadership at national level (usually by the main ministry
in charge: the Department of Water Affairs and Forestry
© AfDB/OECD 2007
in South Africa, the Water Resources Management
Department in Uganda, the Ministry for Water
Resources and Infrastructure Development in
Zimbabwe).
The experience of these good performers shows
that it takes time to integrate IWRM fully into local
management. Successful implementation crucially
hinges on institutional and human resources capacities.
Even in well-performing countries, such as Burkina,
limited capacities have slowed progress. Successful
development of a sound IWRM framework also requires
abandoning the supply-driven, top-down approaches,
in favour of greater stakeholder involvement. Finally,
where monitoring mechanisms are weak, progress is not
easily measured and corrective actions not easily
undertaken.
There is a need for strong national water policies
as a basis for legislation, strategic planning and
management. In many cases, unfortunately, policies
are poorly developed and little legislation exists. For
example, there is usually no clear institutional
responsibility for water quality management. Policy is
Overview
Table 11 - Status of National IWRM Planning in African Countries
Region
Northern Africa
Level 1
Level 2
Level 3
0
Egypt
Morocco
Tunisia
Mauritania
Sudan
Algeria
Libya
Total
respondents
7
Central Africa
0
Cameroon
Burundi
Central African Rep.
Chad
Congo
DRC
Rwanda
7
Eastern Africa
Uganda
Eritrea
Ethiopia
Kenya
Mauritius
Tanzania
Djibouti
7
Western Africa
Burkina Faso
Benin
Ghana
Mali
Nigeria
Senegal
Cape Verde
7
Southern Africa
Namibia
South Africa
Zimbabwe
Botswana
Malawi
Mozambique
Swaziland
Zambia
Angola
Lesotho
10
5
21
12
38
62
Total
Note: regional grouping follows AfDB classification.
Source: based on GWP, Setting the stage for change, second informal survey, February 2006.
http://dx.doi.org/10.1787/226346857718
Box 14 - Monitoring Water Quality in Uganda
In Uganda, the water and sanitation sector has mechanism for monitoring and evaluation. There are 70 surface water monitoring
stations, 16 groundwater water observation wells, 112 water quality sampling sites and 18 climatic stations. A water quality and pollution
control laboratory has been established and equipped. Also, a Quality Assurance system has been established, including audits and external
proficiency scheme to ensure performance to international standards; the process for obtaining accreditation of the laboratory is underway.
However, standards and guidelines for water quality management in Uganda remain eclectic. These include the National Standards for
Drinking (potable) Water, the World Health Organisation (WHO) guidelines on specific local conditions and water use habits, National
Effluent Standards for discharge of waste water into the environment, and a Provisional Water Quality Guideline for untreated rural
water supplies.
needed to provide incentives for conservation, for
ensuring that planned expansion of water networks
takes into account sanitation and wastewater treatment,
and promote environmental protection. Policy making
should be accompanied by strong monitoring tools so
as to assess the progress in implementing IWRM and
to identify the need for adopting corrective measures
if necessary. A good example is provided by Uganda.
© AfDB/OECD 2007
Overview
Box 15 - Trans-boundary Water Management in Tanzania
Tanzania is an enlightening case where about 43 per cent of water resources are shared with other countries: Lake Victoria is shared
with Kenya and Uganda; Lake Tanganyika is shared with Burundi, Zambia and Republic of Congo; and Lake Malawi is shared with
Malawi and Mozambique. Also, water uses are diverse ranging from domestic, industry, agriculture and livestock, wildlife and hydropower
supply (that accounts for 80 per cent of installed electricity generation capacity). A strong mechanism for water resources management
is thus indispensable if conflicts among users within and between countries sharing the waters are to be avoided and ensure that the
resource is used sustainably for human development.
In August 2003 the Tanzania parliament ratified a protocol providing guidelines for the establishment of institutions to manage
common water resources in SADC countries. Tanzania’s Water Ministry in collaboration with countries sharing river Zambezi waters
are establishing a River Zambezi Commission that will manage sustainable use of the basin’s waters. Tanzania is also establishing a commission
in collaboration with Mozambique Water Ministry for overseeing sustainable use of Ruvuma Basin waters. During 2005/06 Tanzania
and other countries sharing water from the Nile continued to manage the use of water through the Nile Basin Initiative (NBI) which is
an interim institution established for this purpose. The process of establishing the permanent Nile Basin Commission is in its final stages,
including the required assessment of water use needs in the country. In collaboration with Kenya and Uganda, Tanzania continued with
implementation of the First Phase of the Lake Victoria Environmental Conservation Project. The project, initiated by the East African
Community, intends to assess the extent of pollution in lake waters and their sources in view of designing and implementing collective
measures.
Co-operation at the regional level is also a key
element of IWRM. Africa has a unique water resource
endowment, with some 60 trans-boundary rivers, more
than in any other continent. Consequently, many
countries share river basins. For instance, ten countries
share the Nile river basin, nine share the Congo River
basin and nine others share the Niger River basin.
Some countries host all or parts of several river basins,
such as Guinea, riparian for fourteen basins, and
Mozambique, riparian for eight. This situation requires
strong regional co-operation to establish trans-boundary
mechanisms that can minimise the potential for conflict
by organising the sharing of resource, regulating their
uses, co-operating in infrastructure development, and
Box 16 - Managing the Different Actors through SWAP, the Case of Uganda
In Uganda, the NGO and private sectors are very active in diverse water and sanitation related activities alongside the public sector
service providers. Private-sector firms undertake design and construction in the water sector under contract to local and central
governments. They provide maintenance services to water users in rural and peri-urban areas, and they manage piped water services in
the majority of small towns with piped water.
NGOs and Community Based Organisations (CBOs) are active in the provision of water and sanitation services (construction of
facilities, community mobilisation, training of communities and local Governments, hygiene promotion as well as advocacy and lobbying).
In August 2006 the Uganda Water and Sanitation NGO Network (UWASNET) had a membership of 150 NGOs/CBOs implementing
projects in the sector. Between January and December 2005, NGOs served an estimated number of 113 420 people with new water
sources (protected springs, shallow wells, boreholes, gravity scheme taps and rainwater harvesting faculties). Some of them have
demonstrated their ability to innovate (e.g domestic roof water harvesting, biosand filters, and leverage of household investments). The
UWASNET secretariat is supported financially by the government and development partners. In 2005, 5 per cent of the DWSCG and
11 per cent of NGO funds were utilised for sanitation.
In order to co-ordinate the participation of all stakeholders in the sector, Uganda adopted a Sector Wide Approach to Planning
(SWAP) for the Water and Sanitation Sector in September 2002. SWAP is a mechanism whereby Government and development partners
support a single policy and expenditure programme using a common approach. The SWAP mechanism has resulted into a harmonised
sector-planning framework in which duplication of efforts by different stakeholders has been minimised.
© AfDB/OECD 2007
63
Overview
co-ordinating measures to tackle pollution. Tanzania
provides a good example of co-operation in transboundary water management.
Beyond regional co-operation, all stakeholders
should be part of the IWRM dialogue. Their various
roles need to be clearly defined and strong co-ordination
mechanisms developed. The first step for managing
water resources is to clarify the most appropriate level
of decentralisation and the corresponding allocation of
functions. Central government should ensure that
activities are co-ordinated across the broad range of
actors. Uganda provides a good example in this regard.
64
Finally, there is a need for sound and autonomous
regulation to reap the benefits of partnerships in a
decentralised framework. Effective water resources
management requires separating the development and
regulatory aspects from water supply and sanitation
delivery functions. A service provider cannot at the
same time fulfil the regulatory or allocative functions
to decide among competing uses without giving rise to
conflicts of interest. Autonomous institutions should
carry out the regulatory functions. An example can be
seen in Zambia, which established an independent
water regulator in 1997, the National Water Supply
and Sanitation Council (NWASCO), which has since
developed regulatory tools and guidelines on service
provision, tariff negotiations and yearly reporting. In
particular, NWASCO has been instrumental in
strengthening the monitoring of access to water and
sanitation services through a close follow-up of the
commercial utilities activities. It carries out detailed
inspections of the service providers and provides capacity
building to ensure compliance with performance and
corporate governance. It also approves tariff adjustments.
In 2005, NWASCO put in place water quality guidelines
describing the types and frequency of water sampling
for routine water testing. The regulator also established
Water Watch Groups to resolve disputes between
consumers and providers. It includes a customers’
complaint handling procedure that encourages direct
resolution with the utilities. This mechanism also helps
to monitor service quality. In 2004/5 most complaints
concerned erratic supply, and some were addressing
sewerage overspill and water quality.
2- Strengthening Local Management
Decentralising responsibility and ownership, and
providing a choice of service levels to communities,
based on their ability and willingness to pay can
accelerate progress in expanding access. Communities
have a better understanding of local realities enabling
quick and realistic decision making. Consumer groups,
cooperatives, and professional associations have a key
role to play in water resources management: setting
development goals, participating in project
implementation, adapting technologies to local
conditions, and bridging gaps between public sector
and communities. Over the last two decades, central
governments have started devolving the responsibility
for providing water and sanitation services to local
bodies and the responsibility for oversight to local
authorities. There was an expectation that the water
departments would subsequently evolve into
Box 17 - Institutional Reforms
The design of the regulatory system is the most essential step in the process of reforming the water sector, especially in countries
that seek to delegate water services to private operators such as North African countries (see table 12). An independent regulatory agency
provides political stability and safe economic environment for both private and public water operators. Often countries create an
autonomous water regulatory agency. However, in the practice these agencies are rarely independent from governments and are thus not
very useful. The separation of roles – political, strategic, regulatory and operational – is also a condition of efficient management. Another
important reform is the corporatisation of local water operators: establishing legal and financial independence of water operators reduces
administrative burden and political interference. It guarantees the transparency of costs and financial flows. It also ensures a fair and
fruitful competition among water operators, public or private. In addition, countries can create River Organizations, which are funded
through users’ fees and aim to finance local water projects. Thus, part of the public responsibility is delegated to the regional level, which
is able to evaluate more precisely the needs. This system also reduces the fiscal and administrative burden of the central state. Without
creating Basin Agencies, the administrative burden can also be moderated by decentralising part of water policy to regions.
© AfDB/OECD 2007
Overview
Table 12 - Elements of Regulation in North African Countries
Presence of
regulatory agency
Algeria
Egypt
Morocco
Tunisia
Not yet but planned
in the 2005 water
law
Yes since 2004
No
No
Independence of
regulatory agency
No
Separation of
powers
Yes
Important political
interferences
Yes
Some political
interferences
Corporatisation of
local operators
Possible since 2005
No
Possible since 2002
No
Basin organisations
No
No
Yes since 1997
No
Decentralisation
Decentralised
Highly centralised
Decentralised
Centralised
Decentralisation
process planned
Source: Perard, E (2007), Private Sector Participation and Regulatory Reform in Water Supply: the MEDA Experience, mimeo, OECD
Development Centre, Paris.
http://dx.doi.org/10.1787/037063805755
65
autonomous commercial entities, able to generate
sufficient revenue to cover at least their operation and
maintenance costs. However, although decentralisation
is included in most countries’ institutional reform
packages, local authorities do not always have sufficient
management capacity to discharge their new
responsibilities.
Angola, for instance, established an ambitious
decentralisation plan, but it was only partially
implemented, with a number of local units existing only
on paper or not officially recognised by the central
government. The budget also remains mostly centralised,
with central and provincial governments responsible for
allocating the funds to local authorities. Similarly, the 2002
Water Law foresees the creation of Empresas de Agua for
water treatment and distribution at provincial level by
2010. EPAL was created in Luanda, but only a few of
the smaller urban centres have so far followed suit.
Moreover, the regulatory framework attached to the 2002
Water law is still waiting for approval by the government.
In Zambia, the Water Supply and Sanitation Act
of 1997 delegated to the local authorities the
© AfDB/OECD 2007
responsibility to provide water and sanitation services
in their respective areas. Consequently 50 out of 72 local
authorities have established nine commercial water
utilities in urban areas, which are expected in the long
term, to be commercially viable. The commercial
utilities are responsible for service provision to 86 per
cent of the urban population; the remaining areas are
serviced either by 22 local authorities (13 per cent) or
private providers (1 per cent). Commercialisation has
been crucial to sustain improvement in service delivery.
Over the years, the commercial utilities have made
considerable progress in extending water supply coverage
(from 58 per cent in 2004/05 to 73 per cent in
2005/06), thanks to the support of the Devolution
Trust Fund (DTF) (a basket of co-operating partners’
funds which aims at assisting the providers to extend
the provision of services to the peri-urban poor). The
institutional framework for rural WSS, adopted by the
government in 2004, devolved authority to the local
authorities and communities, promoted community
management in order to ensure service sustainability,
and embodied the WASHE (Water, Sanitation and
Health Education) concept to promote awareness
regarding sanitation and environmental health.
Overview
66
Decentralisation is well advanced in Uganda. It
was first adopted because a combination of
mismanagement and reduced revenue collection had
led to unreliable services and deterioration of
infrastructure. Local Governments (Districts, Towns,
and Sub-Counties) were empowered by the Local
Governments Act (1997) to provide water services.
They receive grant funding from the central
government and were authorised to mobilise local
resources for implementing rural water and sanitation
sector programmes and to support small towns. Local
Governments also appoint and manage private
operators for urban schemes outside the jurisdiction
of the National Water and Sanitation Company.
However, a number of obstacles to further
developments in the WSS have been identified by
the various stakeholders: i) poor technical competence
in the water and sanitation fields at district levels;
ii) poor co-ordination of sector activities;
iii) inadequate capacity to handle the tendering,
contract procurement and management of privatesector implementation; iv) inadequate supervision,
monitoring and reporting capacity; and v) lack of
capacity at sub-county and lower levels which are
responsible for implementation. For example,
transparency now exists in the awarding of contracts
by central authorities in the Ministry of Water Lands
and Environment and/or National Water and Sewerage
Corporation through properly constituted Contracts
Committees. However, such transparency is rare in
the case of contracts awarded by district tender boards,
which lack capacity and qualified manpower, and are
thought to be susceptible to political influence from
local councillors.
To respond to the lack of capacities, some countries
have put in place interesting mechanisms, relying for
instance on public-public partnerships and the expertise
accumulated at central government to train subsovereign entities. The cross training of Umgeni by
TCTA in South Africa presents such an example,
where the South African government agency responsible
for the implementation and funding of bulk water
supply developments helped to build up treasury
capacity at the water service provider. Uganda also
presents an interesting case where the National Water
and Sewerage Corporation has partnered with the
Directorate of Water Development25 to train the local
private sector and local governments in management
and institutional development.
Box 18 - Cross-training of Umgeni by TCTA
(Trans-Caledon Tunnel Authority), the government agency responsible for the implementation
and funding of bulk water supply developments in South Africa
South Africa’s TCTA, a parastatal, was created in 1986 in order to “implement, operate and maintain the project works within South
Africa” according to the Treaty governing the Lesotho Highlands Water Project (LHWP). Because of its role in financing large-scale water
infrastructure, and its strong financial skills, TCTA was able to provide assistance to Umgeni Water, which operates under the direction
of the Ministry of Water Affairs and Forestry (DWAF). In 2001, TCTA assumed responsibility for treasury management services, with
a remit to strengthen Umgeni’s own capacity. By 2004, DWAF determined that TCTA had built sufficient capacity, and the handover
was completed in January 2005. Through this process Umgeni received sufficient training to perform treasury functions; in addition
training and financial modelling skills and computer programs were transferred, such as cash-flow projections, debt modelling, tariff
calculations, and other financial decision-making aids. TCTA remains a participant on Umgeni’s Water Finance Committee, and through
a service agreement, continues to provide assistance on issues relating to tariffs, funding and debt management, risk management,
formulating interest rate reviews, and other financial functions.
Source: Based on African Development Bank (2006), Studies on Financial Instruments to Facilitate Investment for Water Infrastructures, by
Rachel Cardone, based on TCTA website and discussion with Leslie Maasdorp, Chairman of the Board, TCTA.
25. The Directorate of Water Development is the government arm in charge of overall water-resource development and management and
is responsible for the provision of services to the rural areas and small towns under a decentralised management framework.
© AfDB/OECD 2007
Overview
3- Advancing Sanitation and Wastewater
Treatment to the Top of the Agenda
Progress in sanitation has been largely disappointing.
Neither has progress in improving access to drinking
water been accompanied by an adequate increase of
wastewater treatment capacities. Cholera and infant
diarrhoea continue to figure prominently among the
six main water-related diseases which afflict half of the
African population. Cholera outbreaks affected Luanda
and other large cities of Angola in 2006. In Zambia
some 7 615 cholera cases were reported between August
2005 and April 2006, most of them in Lusaka. In
Ghana, lack of access to clean water and sanitation
systems are estimated to contribute to some 70 per
cent of the burden of disease. In Madagascar, 60 per
cent of infant mortality is related to low water quality
and bad sanitation. Consequently, the World Health
Organisation estimates the economic benefits to Africa
of meeting the water and sanitation MDGs at about
$23 billion annually26, compared to an annual cost of
intervention of $2 billion.
Moreover, environmental sustainability will worsen
if the water supply target is achieved without
accompanying measures for sanitation and effluent
management. The volume of sewage produced will
increase proportionally, exacerbating its threat as a
main source of water pollution. Some sanitation
solutions adopted by households, such as septic tanks,
flush toilets and sewer connections without proper
treatment, can also cause water pollution. The excreta
disposal situation is also worsening in Africa because
on-site installations are multiplying but are not properly
emptied. Owners do not have the means or the
awareness to pay for mechanical emptying and prefer
to pay smaller fees for manual removal. On top of the
sanitary risk for the removers, manual removal usually
takes care only of the top layer and untreated waste is
often disposed of in open urban areas, inland waters
and the sea. Moreover, with rapid urbanisation, the
number of people per plot is increasing and the new
lands are often poorly drained and shallow. Pits fill
even faster and maintenance is becoming even more
critical. Safe water supplies can only be secured if the
water resources are protected from contamination by
untreated or inadequately treated, wastewater discharges.
In densely populated areas, increasing access to drinking
water can therefore only be safely achieved if the
sanitation situation is tackled simultaneously.
Sanitation does not receive the attention it warrants
for a variety of reasons. The costs might seem colossal
to governments pressed by stringent budget constraints
even though they are small compared to the health
and environmental costs of inaction. Also, the sanitation
system is highly segmented between the initial provision
of facilities, the removal and transport of waste and its
treatment, involving many different actors among
which partnerships rarely exist. This situation is usually
mirrored by a fragmented institutional framework
where responsibilities are divided among several different
state agencies. The current institutional framework for
wastewater management in Botswana, for instance,
comprises five departments responsible for some 11 Acts:
the Department of Waste Management and Pollution
Control, the local authorities, the Department of Water
Affairs, the Directorate of Public Service Management
and the Department of Local Government. Such
fragmentation results in low capacity to undertake
large projects, a lack of accountability, and excessively
high costs of service provision. There is also a risk that
sanitation facilities will be provided without ensuring
maintenance services. The complexity of handling these
issues leads governments to favour projects with more
immediate returns and this results in too little money
spent on sanitation compared to water. Change is
possible, however, as illustrated by the case of Senegal.
The difference between the costs of highly
engineered sanitation solutions and the amounts
considered affordable points to the need to adapt the
technologies employed to local conditions. In fact,
there is a range of potential technologies that can be
adapted to the needs of communities, such as ease of
maintenance, and entailing cost in line with their
26. Hutton and Haller (2004) Evaluation of the Costs and Benefits of Water and Sanitation Improvements at the Global Level, WHO, Geneva.
© AfDB/OECD 2007
67
Overview
Box 19 - Senegal’s Pro-Active Strategy
Things have moved very slowly in sanitation in Senegal, so the government has made the sub-sector a priority, giving it pride of
place in the PEPAM, creating a special ministry for it, drafting a sanitation law and spending more on investment.
The sector strategy is based on synergy of urban and rural water operations and the need to increase the execution capacity of the
national sanitation department ONAS (Office National de l’Assainissement) and the sanitation directorate (Direction de l’Assainissement),
especially to handle the scale changes in rural sanitation. The aim is reduce financial barriers to access by encouraging shared connections,
subsidising investment (semi-shared and independent) and strengthening monitoring and assessment methods.
Second-generation reforms in urban areas will update the law on public drinking water supply. A rates survey is being done and an
ONAS-government performance contract introduced to improve the financial situation of ONAS. Infrastructure is to be boosted with
92 400 shared connections, 800 km of sewerage and 135 100 autonomous networks. Access will be facilitated through the complementarity
between shared, semi-shared and autonomous sanitation, as well as by increasing the capacity for treating sewage and disposing of
drainage waste and by finding and introducing a viable way to fund management of rainwater.
The plan in the countryside focuses on meeting demand, through training and education. Growth of the private sector is encouraged
by local people carrying out the work. The plan aims to promote technical packages that are simple to construct and maintain (ventilated
latrines, hand-flushed toilets, washbasins and standard public lavatories). The programme plans to build 355 000 autonomous domestic
connections and 3 360 public lavatories.
Investment in sanitation infrastructure between 2006-15 is estimated at 220.6 billion CFA francs in urban areas and 103.5 billion
in the countryside, and for related work 15.8 billion in urban areas and 16.3 billion in rural areas.
Source: Based on the intervention of Adama Mbaye, Director, Direction de l’assainissement, ministère de la Prévention, de l’Hygiène publique
et de l’Assainissement, at the OECD/AfDB expert meeting on Access to Drinking Water and Sanitation, Paris, December 2006.
68
willingness to pay. Beside the main sewerage network,
mini networks can be developed to cater for the needs
of densely populated settlements that are not connected
to the main sewer network, as shown by the experience
of Mali. In informal peri-urban settlements, the main
impediment to making these connections is often the
reluctance of the authorities to permit investments in
the sanitation infrastructure that could lead to legalising
the settlements.
In any case, with rapid urbanisation, and the
development of informal peri-urban settlements, the
prospects for connecting all households to sewerage
networks in the short term are slim. Thus, on-site
sanitation is often the only practical solution, as the
Building Partnerships for Development in Water and
Sanitation27 programme has found. Involvement of
communities in the construction of such facilities and
their maintenance (through user fees) has proved useful
Box 20 - Mini-sewers in Mali
The only areas connected to mains sewers are central Bamako (and its suburb of Koulouba), the industrial zone and a small part of
the town of Ségou. Mini-networks of small-diameter sewers have also been built in Bamako to serve about 12,000 people and as a suitable
way to manage sewage in a densely-populated urban area. The preferred solution is family-funded individual sanitation but the government
(through the state housing department, the Office Malien de l’Habitat) has invested 139 million CFA francs building mini-sewers in
the Bamako neighbourhoods of Bankoni and Baco Djicoroni, as well as building them in the towns of Djenné and Timbuktu. Microfinance
institutions, sanitation co-ops and consortia are involved in funding, managing and cost recovery. The big problem is still the very low
cost recovery rate (about 20 pour cent).
27. Schaub-Jones, D., K. Eales and L. Tyers, 2006. Sanitation Partnership: Harnessing their Potential for Urban On-site Sanitation. Building
Partnerships for Development in Water and Sanitation, London.
© AfDB/OECD 2007
Overview
to promote political ownership. Local actions of NGOs
and community-based organisations (CBOs) are also
instrumental in influencing policy making. For example,
the coalition “Muungano wa Wanvijijihas” formed by
NGOs and CBOs operating in the area of Nairobi,
emerged to improve conditions of the slum dwellers
of Kibera. The coalition managed to lobby for the
destruction of some clusters for the development of
communal facilities, thereafter managed by the residents
under CBOs’ oversight. This shows that making progress
on sanitation requires both strong partnerships and
awareness raising.
flow of orders. The public sector can also take the lead
in co-ordinating demand. For example, the South
African municipality of Durban has chosen to overcome
the sporadic nature of demand by ensuring that pits are
emptied every five years according to a specific schedule
(regardless of volume), at no cost for the households.
In parallel, the city is supporting the professionalisation
of manual pit emptying operators, regulating their
activity to ensure safety and security (allowing work
only in daylight, requiring the use of appropriate material
and securing the chain of custody from emptying the
pits to the safe disposal of waste for treatment).
Partnerships can help overcome the fragmented
nature of sanitation by providing a platform for
discussion among the different actors. Partnerships can
also consist in creating intermediaries (typically CBOs)
between households and (private) service providers.
Such intermediaries can catalyse demand and thereby
help the local service providers to develop a more stable
The sanitation situation can also benefit from large
awareness campaigns about the risks arising from
untreated wastes, and also about the possibilities of
using properly treated human excreta as fertilisers.
Good examples of behaviour change can be found with
community level sanitation programmes such as the
AHEAD clubs in Zimbabwe.
69
Box 21 - Community Health Clubs in Zimbabwe
Community Health Clubs were first pioneered in Zimbabwe in 1995, in a small pilot project in Makoni District, with the objective
of creating demand for sanitation and rapid uptake of hygiene practices. From the start, the health clubs attracted a strong response from
the community with clubs of between 50 to 200 members. It was estimated that approximately 70 per cent of the members in each club
continued to attend the weekly health sessions for over six months. By 2001, there were 472 health clubs in Zimbabwe, with 27 784
members in 6 districts. In all districts Environmental Health Technicians, from the Ministry of Health, were responsible for facilitating
the health club sessions, thus institutionalising the programme within the government structure. The approach has led to important
changes in behaviour (Waterkeyn and Cairncross, 2005). Health club members constructed 3 600 latrines in two of the districts within
18 months in 1999 and 2000 which can be compared to some 8 000 latrines constructed in the entire country in 1998. The health
promotion needed to stimulate this strong demand was achieved at a cost of $0.55 per head for 12,630 beneficiaries in Tsholotsho District,
and $0.21 in Makoni District for 68 700 people. Despite minimal external support following the socio-political collapse of Zimbabwe,
the health clubs are surprisingly resilient and continue to prosper (Waterkeyn, 2005). In 2004, Africa AHEAD Association was founded
to replicate and adapt the CHC Approach throughout Africa by starting pilot projects in as many countries as possible.
Source: http://africaahead.com
III- Financing
There are various estimates of the additional financing
needed to reach the MDGs28. However, they all agree that
the largest financing need by far is for the treatment of
wastewater. AfDB et al. estimate in the Africa Water
Vision 2025 that to ensure a sustainable water future, Africa
should invest some $20 billion annually until 2025, a third
of which for sanitation, a quarter of which for drinking
water supply, and $1 billion for policy and institutional
reform, capacity building, information, awareness and
education, and R&D. UNDP argues that in low income
28. They are reported in Fonseca, Catarina and Rachel Cardone, 2005. “Analysis of cost estimates and funding available for achieving the
MDG targets for water and sanitation.” WELL (WEDC/LSHTM/IRC), London. Internet:
http://www.lboro.ac.uk/well//resources/Publications/Briefing per cent20Notes/BN9 per cent20Fonseca.pdf
© AfDB/OECD 2007
Overview
Table 13 - Investment Requirements to Reach the MDGs in Selected Countries
(in m$/year)
Total Investment Required
BENIN
Water
Sanitation
BURKINA FASO
Water
Sanitation
DRC
Water
Sanitation
GHANA
Water
Sanitation
KENYA
Water
Sanitation
MADAGASCAR
70
Water
Sanitation
MAURITANIA
Water
Sanitation
MOZAMBIQUE
Water
Sanitation
NIGER
Water
Sanitation
RWANDA
Water
Sanitation
SENEGAL
Water
Sanitation
UGANDA
Water
Sanitation
ZAMBIA
Water
Sanitation
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
New
Rehab
Public I
required
Planned
Pub I
Surplus
/Gap
11
7
6
6
62.17
1.48
15.2
11.65
52
117
21
188
42
72
25
12
53
9
51
24
14
18
2
5.5
35.3
1.1
5.1
14
42
1
15
52
0
3.6
2.8
1.3
24
3
4
30.7
15.9
22
35
29
14
35
38
14.9
2.3
-
6
3
3
3
7.83
16.52
10.4
12
18
13
11
4
9
51
22
25
14
7
9
41
4
9.1
6.8
0.8
1.5
22
12
2
2
6.2
20
1.2
0.7
31
4
2
1
2.1
8.1
0
10.7
44
6
68
10
2.3
N/A
-
16
7
8
8
68.96
17.87
14.57
11.52
39
132
3
40
44
81
14
57
67
0
59
26
7
6
1
13.1
35.8
0.6
3.3
35
47
0
2
50
20
2.8
3.5
40
0
1
0
32.4
17.8
20
43.9
69
20
35
18
9
1
-
24
10
2
0
10.97
2.42
0.3
3.67
7
62
1
1
42
36
10
33
77
2
14
52
21
4
15
11.4
25.2
0.2
0.8
23
44
1
19
5
0
1
0
9.7
3.3
2.6
23
46
54
10
9
0.18
0.27
0.02
0.03
8
3
-6
-8
-57.99
-15.46
-14.28
-7.86
-32
-70
-2
-39
-2
-45
-4
-24
10
2
-45
26
14
-2
14
-1.7
-10.6
-0.4
-2.5
-12
-3
1
17
-35
0
0
0
-22.7
-14.5
-17.4
-20.9
-23
34
-25
-9
8.82
0.8
-
Source: The Heritage Foundation/The Wall Street Journal, 2007 Index of Economic Freedom.
http://dx.doi.org/10.1787/853764276241
© AfDB/OECD 2007
Overview
countries with limited coverage and a high level of poverty,
public spending on drinking water and sanitation should
equal about 1 per cent of GDP with cost recovery and
community contributions making up an equivalent
amount. These figures are more than twice as high as
current levels of spending. Estimates for a selected number
of countries are shown in the table below on investment
requirements to reach the MDGs derived from the
assessment of AMCOW et al.
Ultimately there are three main sources of financing:
through the user fees paid directly to the water utility,
through tax revenues and their use to subsidise service
delivery and finance investments, and official
development assistance and contributions by non-state
actors. The case of Uganda is enlightening as it shows
the respective importance of the different actors in
funding. The Poverty Eradication Action Plan (PEAP)
clearly recognises the fact that the tariffs cannot fully
cover costs and, therefore, the Government still retains
overall responsibility for financing investments in the
water sector. In 2005/06, the total public spending on
water and sanitation sector in 2005/06 was 103 billion
shillings (i.e. some 0.6 per cent of GDP), 61 per cent
of which was financed by donors.
So far, however, government budgets and
development assistance have largely been insufficient
to cover the scale of investments needed. National
water providers have also failed to help establish a
financially sustainable system. Alternative sources such
as private participation have proved disappointing,
with water and sanitation the least attractive sector to
private investors.
Box 22 - Principles for Private-Sector Participation in Infrastructure
71
The shortage and low quality of infrastructure in African countries is an obstacle to meeting the populations’ needs, to enterprise
development, and to achieving the goals of the Millennium Declaration (MDG). World Bank calculations identify a need for $40 billion
investment in infrastructure per year, equivalent to 9 per cent of GDP of the continent, for the next 10 years in order to attain the MDG.
To meet these needs, encouraging private-sector participation in infrastructure is an option that governments cannot afford to ignore in
determining their overall strategies for enhancing and financing infrastructure.
The OECD Principles for Private Sector Participation in Infrastructure http://oecd.org/dataoecd/41/33/38309896.pdf aim to assist
governments to make the most of private-sector involvement in infrastructure development for the benefit of society. Specifically, they
offer a coherent catalogue of policy directions to be assessed as a first step in the authorities’ consideration of effective ways of involving
the private sector in their infrastructure sectors, in light of their own national circumstances and needs. The Principles cover five main
issues: 1) deciding on public or private provision of infrastructure services; 2) establishing an enabling policy framework for investment;
3) enhancing the public’s acceptance and the government’s capacities to implement agreed projects; 4) making the co-operation between
the public and private sectors work; and 5) communicating government’s expectations about responsible business conduct to their private
partners.
The Principles are of applicability to foreign and domestic operators, and to the various forms private-sector participation can take.
They can be used as a template for country self-assessment at national and local government levels, an aid for progress reporting by
public authorities, a tool for structuring regional and other inter-governmental co-operation and public-private dialogues. They may also
be used by donors as a reference point, and complement donor guidance on pro-poor growth in the infrastructure area.
The Principles will be used in the context of the OECD-supported regional initiatives, such as the NEPAD-OECD Africa Investment
Initiative.29 This will include, inter alia, the development of more operational guidance, specific to infrastructure sectors, such as water
and sanitation and developed through multi-stakeholder consultation and tested through pilot assessments of volunteering countries.
For further information see: www.oecd.org/daf/investment
29. For information on the NEPAD-OECD Africa Investment Initiative, visit www.oecd.org/daf/investment/africa
© AfDB/OECD 2007
Overview
There are very specific risks for commercial funding
in the water and sanitation sector, as underlined by the
Camdessus panel30. The water and sanitation projects
are usually capital intensive. They involve high initial
investment, long payback periods and low rate of return.
As highlighted by the AfDB31, the commercial rate of
Box 23 - Matching Demand with Supply: Feasible Financing Strategies
for Water Supply and Sanitation
An important obstacle to achieving the internationally agreed targets on water supply and sanitation in many countries has been
the failure to address the associated financial issues adequately: the costs of achieving the targets; how those costs could be minimised;
and the challenge of matching costs with available resources. The need for a fresh approach has become evident as many developing
countries and economies in transition struggle to maintain even the low levels of services currently delivered by water supply and
sanitation infrastructure, not to mention the need to extend it to reach a greater share of the population. The Danish government and
the OECD have jointly developed an approach to meet these challenges, particularly for investment-intensive environmental infrastructure,
such as urban and rural water supply, waste water collection and treatment. This approach, backed by a special decision-support tool
called FEASIBLE, has been applied in several transition economies including in the former Soviet Union, some new EU countries and
China. The main ideas underlying this approach are realism, affordability and cost-effective use of resources.
The basic approach underlying the FEASIBLE method is to collect detailed technical data on the existing state of infrastructure, set
and agree upon the public policy targets with stakeholders in areas like water supply and sanitation, determine costs and timetables for
achieving them, and compare the schedule and volume of expenditure needs with available financing. This analysis generally reveals financial
deficits which would likely arise during the planned implementation. FEASIBLE can then develop various scenarios to determine how
the gaps might be closed. This could involve identifying measures to help achieve the targets at lower cost; identifying ways to mobilise
additional finance; adjusting the ambition level of the targets; or rescheduling tasks and targets.
72
An important feature of FEASIBLE is the emphasis on realism and affordability. The model can assess the levels of finance (public,
private, domestic, foreign) that might be available under different macroeconomic conditions. In this way it provides a check on what
public budgets might realistically be expected to contribute. It can also help to assess the potential social implications of increasing tariffs
by determining the impacts of such price increases on household income. It helps to review the obstacles systematically that would need
to be removed in order to mobilise private sector and foreign financing for environmental infrastructure. Thus FEASIBLE can support
a process of dialogue and consensus building among stakeholders and build bridges between policy development and implementation.
The assumption underlying the FEASIBLE methodology is that governments should not be expected to finance all or even most of
the environmental expenditure required, or sponsor all or even most projects. The main role of government in relation to financing is
to establish the policy, regulatory and institutional framework as well as the incentive structure, within which resources from users, financial
markets, capital markets, local budgets and enterprises can be mobilised in a complementary way, and be applied as cost-effectively as
possible to achieve agreed goals.
These applications are more than technical exercises: by engaging all the major stakeholders involved in financing environmentally
related infrastructure, they support constructive dialogue and agreements that facilitated effective programme implementation, improvement
of service quality and the achievement of environmental goals. If properly developed financing strategies can help to generate additional
financial flows from water users, public budgets, donors, IFIs, and the private sector. In some cases, the results of such work have been
incorporated into medium-term expenditure frameworks in ministries of finance, and they could provide a useful input into Poverty
Reduction Strategy Programmes through setting the indicators for monitoring of the services quality inter alia taking account the need
to achieve the MDG targets on water supply and sanitation.
Following the initial focus on the countries of the former Soviet Union countries, the OECD is now planning to adapt the
methodology to the African context, where discussions are under way with Egypt as a possible pilot country. It is also planned to identify
a country in sub-Saharan Africa where this work could effectively support efforts to achieve the internationally agreed water targets.
For further information see: www.oecd.org/env
30. Winpenny (2003), “Financing Water for All: Report of the World Panel on Financing Water Infrastructure”, chaired by Michel Camdessus:
http://www.gwpforum.org/gwp/library/FinPanRep_MainRep.pdf
31. African Development Bank (2006), Studies on Financial Instruments to Facilitate Investment for Water Infrastructures, by Rachel Cardone.
© AfDB/OECD 2007
Overview
return for a water infrastructure project is between 5
and 10 per cent compared to 17-25 per cent in the
power sector and 25-30 per cent in telecommunications.
The resulting water-related infrastructure is fixed and
very specific; it cannot be used for other purposes or
removed from the country. This profile generates high
contractual risk especially in a context of poor initial
information and a weak regulatory environment. The
revenues come mainly from user fees or government
subsidies in local currency while funding is largely in
foreign currency, exposing the investor to high foreign
exchange risk. Management of the projects are mainly
local, exposing the investors to weak management and
financial capacities of the sub-sovereign entities (subsovereign risk). Finally, as a basic need, water has
important political repercussions, and therefore justifies
political interference (notably in the setting of tariffs).
Such a project profile deters commercial financing and
explains that most funding to the water and sanitation
sector mainly comes from government and donors.
However, new developments in the area of guarantees
and risk mitigation mechanisms supported by the
donor community are helping enhance attractiveness
of the water sector and make sub-sovereign financing
a viable option.
1- Implementing Cost Recovery
Mechanisms
Establishing an appropriate tariff structure is a key
element of water management since charging for water
provides an incentive for its efficient use and the
revenues can cover most of the costs of service provision.
The objectives of cost recovery are to ensure sufficient
revenues to deliver services of quality over the long
term, extending the network to serve lower income
consumers while providing incentives to make better
use of scarce resources. The cost recovery ratio measures
the extent to which user fees with other direct
contributions can meet service costs, and contribute to
financial sustainability of the sector. The costs can be
broadly divided into three main categories: i) operating
and minor maintenance expenditures, ii) infrastructure
maintenance and replacement expenditures and
iii) long-term cost of capital. In the past, maintenance
has been largely overlooked, jeopardising the
© AfDB/OECD 2007
sustainability of the services. It is therefore crucial that
financing be designed not only to cover investment
needs but also to provide for recurring expenditures,
including maintenance.
African countries are characterised by wide variations
in payment capacity. While there is a potential for full
cost recovery of providing water services in most urban
settings, extension of networks in peri-urban areas and
service delivery in many rural areas require subsidisation
of capital expansion. By contrast, sewerage and
wastewater treatment are not necessarily affordable by
the majority, even in urban areas. Accounting for the
wide variations of affordability across users, crosssubsidisation between the wealthier and the poorer
users is necessary, together with subsidisation across
water and sanitation and clear differentiation of
industries (particularly the polluting ones that should
bear the costs of pollution abatement). According to
the “polluter pays” principle, the tariffs applied should
reflect the cost of treatment and therefore depend on
the volumes and pollution content of the wastewater.
Alternatively, it could also give incentives to industries
to treat wastewater on site (in line with clear agreed
standards) to reduce the burden on treatment plants.
Cross-subsidisation is not at odds with the cost-recovery
principle since the average tariff can be set so as to
ensure financial sustainability of the provider, without
recourse to government support. The tariff structure
that is usually implemented to incorporate crosssubsidisation is a stepped or progressive one where a
low price is charged for a small quantity of water, and
the tariff increases with successively higher levels of
water consumption. This structure has the additional
advantage of encouraging water conservation, unlike
other financing systems, such as property taxes.
However, monitoring consumption levels requires an
efficient metering system and the prevention of illegal
connections. Also, implementing different levels of
cross-subsidies (across user categories and activities)
can lead to a complex tariff system that may be difficult
to administer.
Wide variation in payment capacity is also matched
by variations in the costs of water provision. This
reflects the differences in technologies used, notably to
73
Overview
access newer, more remote and deeper sources. In
Uganda, for instance, the per capita cost of providing
improved water to people in rural areas is $34 on
average, but it varies between Districts. In some cases
this is a result of the technology mix: there has been a
steady increase in per capita costs due to a marked
reduction in the availability of low cost options such
as springs and shallow wells, increased expenditure on
overheads (in part as a result of the creation of new
Districts) and an increase in the cost of other resources
(e.g. fuel, construction materials). In the 2005/06,
financial year the per capita cost for small towns was
$96, attributable to cost of diesel generators, poor state
of schemes, and the purchase of bulk water. With tariffs
ranging from 800 to 2 500 shillings per cubic metre, it
is estimated that only 17 out of 53 small towns are able
to cover their operation and routine maintenance costs.
74
As of today, very few water utilities are financially
sustainable. Even in urban areas, tariffs rarely fully
cover all operating and maintenance costs, not to
mention charges for capital raised to finance investment
expenditures. In northern Africa, for instance, the
World Bank finds that only the water utilities in Rabat
and Casablanca reach operating cost recovery32. By
contrast, the water utilities in Cairo and Alexandria are
estimated to cover only some 25 per cent of their
operating costs. Consequently, most water utilities rely
on subsidies at least for network expansion and
modernisation.
Ensuring sustainable access for all: the respective role
of user fees and subsidies.
The key elements determining users’ payments are
affordability and willingness to pay. Willingness to pay
is in turn a function of quality and reliability of services.
It is also influenced by the existence of competing
water sources or by different price policies in
neighbouring communities. Awareness campaigns on
the consequences of not paying, but also on the
consequences of poor water and sanitation conditions
on health and education, help to increase willingness
to pay. The usual rule of the thumb to appraise
affordability is that households should not pay more
than 3 to 5 per cent of their incomes for water services.
However, for a variety of cultural and historic reasons,
paying for water and sanitation services is not well
established in Africa. Following the Gurría task force33,
it is however largely admitted today that “free water
services ultimately may be very expensive for the poor”.
Rural areas face a particularly difficult challenge to
ensure financial sustainability as most of their population
is poor and can hardly cover even operating and
maintenance costs. Some transfer pricing mechanisms
between urban and rural areas exist that involve for
instance levies on volumes of water “imported” by
cities from basins in rural areas. However, the challenge
remains great as the population in richer areas might
not be wealthy enough to support the resulting costs
in most African countries. Also, the utilities are
increasingly autonomous and managed on a commercial
basis, making such transfers difficult. In the specific case
of sanitation, the financing can not be raised through
tariff-based user charges in areas where networks do not
exist. Its cost, therefore, can hardly be covered by
households. The AfDB34 concludes that most financing
for rural water and sanitation will continue to come
in the form of a mix of loans and grants, mainly from
international development assistance (whose
contribution is estimated at 80 per cent), from national
governments (15 per cent) and from communities (for
5 per cent) in the form of free labour and material for
construction and maintenance.
It is widely acknowledged that sewerage operations
should be linked with water services in an integrated
tariff system to reflect the direct link between wastewater
removal and provision of drinking water. However,
32. World Bank, 2007. Making the most of scarcity. Accountability for better water management results in the Middle East and North Africa.
33. World Water Council, 2006. Enhancing access to finance for local governments. Financing water for agriculture: Task force on Financing
water for all, chaired by Angel Gurría.
34. African Development Bank (2005), Rural Water Supply and Sanitation Initiative, implementation Plan and Resource Mobilisation
Strategy.
© AfDB/OECD 2007
Overview
sanitation remains the most difficult element to finance
through cost recovery as shown by the case of Tunisia.
The costs of sewerage and wastewater treatment are
usually higher than the costs of networked water supply,
depending on the level of treatment. However, charges
for sanitation services are usually set at only 20 to
30 per cent of the costs of water provision. Since
networked sanitation is only available in formal housing
areas, such a level of cost recovery implies that some
70 per cent of sanitation costs are subsidised by general
tax revenues. In Algeria, for instance, sanitation fees
amount to 20 per cent of the water bill, even though
improvement in services is much needed: only 14 of
the existing 45 treatment plants work and the country
reports 1 such plant for 711 000 inhabitants in 2005
to be compared with 1 per 5 000 inhabitants in France
in 1998.
Subsidies remain a central issue in the general
problem faced by service providers and governments
of ensuring greater access for the poor while preserving
quality and quantity of access for the already connected.
In order to provide some answers, the AfDB35 makes
a useful differentiation between the lower middleincome households, the developing poor, the coping
poor, the very poor and the destitute. For the lower
middle-income households, employed at low wages
but living in conventional housing, water and sanitation
tariffs are affordable but need to be structured to allow
delays in payments in exceptional circumstances (as they
are sensitive to shocks and might be pushed into
poverty). The developing poor live in informal housing
but have sufficient income to invest in developing their
dwelling. The coping and developing poor could afford
differentiated household connections but for low
pressure, limited hours and a limited volume of water.
The remaining poor have little means to access
individual water and sanitation facilities, but would
benefit from well-managed community-based toilets
and sanitary blocks. The destitute, living on the streets,
would need to access the services for free.
A large number of the poor currently depend on
water vendors, and therefore already pay at least ten
Box 24 - Implementing Cost-recovery in Tunisia
The price of drinking water and sanitation in Tunisia is not used in its distribution or in active regulation of demand, but is part of
cost recovery and depends on use (domestic, industrial or for tourism) and the amount used. Consumers get a single bill combining
charges for water (from Sonede) and sanitation (Onas) and a government tax. The water and sanitation parts include a fixed charge (to
cover maintenance) and a variable one according to consumption. The government keeps the fixed charge the same for the smallest consumers
as a way of helping the poor and has steadily increased it for other levels of consumption and other users (tourism, industry). The variable
rate increases according to five levels of consumption (in cubic metres). The distinction between sliding rates for domestic consumption
and for type of use allows for some consumers to be subsidised by others. Sanitation’s share of the total bill varies between 21 and 46 per
cent for domestic consumers, while industry’s is 32 per cent (low-level pollution), 42 per cent (medium pollution) and 49 per cent (heavy
pollution). In the tourist sector, its share is 54 per cent (more than water’s share).
Revision of the drinking water price structure has enabled Sonede to balance its books, but the structurally-indebted Onas is in dire
financial straits and its debt grew from 18 per cent of turnover in 2002 to 35 per cent in 2004. Onas’ revenue mainly depends on its
charges, which do not cover costs very well because they are fixed. The biggest operating costs are for depreciation and wages. The government
contributed an estimated 64.9 per cent of Onas’ income in 2004 (a subsidy per cubic metre of sewage that was more than the average
price paid by households) but this was not enough to cover investment needs, operating costs and renewal work, thus threatening the
quality of Onas services.
The National Statistics Institute’s household survey in 2000 showed that the average water and sanitation bill was only 0.93 per cent
of total per capita spending, well below the usually accepted level of 3 per cent of income. Sonede says 90 per cent of its customers pay
less than the cost price for water.
35. Guidelines for user fees and cost recovery for water, sanitation and irrigation projects, 2006.
© AfDB/OECD 2007
75
Overview
times more for water than middle-class urban dwellers
with access to piped water. However, since the poor
purchase only small quantities of water, their observed
“willingness to pay” does not imply that they could pay
the equivalent price for larger volumes. In poor, isolated
rural areas, payments in cash are not common. Free
labour forces and inputs are used to develop the
networks and ensure some maintenance. However,
recurring costs cannot be covered in this way and
therefore still require subsidies. When they are necessary,
subsidies should follow the key principles of affordability
(for the general budget), targeted (to the groups in
need) and transparency (clearly identified in the fiscal
accounts). There are recognised difficulties in identifying
and reaching target groups. Consequently, targeting areas
where the majority of poor households are located
could help avoid distortion.
Subsidies in the form of progressive tariffs with
increasing levels of water consumption are however
detrimental to large families and to groupings of
families (to which the poorest might resort). Moreover,
subsidising services only helps the poor if they have
access to water. Otherwise, subsidies become countereffective as they leave little funding for extending
infrastructure to the unserved. Helping the poor in
areas where connection is low requires providing
them with the means to access water and sanitation
facilities, rather than providing on-going support for
consumption. In this respect, social funds, access to
credit and cost sharing are key elements. The NWSC
of Uganda provides an interesting case in which
connection subsidies are offered to promote access
as opposed to consumption subsidies. However,
subsidies that lower investment costs might not be
Box 25 - Affordability and Subsidies in Namibia
76
In Namibia, survey data based on water tariffs in 2003/04 and 2004/05 show that low-income families or pensioners with an income
of less than N$ 600/month cannot afford to use the 6m3/month, which is regarded as baseline water for a urban family of five with full
water services. In rural areas the situation is likely to be worse. The non-payment of accounts leads to a vicious circle, where both NamWater
and local authorities need to increase their tariffs to compensate for non-payment of accounts. This practice makes services even more
unaffordable to the poor in Namibia. In both Windhoek and Rehoboth, the intention of the City Council is to subsidise low-income
households to make baseline water (40 litre/person/day) available at a lower price. Windhoek currently applies a raising block tariff: each
month, the first 6m3 are provided at a subsidised rate, while in the 6-to-36m3/month range the tariff is at average cost-recovery levels.
For consumption over 36m3/month, the tariff is set at long-term marginal cost (above average costs). There is a general consensus within
municipalities and at NamWater that the strategy adopted in South Africa of providing free water up to a consumption of 6m3/month
would be ineffective, as it would create enormous problems for municipalities to cover costs of supply and increases in water wastage.
sufficient to help poor households to acquire a
connection in case of non-financial obstacles. Land
and property titling can be an issue, as well as growing
tenancy that has accompanied rapid urbanisation. If
the cost of providing and maintaining sanitation are
not factored into the rent, the poor tenants have
little incentive to develop facilities in places they do
not own, while the landlord is only likely to provide
a crude structure.
The use of microfinance in the water sector is a
recent development driven by the need to increase
connections and improve the maintenance of existing
facilities. As such examples, ASCI in Ethiopia and KRep in Kenya provide financial services for maintenance
purposes. In Cote d’Ivoire, the partnership between the
water distribution company (SODECI )and CREPA
(Regional Centre for low-cost Drinking Water and
Sanitation) allowed 300 more poor households in
Abidjan to be connected to the network. CREPA
provided micro loans to cover the cost of the connection
as well as assistance to the household to manage the
payment of bills and repayment of the loan.
• Strengthening utilities: the role of service providers,
governments and the private sector
Strengthening utilities is a key step in the process
of establishing sustainable cost-recovery mechanisms.
The performance indicators used to evaluate the
© AfDB/OECD 2007
Overview
Box 26 - Microfinance for Rural Community-managed Water Projects in Kenya
Kenya provides interesting examples of projects pre-financed with market-based finance from domestic private microfinance
institution (K-Rep Bank) both for rehabilitation/augmentation of existing projects and new, greenfield projects. Under this scheme, KRep pre-finances loans worth 80 per cent of the capital costs for small-scale piped networks; the community is responsible for the other
20 per cent. The communities are also responsible for paying the costs of their technical and financial assessments. On project completion,
40 per cent of K-Rep’s loan will be provided as an Output-Based Aid (OBA) subsidy (performance-based subsidies, as developed below
in the section on aid) which will help to keep the tariffs affordable in the short run. In practice, the OBA subsidy is intended for the first
few communities, and, on positive outcomes, further lending by K-Rep will be without the subsidy.
The expected outputs are increased service coverage (through direct household connections and kiosks) and increased quantity of
water supplied. The key innovations of the schemes are the use of technical assistance to meet high transaction costs and build local
capacity, the use of OBA to address affordability concerns and a risk-sharing mechanism by Community Water Projects and a CWP
employed Project Engineer.
The key parameters that allow replication of such schemes in other countries are a conducive policy environment that gives “space”
and does not crowd out private market finance, a policy environment that supports a gradual move towards cost-recovery tariffs,
reasonably well developed domestic financial institutions, a regulatory framework that gives “legitimacy” to small service providers and
viable demand from an adequate “market size”.
Source: Based on the intervention of Meera Mehta, Water and Sanitation Programme, at the OECD/AfDB expert meeting on Access to
Drinking Water and Sanitation, Paris, December 2006.
efficiency of utilities are usually the staff per thousand
connections, level of non-revenue water and billing
and connection efficiency. A level of bill collection
below 90 per cent either reflects a deficient billing
system or that the tariffs are perceived as unaffordable
or unacceptable given the quality of service. These
performance indicators are not easily available for
African utilities, making the assessment of their financial
sustainability difficult.
A practitioners’ workshop was organised by WSP
in Pretoria in August 200636 that highlighted some
action points, distinguishing between the respective
role of utilities and governments. Utilities were urged
to improve revenue collection, to minimise unaccounted
for water, to introduce financial and management
information systems and to improve customer relations.
For example, the Lusaka Water and Sewerage
Corporation of Zambia embarked in late 2005 on a
programme that included reducing the waiting time
for the installation of a connection to 10 days and
improving customer service (notably through greater
responsiveness to complaints). The staff were sent to
the different communities to identify the facilities,
Table 14 - Bill Collection Rate in Selected Countries
Countries
Companies
Bill Collection Rate
Source
Burkina
36 urban centres
72%
Well briefing Note 33, 2006
www.lboro.ac.uk/well
Mali
Senegal
Tanzania
Tunisia
Uganda
Zambia
16 urban centres
56 urban centres
Dar Es Salaam
SONEDE
NWSC
Average of the 9 commercial utilities
94%
98%
60%
99%
90%
77%
Perard (2007)
NWSC, 2007
NWASCO, 2005/2006
http://dx.doi.org/10.1787/404832583528
36. http://www.wsp.org/filez/pubs/2122007120644_MobilizingMarketFinanceforWaterUtilitiesinAfrica.pdf
© AfDB/OECD 2007
77
Overview
inform the customers and negotiate debt settlements
and call centres were established. The billing process
was also improved with cross-checking of customers’
addresses and cancellation of double billing. As a result,
by the end of 2005, 80 per cent of customers had
noticed positive changes in the management and
delivery of water services. In order to address the
problem of payments arrears in Namibia, a number of
towns began installing pre-payment water meters in
2003. This measure met widespread criticism from
civil society organisations and was plagued from the
beginning by a high incidence of faulty equipment. An
alternative mechanism consisting of community level
water committees that collect money from different
household for the use of shared taps and toilet facilities
has apparently been more successful, although it has
been used only on a very limited scale.
78
Benchmarking among water utilities also provides
a basis for promoting efficient performance. To that end,
the NWSC of Uganda has partnered with water utilities
in Kenya, Tanzania, Nigeria and Zambia to share
experiences and undertake performance enhancement
programmes. Following the 2006 World Water Forum
of Mexico, the UN Secretary General’s Advisory Board
on Water and Sanitation is also working on
strengthening capacities of the key players in the water
sector by establishing a Water Operators Partnership
to promote co-operation. The objective is to set up
mechanisms that will allow utility operators to provide
mutual support on technical and managerial issues
without intermediaries.
Governments also have an important role to play
in strengthening water utilities. It is widely recognised
today, following work by the World Bank and others
that governments have a key role to play in setting an
environment which is conducive to business, notably
by improving the institutional, policy and regulatory
frameworks. One key element of such a businessconducive environment is predictability of agreed
government transfers and respect for contracts. In
Zambia, for example, six out of nine local commercial
utilities had reached operational cost coverage by the
end of 2006, but the number would have been even
higher were it not for the non-payment by government
institutions for their water use. Governments can also
help to strengthen water utilities by strengthening their
Box 27 - The Success of NWSC-Uganda and Relevance
for Other African Countries
In NWSC-Uganda, the internal reforms and organisational restructuring carried out from 1998 have led to significant efficiency
gains. Subsequently, the NWSC has improved its turnover from $11 million in 1998 to $33 million in 2006 and operating profit after
depreciation has increased from a loss of $0.4 to $2.4 million. Through this improved efficiency, NWSC has managed to generate its
own internal finances and constructed more than 1 060 km of new water mains to serve the peri-urban communities and the urban
poor, for which the government or development-partner funds were not required. This has helped to improve service coverage from 48 per
cent of target households in 1998 to 70 per cent in 2006. Internal sources of finance as a percentage of total capital investments reached
a 45 per cent compared with 21 per cent in 1998. Consequently, internally generated funds through user fees currently cover all operation
and maintenance costs, the cost of free new connections, depreciation, the construction costs of secondary and tertiary mains and a small
contribution to major extensions.
In NWSC-Uganda, the tariff is split into “public stand pipe”; “domestic”; “institutional” and “commercial” rates. This allows the
Corporation to offer fair, sustainable and enforceable tariff rates to different customer categories. Furthermore, in addition to the new
connections policy, NWSC has carried out tariff adjustments to keep user-friendly tariffs: reduction of the connection charges and reconnection
charges by 50 and 75 per cent respectively, elimination of the minimum charge, indexation of the tariff against the factors of domestic
and foreign inflation, exchange-rate depreciation and the electricity costs, and gradual re-balancing of the tariff thereby reducing the
cross subsidy amongst the customer categories.
However, the tariffs are not sufficient to meet external debt service obligations as full cost recovery would require, since this would
mean significant tariff increases that cannot be afforded by the citizens or would be done at the expense of coverage extension.
Source: Based on the intervention of Dr. William T. Muhairwe, Managing Director, NWSC at the OECD/AfDB expert meeting on
Access to Drinking Water and Sanitation, Paris, December 2006.
© AfDB/OECD 2007
Overview
balance sheets, e.g., through debt for equity swaps. In
Uganda, for example, the NWSC has proposed
converting the present value of NWSC long-term debt
(comprising interest and principle amounting to
$90 million) into government equity in the company
under the condition that NWSC undertake a 5-year
network expansion programme.
Examples of good performance exist both for stateowned and privately run utilities. In Tunisia, the water
and sanitation sector is entirely state-owned and fully
centralised; yet it displays very sound performance:
unaccounted-for water was only 18.2 per cent in 2004,
more than 99 per cent of bills are paid and access to
water is available 24 hours a day in all cities. The stateowned utility behaves in this case as a private company
would, seeking cost recovery. The same efficiency
standards can be found in the water public sector of
South Africa and Uganda. In other countries, however,
such as Senegal and Morocco, the private sector has been
playing an important role to extend coverage and
improve quality of service. The difficulties faced by
the private sector in its involvement in the water and
sanitation sector often reflect difficulties inherent to the
sector – huge infrastructure needs, the presence of
externalities and tremendous sanitation backlogs.
Box 28 - Successful Public-Private Partnership in Urban Water Supply in Senegal
The success of the public-private partnership is due to an appropriate institutional framework, suitable incentives and the major
role of the government, which has inspired confidence in its partners. The private firm Sénégalaise des Eaux (SDE), owned by the French
group SAUR, is upgrading the supply network under its contract but also because increased water consumption means bigger profits.
The stakeholders have also established a good dialogue, with contracts reviewed every six months by a committee that monitors SDE’s
performance. The review is based on 18 criteria spelled out in the contract between SDE and its public counterpart, the Société Nationale
des Eaux du Sénégal (Sones), which is responsible for investment plans and supervision of them. Achievement of each of the main targets
is rewarded and failure incurs fines. This system has made SDE more efficient and the firm increased its customers by 69 per cent between
1996 and 2005, had a volume production/sale ratio of 80.5 per cent (68.2 en 1996), network efficiency of 80 per cent (the target is
85 per cent) and has had balanced accounts since 2003. The government has played a strong regulatory and coordination role and has
kept its promises, notably by paying its own bills (making for SDE’s 98.3 per cent bill collection rate). The necessary rate increases provided
for in the SDE-Sones contract have also been made.
Together with the traditional national utilities, local
small-scale operators can contribute to expanding
service provision on a cost-recovery basis. Small-scale
operators have been in the water market for a long
time, but mainly as informal, unregulated providers
meant to fill a gap, notably by reaching the poor and
remote communities where bigger utilities do not
operate. For example, the Well Briefing note 33 on
Private Sector Participation in Urban Water Supply37
shows that some 39 per cent of the population of Dar
es Salaam and up to 50 per cent of the population of
Nairobi is supplied by small water enterprises. Bearing
all the risks and faced with little competition, they
frequently charge high prices for their services. As such
policy makers largely saw them as problematic. Today,
however, they are more likely to be considered as part
of the solution because they have a strong knowledge
of population needs, operate without subsidies and are
flexible. They are of particular use in peri-urban and
rural areas where networked service provision is limited
and actions are localised. However, their activity needs
to be better regulated, especially as regards water quality.
At the same time, the national institutional and
regulatory frameworks should be made more flexible
to facilitate their increased participation.
Besides contributing to service provision, local
entrepreneurs are also instrumental in developing water
and sanitation-related activities: drilling, construction
of latrines, emptying of latrines and in the provision
37. http://www.lboro.ac.uk/well/resources/Publications/Briefing%20Notes/BN33%20PSP.htm
© AfDB/OECD 2007
79
Overview
Box 29 - Association of Private Water Operators in Uganda
APWO-Ug was established in 2003 with the support of GTZ(Gesellschaft für Technische Zusammenarbeit) (German technical
co-operation agtency). It has ten member companies managing 57 towns-of the 180 in Uganda. The key principles for water provision
are to use metering to reduce the unaccounted for water and ensure payment for the cost of service (93 per cent metering), customer
care and sensitisation, good maintenance of water supply systems (functionality at 93 per cent), effective utilisation of government grants
to extend water services (improved access by 0.5km), water quality testing and dosing (95 per cent of samples in conformity) and proper
record keeping and regular reporting (availability of national data for assessing coverage).
However, the sector faces some key issues:
- Lack of streamlined policy frameworks for private-sector engagement, e.g. de-gazetting of towns to the public sector, inadequate
compensation and uncertain business environment
- Non inclusion in key policy/legal documents such as the Water Act
- Restrictions on private-sector investment in water systems
- Tariffs set without consultation with private operators and non reflective of the reality on ground
- Sector governance, participation, accountability and transparency issues i.e. corruption
- Delayed payment of management fees resulting from low rates of investment by government, low tariffs, delayed payments by
government institutions
- Inadequate regulation mechanisms in the entire water and sanitation sector.
80
- Inadequate resource/capacity of the local authorities & DWD to facilitate performance monitoring for both private and public
sector
- Lack of representation on key water sector committees to create linkages to the sector mainstream
- Political influence and interference in day-to-day operational issues including bidding and contract procurement processes, debt
collection, water extension
- National power crisis (load shedding reducing hours of production by 304 hours/month on average)
- Lack of resources to facilitate planned activities like training, secretariat logistics
Source: Based on the intervention of Winifred Kalebu, Chairperson, Association of Private Water Operators, Uganda, at the OECD/AfDB
expert meeting on Access to Drinking Water and Sanitation, Paris, December 2006.
of the spare parts necessary to maintain existing facilities.
They face the usual constraints of SMEs in Africa
(highlighted in the African Economic Outlook
2004/2005). Helping them access funding can take
the form of local revolving funds and provision of
guarantees.
• Conclusion: the need for a significant change in
policies and practices
Implementing cost recovery requires a radical change
in management culture. It requires the establishment
of an independent regulator as well as the involvement
of the users (including the poor, the industries and
government agencies) for all to buy into the new
organisation. Indeed, changes in the tariffs structure
require a good partnership between governments and
utilities but also awareness campaigns since the
population very often resists the reforms. This is also
why, even if subsidises may be justified on social grounds
at one point in time, it is important to take into account
their longer term impact, such as the adverse effect on
the management of utilities, and the difficulty of
removing them once established. One-off subsidies
such as support for connection have the advantage of
avoiding a habit-forming effect, of key importance in
countries with a binding budget constraint. Beside a
complete change in the tariff structure, there is a need
for regular increases, notably to adjust for inflation. The
widely agreed principle here is to implement small but
regular increases, as they are better understood if the
service is good enough. When indexation is not
followed, revenue falls behind costs with the result that
maintenance is deferred and services deteriorate. It
becomes then even harder to fully adjust the prices.
2- The Role of Donors
Aid to water supply and sanitation is the only social
sector where aid allocations fell in the 1990s, partly
© AfDB/OECD 2007
Overview
because of a general decline in aid, partly because of
the sharp drop in aid for large dams and water storage
schemes. However, the 2003 recommendations of the
Camdessus panel to double financing for the water
sector to achieve the Millennium Development Goals
on water and sanitation, helped to reverse this trend.
The share of African countries in total aid for water
increased again slightly in recent years. Nevertheless,
it is difficult to predict the expected increases in ODA
for the water and sanitation sector since the donors do
not make projections at sectoral level.
2004, followed by a slight decline in 2005 to levels
that remain above the average of the 2000-03 period
(see figure). Most of the increase in aid was due to
new commitments by multilaterals (IDA and EC)
whose allocation to the water and sanitation sector
in Africa rebounded from about 30 per cent in the
middle of the 1990s to 50 per cent in 2003-05.
Nevertheless the share of aid devoted to water and
sanitation in Africa by the World Bank remains low:
only $146 million allocated to water over 19902005, representing some 6 per cent of the World
Bank portfolio of $23 billion.
The most recent data from the Development
Assistance Committee of the OECD show a sharp
increase in the allocation of Official Development
Assistance (ODA) to water supply and sanitation in
Conversely, the share of bilateral aid to water and
sanitation in Africa declined from 34 per cent in mid
the 1990s to 22 per cent in 2003-05, reflecting the
Figure 12 - Total Water ODA to Africa, $ billion, 2004 prices,
commitments with 3 years moving average
Bilateral ODA
Multilateral ODA
Bilateral Trend
Multilateral Trend
81
.2
.0
0.8
0.6
0.4
0.2
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: DAC statistics, Creditor Reporting System
http://dx.doi.org/10.1787/263526661141
Figure 13 - Water ODA Commitments by Sub-sector 2005
Rivers / Waste / Education
4%
Basic drinking water s.& s.
Water resources policy
20%
32%
44%
Water s. & s. - large systems
Source: DAC statistics, CRS
http://dx.doi.org/10.1787/582267471277
© AfDB/OECD 2007
Overview
weakness of new commitments compared to the large
infrastructure projects carried out in the second half
of the 1990s. The trend in bilateral aid to the water
sector is mainly set by the large donors and allocations
are concentrated in a relatively few recipient countries.
In 2004-05 Germany, Japan, Denmark, France and
the Netherlands extended about three quarters of total
bilateral aid to water supply and sanitation. Over the
same period, about three quarters of total aid was
concentrated in 10 recipients, including Ghana, Nigeria,
Tunisia, Kenya, Ethiopia, Benin, Morocco, South
Africa, Tanzania and Burkina Faso.
82
In the water sector most aid is used to finance
investments in infrastructure (figure). Projects are large
and on average take at least 8 years to be completed.
In view of the capital-intensive nature of water projects,
timely financial flows are crucial for planning and
implementation purposes. Nevertheless, aid flows
remain highly unpredictable. Late disbursements have
strong negative consequences, leading to very low
execution rates, to accumulation of debt to contractors,
and to temporary suspensions of work. In Mozambique,
for instance, the water sector’s execution in the first half
of 2006 was only 17 per cent of planned investment
expenditure reflecting late disbursements by treasury
and by the funding agencies. The challenge for donors
is to work towards longer-term, stable funding to enable
better planning and implementation. In tandem,
governments could put in place a special national or
international facility to pre-finance disbursements
budgeted for a later period.
Despite a general trend towards greater
harmonisation and alignment on recipient country
priorities, reflected by a relative increase in Sector
Budget Support (SBS) and General Budget Support
(GBS), the vast majority of foreign aid to water and
sanitation is spent on projects. Most donors consider
that the large scale and technical complexity of water
and sanitation civil engineering works may be more
adequately managed as projects. The project approach
is also considered to support innovative approaches,
involving the private sector and civil society that are
not always well taken into account in government
programmes. In addition, some donors favour
harmonisation of policies but not of financial
mechanisms and procedures, each donor country
preferring to retain its own rules. The limited adherence
to SBS and GBS support in some countries reflects the
concern that these funding mechanisms are still at early
stages and require major improvement. Accordingly,
some donors and recipient governments are working
to improve planning and monitoring, and to agree on
the use of common reporting, auditing and procurement
procedures. Water Sector Working Groups of donors
and government representatives have been set up in
many countries to improve national coordination,
including Mozambique, Uganda and Zambia.
While the trend of ODA for to the water sector
to be increasingly given in the form of grants is to
be welcomed (58 per cent in 2004-05 compared to
36 per cent in the mid 1990s), it is crucial that aid
does not crowd out local initiatives or discourage
Box 30 - A Trust Fund to Improve Service Provision in Peri-urban Areas in Zambia
The Devolution Trust Fund, instituted under the National Water Supply and Sanitation Council (NWASCO), has been financing
projects on a pilot scale for commercial utilities to improve water supply since 2003. Funds are provided to commercial utilities to extend
their services to the peri-urban poor. A total of about 120 000 people in low-income areas have since benefited in terms of safe and
adequate water supply. During the pilot phase, detailed procedures and guidelines were developed to make DTF operations more
transparent and accountable. The establishment of the DTF as a basket fund targeting peri-urban and low cost areas has been lauded as
the most significant initiative the government has taken to extend water supply and sanitation services to these areas. Consequently a
number of co-operating partners have made financial commitments to support the government achieve this objective. As at end 2006,
about 8.8 million euro had been mobilised by the DTF from the German banking group KfW (Kreditanstalt für Wiederaufbau), the
Danish International Development Agency (DANIDA), and the EU for financing implementation of WSS projects. In the future, there
are plans to broaden the DTF mandate to water treatment investment. Nevertheless, the limit of the DTF is that it is not aligned to the
decentralisation process.
© AfDB/OECD 2007
Overview
water authorities from becoming financially selfsustaining. Thus, ODA funds should be used to
mobilise other flows, such as user charges, other local
revenues, bank loans and private capital, and to
empower other stakeholders in line with the national
water strategy. For example, in Zambia aid is
channelled through a the Devolution Trust Fund
which assists the nine commercial water utilities in
urban areas to extend the provision of water and
sanitation services to the peri-urban poor.
Another means through which aid could be used
to mobilise other financial flows is to provide subsidies
targeted on performance, such as Output-Based Aid
(OBA). OBA is a strategy for using explicit performancebased subsidies to support the delivery of basic services
where policy concerns would justify public funding to
complement or replace user-fees. OBA involves
delegating service delivery to a third-party, typically
private firms, but also public utilities, NGOs, and
community-based organisations, under contracts that
tie disbursement of the public funding to the services
or outputs actually delivered. OBA in the water sector
can be used in the form of subsidies to reimburse water
bills of low–income consumers, or to expand water
and sewer networks, in cases in which disbursements
are tied to the number of new connections.
Many countries are adopting the OBA funding
mechanism. For example, in Mozambique, the Global
Partnership on Output-Based Aid (GPOBA), a multidonor trust fund administered by the World Bank,
has recently launched a project to provide subsidised
water connections for domestic consumers in five
cities that currently utilise PPP contracts. The aim of
the GPOBA-funded project is to increase access to
water services for poor households through further
public-private partnerships.
Box 31 - Mozambique Water Private Sector Contracts –
OBA for Coverage Expansion
The GPOBA project is to provide subsidised water connections for domestic consumers in Maputo, Beira, Nampula, Quelimane,
and Pemba. This will facilitate access for low- to –middle-income households that currently have no access to piped water. The World
Bank-financed National Water Development Project II (NWDP II) began implementation in 2000 and concentrated on large investments
to increase the capacity of several water systems. These investments have secured a sufficient supply of potable water to dramatically
increase service coverage. However, the high cost of an individual household connection is a major barrier for low- and middle-income
households. Thus, GPOBA will contribute towards subsidising around 36,300 new connections, equivalent to an increase in the number
of households gaining access to piped water by 23 per cent in Maputo, 31 per cent in Beira, 100 per cent in Quelimane, 46 per cent in
Nampula, and 100 per cent in Pemba.
Source: Global Partnership on Output-Based Aid, World Bank
3- Developing Innovative Financial Tools
There is potentially great scope to tap domestic
and international financial markets by issuing long-term
bonds and shares in equity. The decentralisation process
has raised the issue of long-term local currency financing
for sub-sovereign entities38 and the issue of
creditworthiness of utilities that could help generate
funds. However, while devolution of the responsibility
for service delivery has been proceeding, few subsovereign entities have been given the tools needed to
raise adequate funding. Raising taxes remains very
often the task of central government. Some larger cities
may have the capacity to raise bonds, such as the city
of Johannesburg that launched in 2004 the first nonsovereign guaranteed loan in Sub-Saharan Africa.
However, the central power remains in many cases
reluctant to provide the corresponding guarantee as it
constitutes a liability on the budget and local capacities
are usually deemed weak. Moreover, the scale of the
required funding very often exceeds the capacity of
local financial markets. Furthermore, there are
38. See: Winpenny, J. 2005, Guaranteeing Development? The Impact of Financial Guarantees OECD Development Centre, Paris.
© AfDB/OECD 2007
83
Overview
Box 32 - Decentralised Financing in Mali
There is little decentralised funding available in Mali, except for money from NGOs and local community groups. National water
department (DNH) projects are internationally funded. In the Kayes region, Malians living in Europe often invest heavily in water supplies
for their home village. Communities can also get money from the national agency for local investment, (Agence Nationale d'Investissement
des Collectivités Territoriales – ANICT), which earmarks about 10 per cent of its funds for water and sanitation projects, but with conditions
that prevent borrowers from buying more than hand-pumps and large diameter wells.
Box 33 - Responding to the Calls of the Camdessus and Gurría Panels:
a Selection of Financing Schemes for the Water and Sanitation Sector in Africa
IFC Partial Credit Guarantee
The IFC partial credit guarantee is a credit enhancement mechanism for bonds and loans. IFC uses its triple-A credit rating to allow
borrowers to access the financial market and extend debt maturity. The IFC guarantee covers creditors irrespective of the cause of default.
Partial guarantees can be either in local currency (for domestic transactions) or foreign currency (for cross-border transactions). The outstanding
example in Africa of provision of such a guarantee is the issue of bonds by the city of Johannesburg in 2004.
See: www.ifc.org/structuredfinance
The World Bank Multilateral Investment Guarantee Agency (MIGA)
84
MIGA is a multilateral risk mitigator, promoting foreign direct investment into developing countries by ensuring investors against
political or non-commercial risks, mediating disputes between investors and governments, advising governments on attracting investment
and sharing information through online investment information services. The main users are cross-border investors, but nationals and
state-owned corporations operated on commercial basis are also eligible. MIGA action in the water and sanitation sector remains however
limited and is almost non-existent in Africa. In 2005, however, MIGA issued four guarantees to Urbaser S.A. for its concession agreement
with the Municipality of Cairo to contribute to the modernisation of Cairo’s waste management sector.
See: www.miga.org
The Public-Private Infrastructure Advisory Facility (PPIAF)
PPIAF is a multi-donor technical assistance facility that aims to improve the quality of infrastructure through public-private
partnerships. It was launched in 1999, is supported by 15 development agencies and managed by the World Bank. It finances advisory
activities, including the design of policy, regulatory and institutional reforms. In 2006, 14 per cent of PPIAF funding to SSA was
allocated to water and sanitation. See: www.ppiaf.org
EU Water Facility
In 2004, the European Commission created an ACP-EU Water Facility using €500 million from the 9th EDF, to be allocated in
two tranches via competitive calls for proposal. A first Call to allocate €180 million was launched in late 2004. By January 2005, the
EC had received 800 preliminary proposals requesting grant financing for €2.75 billion. The demand by far surpassed expectations and
€50 million were anticipated from the second tranche, for a total available amount of €230 million. Together, the first and second calls
for proposals of the Water Facility resulted in the selection of 175 proposals, from over 1300 submitted, for a total EC contribution of
€420 million, leveraging an additional €360 million. The ACP-EU Water Facility is not designed to finance large water infrastructure
projects. It is a fund that creates the conditions to attract funding from sources other than public development assistance and brings
funding directly to the local level. Evaluation of the Facility is planned for 2007. Among the key themes for the evaluation will be to
find ways to increase coherence with Country Strategies, to identify modalities for increasing the leverage of new resources, including a
higher participation of the private sector.
sometimes (legal) restrictions on borrowing by subsovereign bodies, also on MFI funding. Sub-sovereign
bodies also very often lack capacity to produce financial
statements, conduct auditing and oversight. Finally,
the fiscal relationship between central government and
sub-sovereign bodies is not always clearly defined and
© AfDB/OECD 2007
Overview
Box 33 - Responding to the Calls of the Camdessus and Gurría Panels:
a Selection of Financing Schemes for the Water and Sanitation Sector in Africa
(cont.)
EIB
The EIB manages the Cotonou Investment Facility. The 2003 ACP-EU Cotonou Convention provided the EIB with new financial
instruments allowing i) a higher level of risk-taking by the Bank to support the private sector, including the use of equity, quasi-equity,
and guarantees, and ii) elements of concessionality in projects supporting reforms and eradicating poverty. After amendments, both the
Investment Facility and own resources can be used for infrastructure financing with interest subsidies of up to 3 per cent. In 2006, the
EIB-ACP Project Preparation Facility was created to provide technical assistance in tandem with the EUWI.
See: www.eib.org
The Private Infrastructure Development Group Umbrella (PIDG)
- Emerging Africa Infrastructure Fund (EAIF): EAIF was launched in 2002 to provide long-term debt to pro-poor private sector
funded infrastructure service projects in sub-Saharan Africa in the energy, telecommunications, transport and water sectors. It is
supported by DFID, SIDA, DGIS and SECO.
- GuarantCo: provides guarantees to enhance credit, notably of municipal bonds. Many infrastructure projects, particularly at the
sub-sovereign level, derive most of their revenues in local currency, making hard-currency debt funding inappropriate. In 2004
the PIDG launched GuarantCo, which is designed to mitigate risks for local currency financing of infrastructure. It is supported
by DFID and SIDA.
- In 2003 PIDG established a local capacity Technical Assistance Facility (TAF) to assist in the building of local capacity and
capability associated with private sector investment in infrastructure. Technical assistance is provided to both the public and private
sectors in support of the planning and implementation of projects and programmes of any of the facilities or funds undertaken
under the PIDG umbrella with funding support from the World Bank.
See: www.pidg.org
Cities Alliance
Cities Alliance is an alliance of cities and their development partners to improve living conditions of the urban poor. It was launched
by the World Bank and UN-Habitat in 1999. It operates the Community Water and Sanitation Facility (CWSF), which targets NGOs,
local governments, private sector, CBOs. See: www.citiesalliance.org
CLIFF (Community-Led Infrastructure Finance Facility) Guarantee Facility
This is co-ordinated by Homeless International with funds from DFID and Sida. It provides venture capital and other financial
products directly to urban poor organisations to support slum upgrading. It began operations in India in 2002 and started operating in
Kenya in 2005, where it supports Muungano Wa Wanavijiji.
The NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF)
NEPAD-IPPF was established in 2003 with seed funding from the Canadian Government and transformed in 2005 into a multidonor facility. The key objective of the NEPAD-IPPF is to assist African countries, Regional Economic Communities (RECs) and related
infrastructure development institutions, to prepare high quality, viable regional infrastructure projects in energy, trans-boundary water
resource management, transport, and ICTs, which would be ready to solicit financing from public and private sources.
more than often fails to ensure continuous and
sustainable funding.
The case of Johannesburg in 2004 however shows
how a successful loan can help build up investors’
confidence. In this specific case, the R1 billion operation
was carried out with the support of DBSA and IFC in
the form of a partial credit guarantee (for 40 per cent
© AfDB/OECD 2007
of principal outstanding) that helped enhance the credit
rating to AA-, allowing the participation of pension
funds, and extended the final maturity to 12 years.
That initial guarantee helped create confidence in the
local market so that in 2005 Johannesburg was able to
issue another R700 million bond with a maturity of 8
years without credit enhancement. In both instances,
the bond issues were largely oversubscribed.
85
Overview
The international community is responding to the
calls of the Camdessus and the Gurría panels to develop
and adapt financial instruments to improve funding for
the water and sanitation sector. For example, the World
Bank is developing a sub-sovereign financing facility
in local currency. The AFD provides guarantees to
West African local issuers through the WAEMU regional
bond market that mitigates exchange-rate risk. However,
sub-sovereign lending will continue to depend on the
capacity of sub-sovereign actors to develop sound
accounting systems, transparent management and the
ability to develop sound, bankable projects. In parallel,
local financial markets need to be strengthened. The
potential role of domestic banks in financing the water
sector is increasingly recognised since domestic financing
avoids the currency risk associated with raising finance
in international capital markets.
Pooling mechanisms are also emerging that help
to leverage funds and mitigate risk. In South Africa,
INCA (Infrastructure Finance Corporation Limited),
a private fund, uses its AA credit rating and recognised
diversified portfolio to borrow from capital markets
and extend long-term fixed interest rate loans to
infrastructure providers such as municipalities and
water boards. Pooling of resources is also usually
combined with pooling of expertise by involving
NGOs, local business and government. There is great
potential in such mechanisms to support the
development of rural water and sanitation. More and
Box 34 - The AfDB Water Facility
86
The African Water Facility (AWF) is an initiative led by AMCOW, aimed at addressing the funding gap. Established within the
context of the Africa Water Vision as well as the MDGs, the AWF is hosted by the African Development Bank (AfDB) at the request of
AMCOW. The AfDB Board of Governors approved the Instrument establishing the AWF in 2004. The establishment activities took
place in 2005 and operations started in 2006. The amount so far committed for the AWF is around €60 million, from Canada, France,
Denmark, Norway, Sweden, Austria and EU. The main objective is to create an enabling environment to attract more resources into the
water sector: focusing on policies, strategies, information system, monitoring and evaluation, knowledge sharing, and project preparation.
After one year of operations, a total of 14 projects were approved in 2006, at a total budgeted cost of €9 million. Out of the 14
approved projects, three are related to the implementation of national IWRM policies; five projects focus on the implementation of transboundary water resources management initiatives and programmes; three projects concern preparation of programmes/projects in water
supply and sanitation, which will lead to immediate sector investments. The remaining three projects are small capital investments designed
to attract additional resources or to introduce innovative technologies.
The key challenge is to accelerate the implementation of the approved projects and demonstrate the effectiveness and the value added
of the Facility. The Facility is facing a rapidly increasing demand. As a result of the limited number of staff and the amount of funding,
viable projects could not be considered. To mitigate the capacity challenge, the AWF will continue to depend mostly on the secondment
pledges by member countries. The AWF has also developed a resource strategy paper to facilitate mobilising more resources.
Looking Ahead, the AWF priorities are threefold:
- Portfolio Building and Consolidation: The AWF will continue to implement quality portfolios through the preparation of viable
projects and build the pipeline for future investments to ensure efficient processing and management of operational activities;
- Building Partnerships: The AWF will continue to raise awareness and build synergy through creating partnerships, especially among
Water Basin Organisations, and organisations with similar objectives;
- Mobilising Additional Resources: The AWF will support activities that create an environment conducive to higher levels of investments
from all sources, including, commercial finance, in concert with other partners. This will be done through supporting policy and
regulatory environments that promote Private Sector Participation, beneficiary user fees and internal capital generation for
investment in the water sector.
Source: AfDB Water and Sanitation Department
© AfDB/OECD 2007
Overview
more, governments are developing comprehensive
rural sub-sector strategies in order to strengthen the
institutional framework, to strengthen planning and
ultimately to catalyse funds and harmonise the different
actors efforts (local population, NGOs, donors, local
administrations and business).
Development Banks have an important role to play
as intermediaries between foreign lenders, central
governments and sub-sovereign entities. As such an
example, the AfDB was given the responsibility in
2005 at the Paris Conference to take the leadership in
the financing – and in the mobilisation of resources –
of the water and sanitation sector in Africa, especially
in rural areas. The AfDB has consequently engaged in
very diverse activities to support the water and sanitation
sector: from direct investment in water storage facilities,
to support to utilities and financial intermediaries via
technical assistance. It has also developed two specific
initiatives to support increased financing to the sector:
the African Water Facility and the Rural Water Supply
and Sanitation Initiative.
Box 35 - The AfDB Rural Water Supply and Sanitation Initiative (RWSSI)
The RWSSI was conceived in 2002 as one of the Bank’s responses to the challenge of the MDGs in Africa. The objective of RWSSI
is to accelerate access to water supply and sanitation services in rural Africa to attain 80 per cent by 2015 and extend water supply and
sanitation services to 277 million and 295 million people respectively at a cost of $14.2 billion over 3 phases. The first phase (2004-07)
is estimated to cost $4.6 billion; the second phase (2008-10) $4.2 billion; and the third phase (2011-15) $5.4 billion. The Bank is committed
to financing 30 per cent of the needs and is encouraging other stakeholders to contribute the rest as follows: 50 per cent by multilateral
and bilateral donors; 15 per cent by governments; and 5 per cent by beneficiary communities.
The RWSSI strategy involves: raising awareness about the RWSS situation in Africa; mobilizing resources from donors, RMCs, NGOs
and communities; adopting Fast Track Mechanisms for preparation and implementation of national programmes; adopting a demand–driven,
programmatic approach; prioritising sanitation focusing on hygiene promotion and health education; ensuring beneficiary participation,
especially of women, in the design and implementation of programmes; assuring Sustainability through promotion of appropriate
technology.
The Bank has made significant achievements since it started supporting RWSS programmes in 2003. The Bank has so far approved
financing for 14 RWSS programmes for which it has provided financing of $536 million, and expects to approve five more by end 2007
and increase its funding to $803 million. These programmes are expected to extend services to 32.5 million people by 2010. A 43 per
cent increase of ADF resources permitted a 5-fold increase in Bank’s annual lending for water supply and sanitation from less than $70 million
prior to 2003 to about $330 million currently. Many donors like France, the Netherlands, the United Kingdom and Denmark and some
African Governments have increased their water sector financing. Additional financing is available through a multi-donor RWSSI Trust
Fund established by France, Denmark and the Netherlands at the Bank with contributions of €90 million. In Addition, RWSSI continues
to raise awareness of the poor state of RWSS in Africa and the links to the health, education, gender, and poverty MDGs. The establishment
of the first time within the Bank of a Department dedicated water and sanitation has allowed better co-ordination of the water initiatives
and more efficient use of resources.
Some of the key challenges include: maintaining the trend of increasing water-sector financing by the Bank, donors and African
governments; improving staffing at the Bank’s headquarters and Field Offices, improving the Bank’s Business processes; according
sanitation higher priority; building local government, community, local-contractor, artisan and consultant capacity; establishing reliable
supply chains; improving monitoring and evaluation systems.
Source: AfDB Water and Sanitation Department.
© AfDB/OECD 2007
87
.
Part Two
.
Algeria
Algiers
key figures
•
•
•
•
•
Land area, thousands of km2
2 382
Population, thousands (2006)
33 354
GDP per capita, $ PPP valuation (2006) 7 160
Life expectancy (2006)
72
Illiteracy rate (2006)
30.1
Algeria
R
2005 led to considerable
improvement in Algeria’s external balance, despite
significant growth in imports of goods and services.
However, public finances and monetary policy remained
cautious. The reference price used in drafting finance
acts is still $19 per barrel and inflation remained under
control in a context of budgetary expansion and
increased foreign exchange reserves. The overall growth
rate increased from 5.2 per cent in 2004 to 5.3 per cent
in 2005, which is a drop of 1.6 percentage-points
compared with 2003. Estimates for 2006 show a
slowdown to approximately 3 per cent. This clear drop
is the result of a decrease in oil and gas production due
to technical problems. The IMF has estimated a growth
rate excluding oil and gas of 4.5 per cent, which
ECORD OIL PRICES IN
nevertheless represents a slowdown in growth. These
figures show the heavy dependence of growth on oil
and gas, due to their major
The complementary
contribution to GDP.
programme of sustainable
growth (PCSC) 2005-09
2005 marked the beginning of
could accelerate economic
the Complementary Programme
growth.
for Growth Support (PCSC). This
ambitious programme for 2005-09 continues the efforts
of the Economic Recovery Programme (PSRE) from
2001-04. The PCSC has a total budget of $55 billion,
plus approximately $14 billion for development of the
High Plains and the far South. Budgetary policy efforts
are aimed at maintaining economic growth, which has
been significant in recent years, by equipping the
93
Figure 1 - Real GDP Growth and Per Capita GDP
($ PPP at current prices)
Source: IMF data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/454755182784
© AfDB/OECD 2007
Algeria
country with appropriate infrastructures, in order to
improve the business climate and encourage the private
sector to contribute more to boosting growth.
94
These positive macroeconomic results have
nevertheless failed to have a positive and lasting
influence on the economy, notably through generation
of substantial industrial growth or export diversification.
Growth is still mainly led by services, oil and gas,
posing the problem of long-term sustainability.
Although the private sector concentrated essentially on
gross capital formation up to 2005, it has not succeeded
in creating a viable alternative to growth that is less
dependent on oil and gas. The private sector has
invested in the non-tradable goods sector (services
and construction) in order to benefit from the demand
created by budgetary efforts and to avoid increasingly
acute foreign competition due to greater opening-up
of the country’s economy (partnership agreement with
the European Union [EU], future membership of the
World Trade Organization [WTO] and regional
integration agreements). Because of the structure of
the private sector (97 per cent of firms employ less than
ten workers), it will probably resort to shielding itself
even more in these sectors and also in the informal
economy, in order to avoid having to face the
uncertainties created by the opening-up of the economy.
Ambitious present and future public programmes
might reinforce this tendency. The state will in fact
become - and remain - the biggest investor throughout
the entire term of the PCSC.
Recent Economic Developments
Oil and gas continue to make a major contribution
to economic growth and macroeconomic developments
generally. The power of this influence is due to two
factors; growth in the oil and gas sector itself (given its
share of GDP) and taxation on oil and gas (more than
75 per cent of budget receipts in 2006), which finances
the big public programmes that lead to growth in
services and construction.
The contribution of oil and gas to GDP increased
further in 2005 to 45 per cent, as against 38 per cent
in 2004. Oil and gas also made an increased contribution
to growth in 2005, when it accounted for 43.13 per
cent, as against only 25 per cent in 2004. Overall
sectoral growth was 5.8 per cent in 2005, while GDP
grew by 5.3 per cent. Crude-oil production grew by
around 5.4 per cent in 2005, mainly due to an expansion
in production of Sonatrach’s associates, whose
production grew by 10.4 per cent in 2005, due to
increased foreign investment in the sector. Oil
production nevertheless fell slightly in 2006 because
of technical problems. The export-share of crude oil
continued to rise, at the expense of gas and oil byproducts, growing from 22 per cent in 2001 to 42 per
cent in 2005. Overall gas production by volume
remained stable.
The contribution of agriculture to GDP fell again
in 2005 to 7.7 per cent, as against 8.3 per cent in
2004 and 10 per cent in 2003. This was due to the
growing contribution of oil and gas to GDP and to
the weak growth of the sector. Agriculture is very
much influenced by variations in rainfall and grew
only by 1.9 per cent in 2005, as against 3.1 per cent
in 2004 and 19.7 per cent in 2003. Cereal production,
which is very dependent on rainfall, fell from
42.6 million quintals in 2004 to 35 million quintals
in 2005. However, production of fresh fruit and
vegetables remained good, due to the effects of the
support programmes linked to the National Plan for
Agricultural Development (PNDA).
The construction sector accounted for 7.5 per cent
of GDP in 2005. This sector has received special
attention from the public authorities because of the lack
of housing and basic infrastructures. The construction
sector has grown remarkably over the past several years.
In 2005, growth was 7.9 per cent, 0.4 percentagepoints higher than in 2004. This sector receives
considerable support from expenditure on capital
equipment, which increased by 31 per cent in 2005.
In 2005, 104 905 housing units were delivered, as
against 81 175 housing units in 2004. Basic
infrastructures and housing will be allocated almost
half of the total budget of the Complementary
Programme for Growth Support (PCSC 2005-09),
originally set at 4 202 billion dinars, but since then,
© AfDB/OECD 2007
Algeria
Figure 2 - GDP by Sector in 2005
(percentage)
Source: Authors’ estimates based on IMF data.
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this sum has been multiplied by three. One million
housing units are planned under this Programme.
Investments in large infrastructures will enable a
significant proportion of unemployed manpower to
be absorbed, at least temporarily.
The services sector, having suffered a relative decline
with 34 per cent of GDP in 2005, as against 39 per
cent in 2004, grew by 5.6 per cent; this represented a
fall of 2 per cent compared with 2004, but was higher
than the overall growth rate. Because of its important
contribution to GDP, it accounted for almost 24 per
cent of total economic growth, and employed more than
53 per cent of the total employed population. Valueadded in this sector was mainly contributed (85 per cent)
by transport/communications and trade/distribution
activities. Tourism has shown signs of recovery, especially
in the Sahara. In 2006, it was expected that the number
of tourists would exceed 10 000 and that this would
generate foreign currency revenue of $200 million, or
the equivalent of 25 per cent of exports of goods
excluding oil and gas.
Agriculture and industry excluding oil and gas
(which now accounts for only 5.3 per cent of GDP),
are the sectors that have contributed least to overall
growth. GDP excluding oil and gas grew 4.8 per cent
in 2006, while the agricultural sector increased by
4.9 per cent, with a cereals harvest of 40 million tonnes.
Industry excluding oil and gas nevertheless showed
improved growth of 2.5 per cent at the end of 2005,
as against 1.9 per cent in 2004. The public sector grew
3.4 per cent, compared with 1.7 per cent for the private
sector. Manufacturing industry activities remain
stagnant, with growth of only 0.2 per cent in 2005.
Table 1 - Demand Composition
1998
2005
(percentage of GDP)
2006(e)
2007(p)
2008(p)
Percentage of GDP
(current prices)
Percentage changes, volume
Gross capital formation
Public
Private
28.8
7.5
21.3
30.0
9.6
20.4
6.0
8.0
5.0
8.7
10.0
8.0
9.3
12.0
8.0
Consumption
Public
Private
72.8
17.8
55.0
45.4
11.8
33.6
3.4
4.3
3.2
3.9
2.7
4.1
4.0
2.7
4.3
-1.6
22.5
-24.1
24.5
48.0
-23.5
1.6
5.7
4.1
4.5
3.7
5.9
External sector
Exports
Imports
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© AfDB/OECD 2007
95
Algeria
Within this sector, however, the growth performance
of the private sector (2.3 per cent) is nevertheless
significantly better than that of the public sector, where
activity has declined (-4.5 per cent).
96
Demand composition reflects the sustained effort
of accumulation, with investment rates of almost 30 per
cent over several consecutive years. In 2005, with the
increase in stocks, 30 per cent of GDP was allocated
to investment. Nevertheless, investment remains
insufficient in proportion to the savings supply, which
exceeds 45 per cent of GDP. The savings rate reached
54 per cent in 2005. Private investment remains sluggish
because of a discouraging business climate (problems
with industrial land, banking finance, corruption, etc.)
The investment rate is expected to reach over 50 per
cent in 2006 and probably also in 2007, in view of the
efforts that need to be made in capital equipment
within the framework of the PCSC. Although total
consumption increased by almost 7 per cent in 2005
compared with 2004, it fell by 7 percentage-points of
GDP in 2005.
Macroeconomic Policy
Fiscal Policy
Government revenue amounted to 3 082 billion
dinars in 2005 and the predominant source of revenue
continued to be oil and gas taxation. In 2005, this
revenue contributed 76.3 per cent of budget receipts,
as against 70.4 per cent in 2004. Oil prices are the main
reason for this revenue structure. Prices reached a
record high in 2005: after increasing from an average
of $28.9 per barrel in 2003 to $38.6 in 2004, they
reached $54.4 in 2005. Nevertheless, like other oilrich countries, Algeria suffers from structural
deficiencies as regards ordinary taxation, especially
income tax. This reflects the complexity of a taxation
system that leads to tax avoidance, development of the
informal economy and deteriorating financial situations
for a large number of public enterprises. Although
ordinary revenue increased by over 10 per cent, its
relative budget share went down from 29.3 per cent
in 2004 to only 23.5 per cent in 2005. Income tax
represented only approximately 2.5 per cent, largely
due to salaried income more than other types of
income. Tax exemptions aimed at promoting national
and foreign investment run the risk of increasing the
importance of oil taxation in the short and mediumterms. Almost 55 per cent of current government
operating costs depend on oil and gas taxation – in other
words, ordinary taxation covers only 45 per cent of
operating costs.
Although oil prices have tended to rise continually,
government espenditures have been planned since
2000 (except for 2002) on the basis of a reference
price of $19 per barrel. The surplus revenue generated
with reference to this price is added to a Revenue
Table 2 - Public Finances
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Total revenue and grantsa
Tax revenue
Oil revenue
27.4
11.3
15.4
37.0
9.6
26.0
36.2
9.2
26.0
41.0
8.4
31.9
41.7
8.1
32.8
40.1
8.3
31.1
39.6
8.4
30.5
Total expenditure and net lendinga
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
31.2
23.7
19.8
9.5
3.9
7.5
29.2
21.1
18.9
7.6
2.2
8.1
29.3
21.4
20.0
7.3
1.4
7.9
29.1
19.5
18.5
6.2
1.0
9.6
28.7
19.1
18.0
5.9
1.1
9.6
29.4
18.9
18.0
5.9
0.9
10.5
29.8
18.4
17.7
5.6
0.7
11.4
Primary balance
Overall balance
0.1
-3.8
10.0
7.8
8.2
6.9
12.8
11.9
14.1
13.0
11.6
10.7
10.5
9.7
a. Only major items are reported.
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© AfDB/OECD 2007
Algeria
Regulation Fund (FRR), which has received a total of
3 046 billion dinars since 2002, or slightly more than
$42 billion, 45 per cent of which was added in 2005
alone. To pay off the public debt, 1 118 billion dinars
($15.5 billion) were withdrawn from this Fund.
Budgetary policy will remain sustainable in the short
and medium-terms thanks to global economic growth,
which promises to maintain oil prices at a relatively
high level in comparison with the average price seen
during the preceding decade.
Budget expenditure increased by almost 5 per cent
in 2005 and amounted to 1 971 billion dinars.
Operating expenditure rose by 3.3 per cent, while
capital expenditure grew by 8.3 per cent. Expenditure
on capital equipment is expected to take a predominant
place in budget expenditure in the medium-term, due
to the Complementary Programme for Growth Support
(PCSC) which foresees capital equipment expenditure
amounting to 4 202.75 billion dinars over the period
2005-09. Almost 45 per cent of the total budget will
be allocated to expenditure on socio-educational
infrastructure (housing, education, health and regional
development); 40.5 per cent will go towards basic
infrastructure (transport, public works, water) and
almost 8 per cent will provide support for agriculture.
The budget for 2005 showed a surplus of 13 per cent
if total revenue is taken into account but a deficit of
3.5 per cent if only revenue budgeted on the basis of
a reference oil price of $19 per barrel is counted.
The cautious attitude towards budgetary
management hitherto adopted by the government
relaxed somewhat in 2006 and record public
expenditure is expected as a result of the capital
equipment programmes planned for the period 200509. The finance act for 2006 authorised budget
expenditure at 45.9 per cent of GDP, but the
complementary finance act of the same year raised
this figure to 62 per cent. Budgetary expansion mainly
concerns capital expenditure and, to a lesser extent,
operating expenditure. According to the
complementary finance act for 2006, capital
expenditure is authorised to reach 38 per cent of GDP,
as against only 10 per cent in 2005. Operating
expenditure is set at 23.9 per cent of GDP for 2006,
© AfDB/OECD 2007
as against 16 per cent realised in 2005. In 2006, the
budget deficit (admittedly excluding the Revenue
Regulation Fund) is expected to reach 1 908.7 billion
dinars, 7.4 times higher than that of 2005.
This 2006 budget deficit corresponds to 32 per
cent of GDP, as against 3.5 per cent in 2005. However,
assuming stability in oil prices and taking all oil revenue
into account, the deficit for 2006 (under the
complementary finance act) is expected to correspond
to 17 per cent of GDP. In order to finance the budget
deficit, the government will draw on the Revenue
Regulation Fund (FRR). This Fund was originally
intended for use only to pay off the principal portion
of the public debt and to finance a budget deficit caused
by a price per barrel lower than the $19 reference price.
The finance act for 2006 removed this stipulation by
authorising recourse to this Fund, although only up to
a limit that safeguards funds from falling below a
minimum level of $10 billion.
97
Monetary Policy
Since 2002, the Bank of Algeria has conducted an
active policy aimed at solving the problem of excess
liquidity, which is mainly due to the increase in foreign
exchange reserves. In its 2005 report, the Bank of
Algeria acknowledges the fact that the banks are
reporting intermediation ratios that are much lower than
those authorised by prudential rules, taking into account
the stability of their resources. In order to control
overall liquidity, the Bank of Algeria opted to regulate
the compulsory reserve ratio and absorb excess liquidity
directly. The compulsory reserve ratio rose from a level
of 4.25 per cent in December 2001 to 6.25 per cent,
then to 6.5 per cent in March 2004, where it has since
remained unchanged. The rates of interest associated
with these two instruments were revised in 2005: the
interest on compulsory reserves has been 1 per cent since
2005, whereas before it was 1.25 per cent. During the
second half of 2005, the Bank of Algeria introduced
two new indirect instruments: the “quarterly withdrawal
of liquidities” at a rate of 1.9 per cent and the
“remunerated deposit facility” at a rate of 0.3 per cent.
The first rate was raised to 2 per cent in 2006. These
different mechanisms have resulted in an increase in
Algeria
deposits by banks at the Bank of Algeria from 361 billion
dinars in 2003 to 673 billion dinars in 2004 and
732 billion dinars in 2005. Of these total deposits,
250 billion dinars in 2003, 400 billion dinars in 2004
and 450 billion dinars in 2005 related to the withdrawal
of liquidity.
By means of these different instruments, the Bank
of Algeria has succeeded in stabilising the monetary
situation. The broad money supply (M2) grew by
10.9 per cent in 2005, as against 11.3 per cent in 2004
and 15.3 per cent in 2003. The inflationary trend in
2004 (3.5 per cent) has been reabsorbed and inflation
was only 1.6 per cent in 2005, proof of the effectiveness
of indirect monetary policy instruments. In June 2006,
the consumer price index had only increased by 0.6 per
cent during the first half of the year.
98
The Bank of Algeria will nevertheless probably need
to adopt an attitude of greater prudence because of the
salary increases which came into effect during the second
half of 2006. As regards money creation, the increase
in foreign exchange reserves has had an expulsion effect
on other money supply counterparts. Net external assets,
which have become the only source of money creation,
amounted to 4 179.4 billion dinars in 2005, as against
3 119.2 billion dinars in 2004, representing an increase
of 40 per cent. At the same time, the monetary growth
rate was only 10.9 per cent, for a money supply that
totalled 4 149.9 billion dinars in 2005.
Monetary stability has been accompanied by a
policy of “controlled floating” of the dinar aimed at
stabilising the Real Exchange Rate (RER) at its longterm equilibrium level. The level of the RER at the end
of 2003 is taken as a reference for this. The nominal
rate of the dinar rose slightly against the dollar during
the second half of 2006, to 73.16 dinars for $1,
compared to 73.84 dinars in 2005.
Monetary Policy
The price of oil per barrel, which rose from an
average of $38.66 in 2004 to $54.36 in 2005, further
strengthened Algeria’s external position. At the end of
2005, thanks to the trade balance, the current account
showed a positive balance of 21 per cent of GDP, as
against 13 per cent in 2004. Exports (f.o.b.) in fact
increased by 50 per cent by value in 2005 compared
with 2004, while imports (f.o.b.) increased by only 9 per
cent in 2005, compared with 34 per cent in 2004.
Imports have dropped by 2 per cent of GDP, reaching
the same level as in 2003. In real terms, imports
followed a trend similar to that of GDP. The overall
trade balance showed a surplus of 26.1 per cent of
GDP. The balance of services as a percentage of GDP
remained fairly stable. Notably, however, the total of
transfers of profits and dividends rose from $3.3 billion
in 2004 to $5.35 billion in 2005, $4.74 billion of
which were for Sonatrach’s associates. At the end of
June 2006, the transfers of these associates had reached
$2.8 billion. These transfers have an important effect
on the current account balance. Table 3 shows a
widening deficit in factor income, despite much lower
interest payments on the debt, following payment of
almost the totality of the debt in advance and substantial
receipts from investments of foreign exchange reserves.
The structure of foreign trade has remained
unchanged. In 2005, oil and gas exports made up more
Table 3 - Current Account
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Exports of goods (f.o.b.)
Imports of goods (f.o.b.)
Services
Factor income
Current transfers
3.1
21.0
17.9
-3.1
-4.2
2.2
16.3
36.0
19.6
-2.0
-4.0
2.6
16.8
37.9
21.1
-2.4
-4.2
2.9
25.7
45.1
19.4
-2.8
-5.0
2.7
28.9
47.5
18.6
-2.5
-4.4
2.4
26.1
45.7
19.6
-2.3
-5.7
2.3
24.8
44.9
20.1
-2.7
-5.3
2.3
Current account balance
-1.9
13.0
13.1
20.7
24.4
20.4
19.1
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© AfDB/OECD 2007
Algeria
Figure 3 - Stock of Total External Debt (percentage of GDP)
and Debt Service (percentage of exports of goods and services)
Source: IMF.
99
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than 97 per cent of total exports and over 50 per cent
of remaining exports were by-products of oil and gas.
Imports show the importance of capital goods and
intermediate goods (49.2 per cent), as well as of food
and non-food consumer goods (36.4 per cent). Algeria’s
principal trade partner is the European Union (57 per
cent), supplying 58 per cent of its exports and 56 per
cent of its imports. France remained Algeria’s principal
supplier, with 21 per cent, followed by Italy and China,
with 9 per cent and 7 per cent, respectively. Over the
last ten years, foreign trade has tended to develop more
rapidly with regions outside the EU: imports of Chinese
goods grew by 45 per cent during the first half of 2006
compared with the same period in 2005.
Structural Issues
Recent Developments
Algeria is seen as a country that is institutionally
handicapped. Institutional reform has been slow in
producing the desired results and is an obstruction to
© AfDB/OECD 2007
sustainable economic growth. The justice and finance
sectors are the most important constraints on the
improvement of the business climate.
In this respect, a World Bank study ranked Algeria
between ninth and last in a group of 14 oil-exporting
countries belonging to the Middle East and North
Africa (MENA) countries or to Central and Eastern
European Countries (CEEC). The analysis was based
on six weighted criteria (responsibility, political stability,
governance, fairness of the legal system, the role of law
and corruption). The criteria that received most criticism
for Algeria concerned the fairness of the legal system
and the role of law. The justice sector remains most in
question as the business community has limited
confidence in the impartiality of the judiciary system,
which moreover is considered to be slow and ineffective.
Legal system reform which began in 2001 more or
less enabled adaptation of the Algerian legal framework
to the needs of a market economy. However, its
application has suffered from procedural inadequacies,
from a shortage of qualified magistrates in the field of
Algeria
commercial law (particularly in binding agreements
and contracts) and from lack of capacity in
administrative and technical evaluation as well as in
implementing the decisions of justice. There is a clear
need to strengthen the technical capacity of magistrates
in the field of commercial law.
Financing is the other major constraint on the
business climate. A potential investor has to wait for
an average of four months before receiving a reply to
a request for an operating credit and almost six months
for an investment credit. External credit (banking or
other) makes up 25 per cent of operating credit and
30 per cent of investment credit. These rates are a
reflection of the low bank ratio and weak bank
intermediation of the Algerian economy, as well as of
problems relating to credit-supply conditions
(functioning of the banking and financial system) and
credit demand (behaviour of firms).
100
The payment system is very slow and this encourages
the use of cash transactions, even when large sums are
involved. Half of the broad money supply is held in
cash. The absence of a venture capital market is a salient
feature of the Algerian financial market from the point
of view of investment financing. Not having been set
up to take risks, the banks prefer to turn to profitable,
less risky markets.
Financial depth (the ratio of private-sector credit
to GDP) is only 12 per cent in Algeria, as against
140 per 0cent in China and 100 per cent in Korea and
Thailand. The public banks maintain a solvency ratio
that is higher than the prudential standard of 8 per cent.
According to the October 2006 report of the Bank of
Algeria, the banks are in fact applying rationing. Their
excess of funds demonstrates the margin by which the
banks have to increase the credit offered to firms.
These shortcomings provide a breeding ground for
the informal economy, which accounts for 35 per cent
of GDP. These institutional handicaps increase
transaction costs for small enterprises. The latter will
also be more likely to take refuge in the informal
economy, in order to survive the increasingly acute
competition accompanying the opening-up of the
economy to external markets. It is also obvious that firms
that do not declare their profits – or else only part of
them - will tend to avoid the banking system, as it
constitutes a subsequent means of control. The status
of property is also relevant; property remains in the
family in small businesses, where there is a strong
preference for family savings rather than savings through
an intermediary. Important measures have been taken
however, some of which are beginning to be applied.
The imminent privatisation of 51 per cent of the
capital of the Algeria Popular Credit Bank (CPA) will
improve the overall capacity of the financial market
owing to a circulation of specific and management
know-how and thus will enhance its attractiveness;
moreover, two other banks, the Algeria National Bank
(BNA) and the Local Development Bank (BDL) are
also involved in privatisation and in opening up their
capital to foreign investors.
Modernisation measures began to take shape in
2006 with: i) the setting up of the Algerian Real Time
Settlement System (ARTS) in February 2006; this
system will enable banks to issue transfer orders for large
amounts in real time; and ii) the start-up of the interbank e-clearing system in May 2006.
Recently, the financial environment for small and
medium-sized enterprises (SMEs) and handicrafts
improved, with the appearance of a Credit Guarantee
Fund (FGAR) and an Investment Credits Guarantee
Fund (CGCI) for SMEs, which was endowed with
30 billion dinars. By 30 June 2006, FGAR’s operations
remained limited: 35 guarantees amounting to
318 million dinars were awarded, an average of just over
9 million dinars per project, covering 35 per cent of
credit granted.
A government bill has been passed on the question
of venture capital (which up until now has been absent
from the Algerian financial sector). This bill conforms
in every way to the practices of countries with greater
experience in the matter. Capital investment companies
will help to remove the constraints on financing for
public and private SMEs. Nevertheless, these
achievements have been well below the objective of
© AfDB/OECD 2007
Algeria
creating 14 specialised financial companies. In Tunisia,
for example, there are no less than 37 venture capital
investment companies (SICAR).
Access to Drinking Water and Sanitation
Water resources are dependent on the climate, which
in Algeria’s case is arid or semi-arid in nature. Resources
are therefore not abundant and correspond to a total
of 12.4 billion m3 for surface water and 2.8 billion m3
for groundwater, 800 million m3 of which (renewable
water resources) are situated in the South. To satisfy the
demands of different users (domestic, industrial and
agricultural), samples of surface water are taken (dams,
off-stream reservoirs, flowing streams/rivers) or
groundwater samples (boreholes, wells and springs).
Information on the volume of surface water intakes is
relatively easily obtainable, but groundwater intakes are
poorly recorded. Neither the agricultural sector nor the
water resources sector possess the relevant statistics.
It is also recognised that most of the groundwater
tables in the North of Algeria are over-exploited, with
negative consequences for water levels and water quality.
Added to this is the problem of pollution of groundwater
tables by nitrates, manganese and chlorides. Due to their
over-exploitation, saline intrusions are also found in
groundwater tables and this phenomenon threatens
all the coastal regions. Over-exploitation is causing
substantial lowering of the water tables, causing drops
in levels in most of the water tables of more than
one metre per year.
1.3 billion m3 of water. The network for the conveyance
and distribution of drinking water is estimated to be
58 000 kilometres long. The current capacity for treating
surface water is 570 million m3 per year, added to
which is a storage capacity of 5 million m3. The sewage
network is 24 000 kilometres long. The volume of
waste-water is estimated at 600 million m3 per year,
550 million m3 of which comes from the towns in the
north. This configuration reflects the population
structure, which is strongly concentrated in the north
(90 per cent).
At the National Water Assizes in 1995, the
authorities decided to take a number of measures,
including opening up the concession to national and
foreign private sectors. According to the new Article
21 of the water law, the concession can be granted
equally to public bodies and enterprises, local authorities
or private legal entities. This code, which was modified
and completed by Decree No. 96-13 of 15 June 1996,
allows the supervisory authorities to contract out public
water services in whole or in part.
Decree No. 96-100 of 6 March 1996 set up
Hydrographic Basin Agencies and Basin Committees
responsible for collecting statistical data, documents and
information on water resources, for extraction and
consumption. Their role is to participate in monitoring
the state of pollution of water resources; defining the
technical specifications relating to waste-water and
sewage treatment facilities and awareness-raising among
domestic, industrial and agricultural users about the
rational use of water resources and their protection.
Over-exploitation is the consequence of ineffective
groundwater resources management, due to several
factors: i) an uncontrolled increase in illegal drilling;
ii) insufficient knowledge of exploitable resources; iii)
insufficient co-ordination between the national agency
for water resources (ANRH), which is responsible for
information on water resources and the agencies that
manage drilling; and iv) the difficulty of deciding
whether water should be allocated to human
consumption or to agriculture.
Several agencies are involved in managing the
territory, which is divided into five drainage basins:
Since independence, Algeria has constructed more
than 50 dams capable of regulating more than
• the National Agency for Dams (ANB) is
responsible for the mobilisation of resources
© AfDB/OECD 2007
In order to enable these agencies to fulfil their
mission, the Finance Act of 1996 set up levies on “water
quality” and “water saving” as part of the bill for drinking
water and water for industrial and agricultural uses
(8 per cent for the wilayas [departments] in the north
and 4 per cent for the wilayas in the south).
101
Algeria
102
through programmes for the construction of
dams and various interconnected networks (pipes,
pumping stations, water treatment plants);
• the Algerian Water Company (ADE), which is
an EPIC-type company (industrial and
commercial public enterprises), was set up in
2001 as a financially independent legal entity. The
ADE is responsible for the distribution and supply
of drinking water and has direct authority over
26 public economic enterprises (EPE), i.e. the
public enterprises that actually deal with the
distribution of water in the large Algerian towns
(these EPEs are known as EPEAL in Algiers and
EPEOR in Oran);
• the National Office for Waste Water Treatment
(ONA) which was set up at the same time as the
ADE, is an EPIC under the authority of the
Ministry of Water Resources. This Office is
responsible for i) the management and operation
of sewage infrastructures; ii) fighting against all
forms of water pollution; iii) the design and
implementation of projects for treating rainwater;
and iv) undertaking study projects for the
government and local authorities;
• The National Agency for Dams (ANB) is also
responsible for promoting and implementing
planned investments as well as for the operation
and maintenance of dams.
In each wilaya, a regional director of water (DHW)
represents the ministry and depending on the size of
projects, may be the principal negotiator with the
companies offering tenders for public contracts. As
with many sectors of activity in Algeria, most of the
companies operate in the public sector.
A Ministry of Water Resources was created in 2000,
as a supervisory body for all the agencies in the sector,
in order to improve co-ordination of their activities and
increase co-operation in sectoral policy-making.
Recently, following the relative liberalisation of the
Algerian economy, private companies that are often
suppliers for large public enterprises have appeared.
Private-sector participation is presently encouraged by
the government, especially in the areas of seawater
desalination, with the possibility of BOT (build-operatetransfer) concessions. Since the end of 2003, negotiations
have been under way with the French operators Suez
and Saur for the management of water supply and
distribution in the largest towns.
The water-tariff system is defined in Decree No.
05-13 of 9 January 2005. The public services pricing
system for drinking water and sewage covers all or part
of the financial costs of operation, maintenance, renewal
and development of water infrastructures. Prices increase
according to consumption for domestic users and are
standard for other categories of users. They include a
standard management charge which is uniform
throughout the country and a pricing structure which
is specific to each region.
For households, the tariffs per m3 are 1 dinar,
3.25 dinars, 5.5 dinars and 6.5 dinars, according to
different consumption brackets by quantity.
Government agencies are charged 5.5 dinars per m3 and
industry and tourism, 6.5 dinars per m3.
The water distribution companies in Algeria have
shown poor financial results. Over the past few years,
they have suffered serious financial losses, with
continually deteriorating negative operating margins.
This deterioration in the financial situation of the
water companies is mainly due to low prices that fail
to cover operating costs, debt service and new
investments. Receipts generated by the prices set by
central government only cover 70 per cent of the
operating expenses of the companies. However,
according to the decree that defined the pricing system,
water should be provided at a price that covers
maintenance and operation costs of water construction
works and infrastructure as well as contributing to the
financing of investments in maintenance and
development. The companies are obliged to ask the state
for a subsidy to make up the difference.
Connection rates for access to drinking water (AEP)
and to the sewage network were, on average, 85 per cent
in 2002. Recent statistics on types of connection are
not available. Seven out of ten households are connected
© AfDB/OECD 2007
Algeria
to the public drinking water network.The others use wells,
streams, tanks and other storage systems. Half of the latter
households are dwellings located in sparsely-populated
areas, but dispersion is not the determining factor in
average connection rates; only the wilaya of Ain Defla
has a rate below 50 per cent, because it has been lagging
behind with development of its sewage network.
Divergence from the average connection rate to the
sewage network is not very great, with the exception of
a few wilayas situated mainly in the far South.
The Millennium Development Goal (MDG) for
water aims to reduce by half: i) the percentage of the
population without permanent access to an improved
source of drinking water, by 2015; and ii) the percentage
of the population that does not have permanent access
to improved sewage facilities by 2020. These aims are
attainable in view of the projects under way in the
areas of water and construction works. The capacity for
waste-water treatment could be multiplied by four in
the medium term through the rehabilitation of sewage
works and the creation of new works.
The local authorities responsible for the operation
of sewage infrastructures require considerable financial
means if they are to provide a proper service. It is
therefore important to set prices at a level that will
enable these authorities to pay for sewage-management
facilities. The new pricing system in place since 1996
has probably had positive effects on the finances of
district authorities that are still faced with serious costrecovery difficulties.
The comfortable financial situation produced by
positive trends in oil gives the Algerian authorities a wide
margin of manoeuvre for achieving the water-related
MDG by authorising major investments to upgrade the
infrastructures completely, since these are in a state of
general disrepair due to lack of proper maintenance.
Political Context and Human
Resources Development
The aim of national reconciliation is notable among
President Abdelaziz Bouteflika’s political actions. This
© AfDB/OECD 2007
policy was initiated during his first term of office (19992004). A new government in 2006 was led by the
secretary general of the National Liberation Front
(FLN), which had a majority in both houses of
parliament. The last few years of the president’s second
term of office have been marked by the 2005-09 PCSC.
Initially estimated at $60 billion, this plan has been reevaluated at over $140 billion, a substantial amount for
a country like Algeria.
This budget was almost entirely intended for
economic and social infrastructures. Human
development (health, housing and education) should
benefit distinctly; 25.5 per cent of the budget is allocated
to housing and living conditions (Finance Act for 2005)
and there should be additional indirect effects due to
investments in infrastructures (22.7 per cent). The
authorities seem determined to equip the country with
wide-ranging economic and social infrastructures.
Large-scale roadworks have begun on the East-West
motorway (1 200 kilometres), as well as works on
railway lines of similar distance.
Compared with the previous decade, the overall
social environment has greatly improved. The state’s
substantial revenue has enabled it to reassume a role
of redistribution. The social categories receiving
government assistance are relatively better targeted
than during the controlled-economy epoch, when the
policy of low prices was synonymous with rationing and,
hence, with inequality. Government social action
represented between 5.5 per cent and 7.7 per cent of
GDP from 1999 to 2005. For GDP excluding oil and
gas, it was between 10 per cent and 13 per cent over
this period. Compared with income tax, which is
limited to 2.5 per cent of GDP, government action is
very considerable. Social solidarity is partly financed
by oil taxation.
According to the figures of the National Office of
Statistics (ONS), economic growth, led by oil and
gas, has been accompanied by a spectacular
improvement in employment. The unemployed
population in 2005 numbered 1 474 549 persons (of
which 253 545 were women), which is a total
unemployment rate of 15.3 per cent, as against almost
103
Algeria
30 per cent in 1999. In urban areas, the rate is 14.8 per
cent, as against 16 per cent in rural areas. This
improvement is due to work-generation arrangements
for young people, the support given to micro-enterprise
creation and the Economic Recovery Programme
(PSRE), followed by the PCSC. The government aims
to reduce the unemployment rate to under 10 per
cent by 2009 through significant infrastructure creation.
The present buoyancy in massive job creation is unlikely
to continue on a long-term basis, being the direct or
indirect result of budgetary efforts and these have not
yet been successfully superseded by economic growth
directly created by companies.
104
At the same time, the increase of 25 per cent in the
minimum guaranteed salary from January 2004 enabled
purchasing power to catch up, due to the relatively
moderate rate of inflation – even without taking into
account increasing state intervention in gross household
income. The proportion of transfer payments in gross
household income went up from 16.2 per cent in 1996
to 20.3 per cent in 2000 and to 23 per cent in 2004.
In June 2006, the state allocated a total budget of over
100 billion dinars (approximately $1.4 billion) to
improve the allowances scheme of public-service
employees. This measure, for example, raises the
minimum public-service salary by about 15 per cent.
Household consumption has benefited from the
increase in salaries and the fall in unemployment. Real
household consumption increased by an average annual
rate of 3.1 per cent from 1990-2003, whereas over the
same period, population growth was less than 1.6 per cent.
The construction programme for one million homes
within the framework of the PSRE – a large part of
which has already been carried out – has helped to
reduce the pressure on demand. The occupancy rate
(TOL) went down from 7 persons to 5.5 persons
between 1999 and 2004 and is expected to go down
to 5 persons in 2009, with the construction of another
million homes under the PCSC.
Life expectancy at birth, which constitutes both
health and development indicators, has increased by
more than 20 years since 1970. It went above 73 years
in 2005 and is now estimated at 72.5 years for men
and 74.4 years for women.
According to the 2006 human development report
of the National Economic and Social Council (CNES),
illiteracy – which is usually accompanied by poverty –
affected 34.5 per cent of the population aged 15 years
and over, or more than 3 million inhabitants, in 1998.
This figure went down to 2.6 million inhabitants in
2005, but this is not a very significant reduction.
According to the United Nations Development
Programme (UNDP), efforts made up until now have
been insufficient to create any marked improvement
in the human development indicator for Algeria, which
was ranked 102nd out of 179 countries in 2006.
© AfDB/OECD 2007
Angola
Luanda
key figures
•
•
•
•
•
1 247
16 400
41.7
32.6
Angola
A
and prolonged
economic growth, thanks to a boom in commodity
prices and rapid development of oil and diamond
production. Nevertheless, and despite encouraging
signs of recovery in the non-mineral sectors, the lack
of structural reform, widespread inefficiency and weak
governance are still jeopardising the potential of
economic growth to bring about social development.
NGOLA IS EXPERIENCING RAPID
Record-high international oil prices and rapidly
growing output from new oil fields sustained real GDP
growth, which reached 14.8 per cent in 2006, following
20.6 per cent in 2005, and is expected to remain high
at 27 per cent in 2007 and 17.3 per cent in 2008.
Angola is exceptionally dependent on oil. Other
economic activities account for a negligible share of
overall growth and of export revenues, although they
contribute more to job creation. Improved performance
in banking, construction, retail
A number of factors
trade and telecommunications
are fostering rapid
suggests, however, that some
and prolonged economic
impacts from the oil boom are
growth but governance
percolating through to the broader
needs improving.
economy. Agriculture is also
picking up, although output and productivity remain
far below potential and the situation is unlikely to
improve considerably until infrastructure rehabilitation
is completed, markets for key inputs are established and
mine clearance is finished.
At the macroeconomic level, despite the progress
recorded since the end of the war, transparency of oil
107
■ Angola - GDP Per Capita (PPP in US $)
■ Southern Africa - GDP Per Capita (PPP in US $)
■ Africa - GDP Per Capita (PPP in US $)
——— Angola - Real GDP Growth (%)
Per Capita GDP ($ PPP)
Real GDP Growth (percentage)
8000
30
7000
25
6000
20
5000
4000
15
3000
10
2000
5
1000
0
0
1999
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06(e)
2006/07(p)
2007/08(p)
Source: IMF and National Institute of Statistics data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/474756712485
© AfDB/OECD 2007
Angola
revenue management remains incomplete, and much
remains to be done to align fiscal policy actions with
the priorities of poverty eradication. Angola’s relationship
with the Bretton Woods institutions is poor, and progress
in reaching an agreement that would broaden the
country’s access to international financial markets has
stalled as the authorities have gained access to alternative
bilateral credit lines. An expansionary fiscal policy
continues to place the burden of macroeconomic
stabilisation on monetary policy. Although the latter
has proven to be very effective in reducing inflation,
it has generated adverse consequences in terms of high
interest rates, an over-valued domestic currency and
uncompetitive domestic prices.
108
At the microeconomic level, despite the signs of
recovery in the private sector, risk taking and
entrepreneurship continue to be stifled by high de jure
and de facto barriers to entry, including privileged access
to market opportunities and finance for a small number
of business people. Some important reforms have been
made – for instance, to accelerate the procedures for
establishing new companies – but implementation has
been delayed in practice by the poor state of the
bureaucracy.
Finally, inter-generational considerations give rise
to concern. Angola may be experiencing a petroleum
boom, but output will soon reach a plateau and then
decline quickly. To prepare for this, the authorities
should redouble efforts to diversify and increase
production by wisely investing current revenues for
the benefit of future generations. One way of doing so
would be to accelerate land reform, increase allocations
to education and health, and improve the efficiency of
public spending.
Developments in the mining sector are driving
the currently high rate of GDP growth. In 2006, the
growth rate of the oil sector slowed down when
compared to 2005, while that of labour-intensive
diamond mining strongly increased. Overall, the
mining industry is estimated to have expanded at a
somewhat slower rate in 2006 than in 2005, but is
expected to accelerate in 2007.
In 2005, the oil sector accounted for more than
56 per cent of GDP, 83.1 per cent of government
revenues and 94.1 per cent of exports. In 2006, oil
production is estimated to have grown by 15 per cent
compared to 26 per cent in 2005. Daily production in
offshore fields, mostly in the Congo River basin opposite
the Cabinda enclave, averaged 1.4 million barrels a day
in 2006 and is expected to peak at 2.6 million barrels
in 2010/11. The slower growth was due to maintenance
work in a number of fields, including the Girassol field
in Block 17, and the slower than anticipated start-up
of production on the Dália field. Hence, instead of the
initial forecast of 597 million barrels, annual output
amounted to 510 million barrels. With reserves now
estimated to be between 20 and 22.8 billion barrels, the
growth rate of production is expected to accelerate in
2007 and further increase in 2008. In early 2006, oil
was produced for the first time from Block 14, while
the Benguela, Belize, Lobito and Tomboco fields are
expected to produce 200 000 barrels of crude oil per
day in 2008. New concessions will be awarded in 2007,
and imports of increasingly sophisticated equipment are
rising as exploration and exploitation move to ultra-deep
fields. In December 2006, Angola officially became a
member of the Organisation of Petroleum Exporting
Countries. Moreover, new explorations are being
undertaken in the field of natural gas, whose potential
has not been estimated yet.
The Angolan oil boom has now been under way
for a number of years, and reform of the policy
environment is more imperative than ever. The
government has traditionally intervened in the oil
industry through Sonangol, a state-owned enterprise
that retains responsibility for regulation and contract
negotiations, is sole owner of the fields and has entered
into production-sharing agreements with major western
oil companies, led by Chevron, Total and ENI, although
independent companies, as well as national oil
companies from Brazil and China, also play an active
and growing role. This combination of Sonangol’s
various roles has long been criticised for giving rise to
conflicts of interest.
© AfDB/OECD 2007
Angola
The process of Angolanisation, started in 1982,
requires oil companies to staff operations in the country
with Angolan workers. The government recently
proposed new procurement and employment clauses
in the production-sharing agreements aimed at
increasing local participation in the industry. This
policy attempts to address the fact that the sector has
little direct employment impact, creates few direct
linkages to other sectors of the economy and relies on
imports of capital equipment and specialised services.
Nevertheless, there is a risk that foreign oil companies
will recruit most of the few highly skilled Angolan
workers and crowd out the public administration and
the non-oil private sector. Moreover, having reduced
inflation, modernised the banking sector and introduced
electronic payments and real-time gross settlement of
balances, the government has renewed its calls for oil
firms to route all industry payments through the
domestic banking system. These calls have raised
resistance among oil firms, which doubt the capacity
of local banks to handle large amounts of money.
(about 5 per cent of total exports in 2005). Angola is
considered to be one of the world’s most promising
diamond areas, with estimated reserves of 400 million
carats of alluvial diamonds and 40 million carats of
kimberlite, although detailed geological exploration
has started only recently and modern techniques are
scarcely in use. Production increased by 16.2 per cent
in 2005 and by 41.7 per cent in 2006 as output at the
Catoca mine doubled, reaching 10 million carats. This
trend is expected to continue, at least in the short term,
since 23 new exploration licences were issued to private
enterprises in Bié province. To add value to production,
the largest polishing and cutting factory in Africa
opened in November 2005. The Angola Polishing
Diamonds factory – a joint venture between the state
diamond company Endiama, the Angolan consortium
PROGEM and Lev Leviev Diamonds (LLD), the
world’s
second-largest
diamond
trading
company – employs 400 technicians. As in the case of
Sonangol, Endiama combines the roles of regulator
and economic operator.
109
Diamond mining in extensive kimberlite and alluvial
projects is the second-largest source of export revenues
The domestic non-mining economy continued its
recovery in 2006, exhibiting growth of 13.8 per cent
Figure 2 - GDP by Sector in 2004/05
Other services
Agriculture, forestry and fishing
9%
Wholesale and retail trade
(percentage)
8.6%
14.9%
4.1%
4.1%
Manufacturing
2.9%
Diamonds
Construction
56.3%
Oil and gas
Source: Authors’ estimates based on National Institute of Statistics data.
http://dx.doi.org/10.1787/384572172060
as the dynamism spread from construction and services
to agriculture and, to a lesser extent, manufacturing.
This positive trend is expected to impact favourably on
internal market development and job creation and thus
contribute to poverty reduction.
Angola has fertile soil and a climate conducive to
agriculture; in fact, at independence the country was
© AfDB/OECD 2007
self-sufficient in food production, the largest staple
food exporter in sub-Saharan Africa and one of the
world’s biggest coffee exporters. The civil war exacted
a heavy toll on the agricultural sector, especially in the
central and northern regions, which were the most
affected by fighting. Although production is recovering
(the growth rate for the sector over the 2000-04 period
has averaged 13.3 per cent and production has increased
Angola
by more than 80 per cent since 2000), agriculture
accounted for only 8.6 per cent of GDP in 2005,
because agricultural production is still hampered by the
widespread presence of land mines, infrastructure
inadequacy, low productivity, input shortages in general
and the absence of storage systems.
Agricultural output grew at a rate of 17 per cent
in 2005, but the 2005/06 agricultural season has been
below expectations, due to poor rains which have
reduced Angola’s total cereal production to 742 000
tonnes, a 15 per cent fall compared with the previous
season. According to the Famine Early Warning Systems
Network (FEWS Net) assessment, households expect
drought conditions to reduce their maize crops by 40
to 70 per cent. By contrast, coffee production increased
during the 2005/06 growing season, but the road to
recovery remains a long one due to high production
costs and poor infrastructure. Coffee production had
dropped sharply during the civil war, when output of
cash crops in general became insignificant.
up by 22.14 per cent in the period January-September
2006, following 17 per cent growth in 2005. Progress
has been made in rehabilitating transport
infrastructure, particularly roads and bridges. Chinese
contractors completed major projects such as the Keve
bridge and the Luanda-Namibe railway, although
completion of the Luanda-Malanje link will be delayed
until 2007. In Luanda, on the other hand, a number
of Portuguese construction firms completed or
announced projects involving residential, hotel and
office buildings. All in all, the construction sector
expanded by a remarkable 66.2 per cent in 2006, and
the hosting of the Africa Cup of Nations football
championships in 2010 is expected to sustain growth
over the next few years.
Angola once had one of Africa’s most developed
manufacturing industries, but the civil war led to a
prolonged phase of negative growth. There are signs,
however, that production is picking up in certain
industries, as consumers’ purchasing power recovers in
Luanda and other major urban centres. The sector
recorded a cumulative growth rate of 67.4 per cent in
real terms for the 2000-04 period, 24.9 per cent in 2005
and 30.7 per cent in 2006. The beverages sector, for
instance, grew by 8 per cent in 2005 and is estimated
to have grown even more in 2006, benefiting from the
national football team’s participation in the World Cup.
In general, agribusiness is expected to benefit from the
recent opening of cold-storage facilities in Luanda and
the announcement of a rehabilitation programme for the
national cold-storage network. On the negative side,
the performance of the only existing petroleum refinery
continues to be hampered by persistent bottlenecks,
partly associated with the nature of the supply
arrangement with Sonangol and distorted incentives
that encourage imports of refined petroleum products.
The growth rate of the services sector (which
accounted for about 15 per cent of GDP in 2005)
slowed in 2006, compared to 8.5 per cent in 2005, with
the trade sub-sector taking the lead. Telecommunications, and especially mobile telecommunication
services, have experienced exceptional growth since
2002, benefiting from the end of the war and the
privatisation of the sector. The total number of cell
phone subscribers reached 2.6 million at end-2006
(a 44 per cent increase), with the incumbent’s market
share falling slightly to 81 per cent. The geographical
distribution of telecommunication service is extremely
asymmetric, with Luanda and other few major towns
accounting for more than 85 per cent of the existing
connections. The growth potential of the sector is
extremely large, considering the low access rate (0.60 per
cent), well below that of neighbouring countries such
as Namibia (6.86 per cent), South Africa (11.46 per
cent) and Botswana (5.64 per cent). The financial
sector is continuing on the track of fast post-war
development. Ten commercial banks have applied for
operating licences, and in 2006 two new banks opened,
bringing the number of operating banks to nine. Bank
deposits are rising, access to short-term credit is
improving, and residential mortgages are increasing, but
access to other long-term finance is limited, especially
outside Luanda.
Construction, another booming sector, is leading
growth in the non-oil sectors, with physical production
The demand structure reflects Angola’s historical
reliance on oil exports and imports for most consumer
110
© AfDB/OECD 2007
Angola
1997/98
2004/05
(percentage of GDP)
2005/06(e)
Percentage of GDP
(current prices)
2006/07(p)
2007/08(p)
Public
Private
35.2
5.9
29.3
7.5
4.7
2.8
51.9
80.0
5.0
12.8
12.0
15.0
13.7
15.0
10.0
Consumption
Public
Private
81.1
28.3
52.8
68.0
24.1
43.9
21.7
10.4
25.6
18.1
8.0
21.2
21.1
13.2
23.2
-16.3
56.2
-72.5
24.5
72.6
-48.0
9.6
26.9
30.1
14.8
7.0
16.1
External sector
Exports
Imports
http://dx.doi.org/10.1787/624438874407
goods. This state of play is expected to continue in
2007 and 2008, with mineral exports continuing to
improve the external sector balance and further stimulate
growth. The investment component has continued to
expand and is estimated to have increased by nearly
52 per cent in 2006. Private investment remains
concentrated in the mineral sector, whereas public
investment, which expanded at an exceptional rate in
2006, remains focused on infrastructure reconstruction
and the social sectors. Growth of both public and
private investment is expected to return to more
reasonable rates in 2007 and 2008. Private consumption
is recovering and accelerating, thanks to increased
incomes in Luanda and higher public sector salaries.
As a consequence of this growth in investment and
consumption, import volumes are expected to grow by
27 per cent in 2006.
Macroeconomic Policies
Fiscal Policy
In recent years, efforts to reduce inflation and
improve public finances have been broadly successful,
and these gains were further consolidated in 2006,
when the inflation rate approached the target of 10 per
cent and the fiscal balance remained soundly positive.
Nevertheless, the sustainability of the policy mix remains
a cause for concern, unless structural reforms are
© AfDB/OECD 2007
implemented. In fact, the country’s success in curbing
inflation is largely due to expensive exchange-rate
operations, which sterilise the huge amounts of foreign
currency injected in the economy, while fiscal policy
remains extremely expansionary, generating strong
inflationary pressure. The concern arises from the fact
that this policy seems to be sustainable only as long as
oil prices (and revenues) remain high.
Some improvements have been made in enhancing
budgetary oversight over most off-budget expenditures,
such as the quasi-fiscal operations carried out by Sonangol
on behalf of the government and the central bank’s
operating deficit. Nonetheless, the country still has no
medium-term expenditure framework allowing for
countercyclical expenditure planning, and the budget
design does not seem to take into serious consideration
the limited absorption capacity of the public
administration. Unfortunately, the combination of high
oil prices, reduced leverage of the international financial
institutions with respect to new financing opportunities
for the country and the upcoming legislative and
presidential elections make any serious change in the
policy mix rather unlikely in the short term.
Despite some improvements on the revenue side,
a great deal more progress is needed to achieve full
transparency concerning the expenditure side and oil
revenues (especially concerning Sonangol’s quasi-fiscal
operations). Angola remains an observer to the Extractive
111
Angola
Industries Transparency Initiative, arguing that full
membership requires a set of implementation measures
that exceed the country’s current capacity. For the time
being, data on oil production and exports are published
on the website of the Ministry of Finance and the
financial statements of Sonangol for fiscal years 2003
and 2004 have been audited by international firms,
although the latest audit reports have not yet been
published. Revenue collection in the expanding
diamond industry remains opaque.
Despite the conservative oil price adopted, the
government had to revise the 2006 budget to take
account of higher oil prices ($56 per barrel instead of
the initial forecast of $45), lower oil production and
weaker GDP growth. Oil revenues, although increasing,
were also revised downwards, from 31 to almost 28.5 per
cent of GDP. The government maintained its basic
public spending priorities, as the oil revenue windfall
made it possible to more than double budgeted
expenditures. The largest bill is for the social sectors,
112
(percentage of GDP)
1997/98
2002/03
2003/04
Tax revenue
Oil revenue
26.3
6.6
19.2
37.9
7.8
28.9
36.9
6.8
29.3
38.0
5.7
31.0
35.4
5.8
28.5
34.8
5.8
27.8
32.7
6.1
25.4
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
55.3
34.4
27.6
9.1
6.8
5.8
44.9
37.5
35.2
12.4
2.3
7.4
35.8
30.6
28.3
10.3
2.3
4.4
30.1
25.4
23.5
8.6
1.9
4.7
30.0
23.3
21.9
8.8
1.4
6.7
28.5
21.9
20.1
8.2
1.8
6.5
28.9
21.9
20.6
8.4
1.4
7.0
-22.3
-29.0
-4.6
-7.0
3.4
1.1
9.8
7.9
6.8
5.4
8.1
6.3
5.2
3.8
Primary balance
Overall balance
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
a. Only major items are reported
Source: IMF and Ministry of Finance data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/837655487055
which attracted more than 30 per cent of total
expenditures, as against 29 per cent of total spending
in 2005. Nevertheless, taking into account the weak
absorption capacity of the public administration, it
seems highly unlikely that the government’s overambitious expenditure plan will be executed.
The trend of current expenditure, which decreased
in terms of GDP share, is characterised by an increase
in public wages and new recruitment, and a decrease
in goods and services expenditure, while subsidies to
fuel, water and electricity were maintained and
accounted for 3.8 per cent of GDP in 2006. The 2006
budget marked a significant change in the composition
of expenditure, with the share of capital expenditure
in overall budgeted spending increasing considerably,
but not as much as foreseen by the government. Capital
expenditure is estimated at 6.7 per cent of GDP in 2006,
corresponding to an increase of 80 per cent in real
terms over 2005. This level should be maintained in
2007 and 2008.
Overall, fiscal year 2006 is expected to close with
a substantial surplus of 5.4 per cent, although the fiscal
position is deteriorating with respect to 2005. The
fiscal balance is expected to improve marginally in
2007 and to deteriorate again in 2008, due to a probable
decrease in oil prices and hence in government revenue.
The 2007 budget as announced by the government
in December 2006 is based on the assumption of an
international oil price of $50 for Angolan crude, and
includes expenditure commitments for 1.8 trillion
kwanzas (equivalent to a 32 per cent real increase).
Although expansionary, the fiscal policy seems more
reasonable than in 2006, taking more into consideration
the limited absorption capacity of the economy. This,
and in particular the forecast 12 per cent decrease in
© AfDB/OECD 2007
Angola
net investment, should be considered a step towards
the improvement of public expenditure efficiency. The
social sectors are expected to receive 28.1 per cent of
fiscal outlays, while the share of defence and security
should fall further to 12.7 per cent as the country
consolidates reconciliation. The budget is supposed to
generate 260 000 new jobs in 2007 and 403 000 in
2008. The impact of the expenditure increase on the
fiscal balance is expected to be offset by larger than
budgeted oil receipts. However, this might not be the
case in 2008, when oil revenue is expected to decrease
sharply, leading to a deterioration of the fiscal balance.
Monetary Policy
Owing to an effective monetary policy, the inflation
rate has been decreasing dramatically since 2003, with
the annual rate declining from 98 per cent in that year
to 43.5 per cent in 2004 and 23 per cent in 2005.
Despite a slight increase at the end of the year, mostly
fuelled by a spike in transport prices, inflation fell to
about 10 per cent in 2006, almost achieving the
government target. It is expected to stabilise at around
9 per cent in 2007 and 2008.
This result has been achieved thanks to the ex
ante stabilisation strategy of Banco Nacional de Angola
(BNA), which has been purchasing kwanzas with
dollars (derived either from oil receipts or from loans
backed by promises of future oil receipts) to stabilise
the kwanza’s nominal exchange rate against the dollar
and dampen the inflationary pressures caused by
substantial public expenditures. In the first half of
2006, the BNA sold $2.755 billion, twice as much
as in the corresponding period in 2005, but still below
the amount forecast because of the low absorption
capacity of the economy. In consequence of this
strategy, the nominal value of the kwanza has been
stable against the dollar since the last big nominal
appreciation of the exchange rate (7.8 per cent) in
November 2005, while the real effective exchange
rate has continued to appreciate. Real appreciation was
40 per cent between 2004 and 2005. While this
strategy keeps down the prices of imports, which
represent 90 per cent of domestically consumed goods,
it damages the competitiveness of domestically
© AfDB/OECD 2007
produced goods, thus working against the
diversification of production.
External Position
Following the introduction of a revised six-level
tariff structure in early 2005, the simple average Most
Favoured Nation applied import duty stood at 7.4 per
cent in 2005. Rules of origin are relatively simple,
although the full implementation of Angola’s integration
into the Southern African Development Community
(SADC) Trade Protocol would add to their complexity.
Angola has made very little use of bilateral schemes with
the United States and the European Union under the
Generalised System of Preferences (GSP).
The trade balance has continued to improve, thanks
to high oil prices coupled with increased production,
which boosted export earnings in 2006. Oil and
diamond exports, which together amount to 99 per cent
of total exports, are estimated to have risen in volume
by 13 per cent in 2006. Over the projection period,
export volumes are expected to rise dramatically, by an
estimated 31 per cent in real terms in 2007 and 8 per
cent in 2008, due to expanded crude oil production,
offsetting the decrease in oil prices which is expected
for 2007. The increase in households’ disposable income,
coupled with the growth in oil production and the
boom in the construction sector, is expected to lead in
turn to an increase in imports, particularly of cement
and capital goods, which are projected to grow by 16
and 17 per cent per year in real terms in 2007 and 2008.
In the first half of 2006, freight forwarders’ shipment
data indicate that the United States remains the largest
export destination (33 per cent), followed by China
(25 per cent). The European Union remains relatively
marginal for exports, while it accounts for roughly half
of imports. Portugal is the largest source country, with
imports from this country totalling EUR 1.098 billion
in the 11 months to November 2006 (a 52 per cent
rise over the same period in 2005). The growth of
imports from Brazil to Angola has also been dramatic
(60 per cent at the end of 2006, to reach $836 million).
China’s 2005 exports to Angola stood at $370 million,
an increase of 91 per cent.
113
Angola
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
22.4
54.3
32.0
-38.6
-14.9
2.3
28.9
68.2
39.3
-22.4
-12.4
0.7
38.6
68.1
29.5
-22.6
-12.5
0.0
44.9
71.3
26.4
-20.4
-11.8
0.1
41.4
64.8
23.4
-18.3
-8.7
0.1
41.6
63.1
21.5
-17.3
-11.4
0.0
36.1
57.6
21.5
-17.4
-16.8
0.0
-28.8
-5.1
3.5
12.8
14.5
12.9
2.0
Source: IMF and Banco Nacional de Angola data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/661783765870
114
The current account balance has been positive since
2004, and its improvement was consolidated in 2006,
when the current account surplus expanded from
12.8 per cent of GDP to 14.4 per cent. This result is
wholly attributable to the trade surplus, which largely
offsets the persistent deficit in the factor income account.
The latter, highly correlated with the performance of
exports, is estimated at 8.7 per cent in 2006, down from
11.8 per cent in 2005. It is expected to worsen in 2007
and 2008, however, as foreign oil companies remit
increasing profits to their headquarters following the
increase in oil production.
Together with Nigeria, Angola was Africa’s largest
recipient of foreign direct investment (FDI) flows over
the 2003-05 period, owing to its mineral wealth.
Rising investment in the country is due to high oil
prices, together with promising reserves prospects. In
2006, a number of new licences for nine blocks were
granted, and the creation of five new blocks was
authorised. Also in the natural resources sector, the
world’s largest mining company, BHP Billiton, invested
in nine diamond projects and is interested in investing
in base metals.
Although FDI flows remain small in the rest of the
economy, new opportunities continue to emerge. In
agriculture and food processing, for instance, Israeli and
other investors are exploiting pent-up demand for fresh
fruit and vegetables in peri-urban areas, at prices
considerably lower than those of imported food. In
banking, the Portuguese banks Banco Internacional
de Crédito (BIC) and Banco Comercial Portugues
(BCP Millennium) expanded their branch networks,
the Russian bank Vneshtorgbank and local partners
constituted Banco VTB África and ten additional
licences have been requested. As for FDI outflows, the
government acquired the absolute majority of shares
in the cement industry from Portugal’s Cimpor in
September 2006. In November, Sonangol took full
control of the Luanda refinery from Total, in
anticipation of a major investment, possibly in
partnership with Asian investors.
The external debt burden continued to ease,
following the trend of recent years. At end-2004,
Angola’s debt amounted to $10.6 billion (including
arrears and overdue interest), which corresponds to
53.6 per cent of GDP, down from 99 per cent in 2001.
In 2005, although the external debt stock increased
slightly when Sonangol contracted a new $3 billion oilbacked commercial loan, the IMF and World Bank
estimate that the debt-to-GDP ratio fell below 38 per
cent. Thanks to the high GDP growth rate, this
downward trend is expected to continue for the next
two years, stabilising at 24.6 per cent in 2007/08. A
quarter of the outstanding stock of external debt consists
of arrears, nearly all owed to the Paris Club. Imports
are increasingly being financed by new credit lines
provided either by Paris Club members that have signed
bilateral debt renegotiation agreements (such as
Germany, Spain and Portugal) or by non-OECD
countries such as Brazil, Israel, Russia and China. In
addition, Angola seems to have reached agreement on
a supplementary multi-billion dollar facility from
China, although official information on its terms is not
available. Access to trade credits from a wider variety
of sources has helped to sustain reconstruction efforts
© AfDB/OECD 2007
Angola
Source: IMF.
115
http://dx.doi.org/10.1787/617054383372
and give the treasury some operational autonomy. It
is more difficult to gauge the risks that such new loans
entail for debt sustainability and creditworthiness.
Similarly, it is hard to predict whether a homegrown reform programme that takes into account some
of the IMF’s recommendations will provide a sufficient
basis for successful conclusion of ongoing negotiations
with the Paris Club. After three decades of external
intervention, Angola’s government is sensitive to close
monitoring by the international community.
Structural Issues
Recent Developments
The transformation of Angola into a functioning
market economy is a long process that has not been
facilitated by the circumstances of the country’s postconflict transition. Still, the pace of structural reforms
is disappointing. Hindrances to private sector
© AfDB/OECD 2007
development, including egregious examples of rentseeking behaviour, limit the potential benefits of the
current economic boom. Moreover, the persistence of
inefficiency in the public sector and of abuses of market
power by state-owned enterprises in various sectors
has impeded fiscal consolidation, shifting the burden
of macroeconomic management to monetary and
exchange rate policies.
International rankings such as Doing Business and
the Transparency International index confirm that
major bottlenecks due to endemic corruption, outdated
regulations and rent-seeking behaviour frustrate
entrepreneurial efforts, thus hampering the creation of
new job opportunities. Angola ranks 156th out of 175
countries in the 2007 Doing Business classification,
losing one place with respect to 2006. Although the
time required to open a business has been drastically
reduced since 2004 – falling from a year to 30 days,
thanks to the creation of a one-stop window for business
creation – barriers to entry remain high as the regulatory
burden is heavy and the privilege of venturing into
Angola
promising new business sectors is reserved to a small
number of businesses thought to have strong political
influence. According to the 2006 World Economic
Forum ranking, Angola is the least competitive out of
125 economies. Decentralisation, meant to improve
delivery of public services, remains incomplete, as
administrative tasks have been transferred to lower
levels of government without a corresponding delegation
of spending or taxation authority.
116
Since 2003, the authorities have introduced an
array of new legislative measures that have gone in the
right direction but not fully borne fruit in the absence
of accompanying normative and institutional measures.
In fact, since 2005, the pace of structural reforms has
slowed. A competition bill was drafted in 2004 but has
not yet been transmitted to parliament. Concerns
regarding the status and success of the privatisation
process had led the authorities to suspend it in 2001.
To reactivate this process, a confidential diagnosis
presented to the authorities in 2006 includes proposals
to draft specific laws to cover public enterprises and
holders of public service concessions. In the meanwhile,
empire-building and prestige-seeking seem to abound
in the strategies of state-owned enterprises.
The national airline TAAG embarked on a major
investment drive in view of a long-needed overhaul of
its ageing fleet. The $150 million syndicated loan that
a pool of local banks secured towards the acquisition
of six new aircraft was rightly seen as a sign of the
country’s financial maturity. Unfortunately, TAAG is
still on the International Air Transport Association
(IATA) list of carriers showing a sub-standard safety
record, and its pilots have failed so far to obtain flying
certification for the new aircraft, which were delivered
on the day of Angola’s 31st anniversary. Sonangol and,
most recently, Endiama have decided to expand their
airline business.
In financial markets, the dollarisation of the
economy remains a cause for concern. Nonetheless,
the return of price stability, the entry of new banks, the
opening of a substantial number of new branches in
Luanda and the provinces, and the availability of
withdrawal facilities have combined to overcome
households’ reluctance to place their savings in formal
financial institutions. As a result, total bank deposits
increased by 23.9 per cent in real terms in the first half
of 2006. Although the stock of commercial credit
increased by just 1.38 per cent over the same period,
the liquidation of treasury liabilities released resources
for the productive sectors and credit to private firms
increased by 42.2 per cent.
A new development bank, Banco de
Desenvolvimento de Angola (BDA), started operations
in late 2006 and will receive 5 per cent of oil revenues.
A similar initiative is the Fundo Nacional de
Desenvolvimento (FND), which will disburse up to
$300 million per year at concessional terms. The FND
will be managed by BDA and be funded partly through
oil and diamond extraction levies. The experience of
the Fundo de Desenvolvimento Economico e Social
(FDES), which managed to disburse only a fifth of its
budget (also drawn from oil revenues) to support
investment in the private sector, illustrates one of the
challenges facing these new institutions.
Inefficiencies in thermal generation facilities and
delays in completing the Capanda dam and
hydroelectric plant still plague energy infrastructure.
Brownouts and power cuts have become even more
frequent as the economy accelerates, and less than
20 per cent of the population has access to electricity.
In Luanda, the number of households connected to the
grid is as low as 131 500, one major obstacle to the
increase of capacity and investment being the low tariffs
applied to electricity. Nevertheless, thanks to massive
government and Chinese investments, electricity
generation is expected to grow by 42 per cent in
2007/08. In fact, a huge number of projects are to be
financed by a new Chinese credit line of $5 billion,
including the Apanda-N’Dalatando power line (2007),
a new power line from the Cambambe dam to Luanda
(2007), a series of electricity distribution and
transformation centres (end-2006), a power line from
Quifangondo to Caxito (2007) and a $70 million
project to electrify Luanda’s suburban areas. In the
meanwhile, government wishes to increase hydroelectric
potential: the Cambambe dam, in Malange province,
is expected to increase production by 260 MW from
© AfDB/OECD 2007
Angola
2007 and the start-up of two new turbines should
bring the dam’s output to its full capacity of 530 MW
by July.
Angola has abundant water resources, but existing
hydraulic infrastructure is largely inadequate, having
been traditionally confined to the production of energy.
Moreover, households’ access is severely deficient, as the
available infrastructure was destroyed or damaged
during the civil war and little or no investment has been
made to cope with massive rural-to-urban migration.
In urban areas, installed capacity is estimated, on
average, at 40 litres per capita per day, for per capita
consumption of 20 litres per day. In peri-urban areas,
however, where most of the poor and most vulnerable
population groups live, consumption falls as low as
5 litres per capita per day. Water utilities, where they
exist, encounter major financial difficulties, due to
inadequate tariff systems, a huge proportion of
unaccounted-for water (between 50 and 60 per cent)
and very poor collection ratios. This situation, together
with the poor skills of available staff, leads to continuing
degradation of the existing infrastructure. Households
rely on fountains, standpipes and truck tank systems
for their water supply.
In the capital city, water is provided by Empresa
Provincial de Aguas de Luanda (EPAL) and, in informal
settlements, by informal private operators. Water sold
by private truck tanks is much more expensive ($10/m3
as against less than $0.50/m3). EPAL maintains 100 000
connections, thus providing water to fewer than
1 million people through home connections or a prepaid fountain system. Considering the overall
population of Luanda (close to 5 million) and the
obsolescence of the hydraulic network, which dates
back to the Portuguese period, the service provided is
plainly inadequate. The network, measuring
570 kilometres, needs considerable investment, in
terms of both length and capacity, and water quality
controls should be introduced. However, the extension
of the network to peri-urban areas would require an
urbanisation plan, which does not exist.
© AfDB/OECD 2007
In rural areas, safe water sources are in most cases
standpipes – generally boreholes with hand
pumps – where water is free of charge. Up to 50 per
cent of all standpipes are out of order, however, due to
lack of spare parts and of maintenance in general. This
situation obliges most people to rely on a seasonal
supply of surface water, which they must often travel
considerable distances to collect. It is important to
stress that this broad picture masks huge inequalities
between provinces, due to the extent to which different
areas were hit by the war, to the presence of national
and international NGOs, and to the different
management models chosen by each province.
Since the secondary legislation (regulatory
framework) attached to the 2002 Water Law is still
waiting for approval by the government, each province
can still choose its own management model for the
water system. At central level, all water affairs are under
the responsibility of the Ministry of Water and
Electricity, which plays the role of regulatory authority,
whereas technical support and operational supervision
for the provincial departments is handled by the
National Water Directorate (Departamento Nacional
de Agua). In turn, provincial agencies create local units
at town and community level (brigadas das aguas and
grupos de agua e saneamento). This design, associated
with the more general process of decentralisation, is only
partially implemented, however, as local units are either
inexistent or not officially recognised by the central
government. Where the budget is concerned, the system
also remains mostly centralised, with central and
provincial governments allocating funds to local units.
Data collection and processing in Angola remain
very poor. It is therefore very difficult to have reliable
quantitative estimates of access to safe water and
sanitation. At the national level, the 2001 UNICEF
Multiple Indicator Cluster Survey sets the percentage
of population with access to safe water at 62 per cent
and to sanitation at 59 per cent, but these figures are
widely believed to overestimate access. A later estimate,
produced by UNICEF in 2002, suggests that just
34 per cent of the urban population has access to safe
water, this figure rising to 39 per cent for rural areas.
This picture places Angola among the worst performers
117
Angola
in Africa, despite its higher than average GDP per
capita.
Sanitation is even more neglected. Only 59 per
cent of the urban population has access to sanitation,
whereas in rural areas this percentage falls to 26 per cent.
Even in urban areas, the high population density and
the concentration of human and non-human waste
can produce dramatic health emergencies, such as the
cholera epidemic that afflicted Luanda and other major
towns in 2006. Besides Luanda, only four cities have
waterborne sewage systems, and in all cases these serve
only very central areas covering 17 per cent of the
urban population.
118
As part of a Water and Sanitation Development
Strategy, the government has identified the needs and
deficiencies of the current system and formulated an
ambitious 14-year programme to develop the sector.
The strategy, which would require investment of up to
$3 billion, calls for a 70 per cent increase in improved
water production and the construction of 927 fountains
and 1 060 wells. As for sanitation, the government’s
objective is to reach an access rate of 85 per cent in urban
areas and 65 per cent in rural areas by 2016. Considering
the magnitude of the financial and institutional efforts
required and the slow pace of improvements recorded
so far, however, it is unlikely that Angola will achieve
the Millennium Development Goal (MDG) of reducing
by half the percentage of people not having access to
safe water and sanitation.
The Water Law provides for the creation of water
utilities (empresas de agua) for water treatment and
distribution at provincial level. Although the target is
to create one empresa per province by 2010, only a few
small urban centres have already created their water
companies, apart from EPAL in Luanda. The World
Bank’s Urban Rehabilitation and Environment Project
for Benguela and Lobito Province (PRUALB) led to
the establishment of such companies for the cities of
Lobito and Benguela, and in Soyo and Caxito private
companies owned by Angolans were given licences to
operate the water system, with the assets remaining
the property of the state. As a matter of fact, although
the huge investments required for the rehabilitation and
construction of infrastructure constitute a major
disincentive for private companies to enter the sector,
the Water Law provides for the entry of private operators,
specifying the rights and duties associated with grants
and licences, as well as the terms under which they can
be delivered.
Since the central government provides only 50 per
cent of EPAL’s overall financing, other sources of
technical and financial support are clearly needed for
expanding the system. With only a limited role foreseen
for the private sector, external donor support will
continue to be important in Luanda and elsewhere. The
main external partners are China (construction and
rehabilitation of infrastructure), Brazil (construction of
water treatment facilities and technical assistance) and
the European Commission (technical assistance). Since
2003, the Portuguese co-operation agency has been
assisting in the restructuring and modernisation of
EPAL, providing technical assistance and capacity
building.
Long
in
gestation,
the
presidential
elections – initially scheduled for September 2006 and
now unlikely to be held before mid-2008 – are supposed
to constitute a milestone in national reconciliation and
the consolidation of democratic institutions. The basic
procedures are now in place following the establishment
of a national electoral commission, completion of the
electoral census and of the corresponding voter registry,
and the courts’ ruling that President Eduardo dos
Santos can serve three consecutive terms of office.
Reasons for the delays of the process include abundant
technical problems (to name just one, the size of Angola’s
population is unknown), friction within the ruling
Movimento Popular de Libertação de Angola (MPLA)
and the difficulty in building the necessary trust between
the MPLA and opposition parties. Although the MPLA
seems sure to remain in power, in each of the opposition
parties there are separate fringes that, despite the
authorities’ efforts to co-opt them, may refuse to
acknowledge the verdict of polls and stir up ethnic
© AfDB/OECD 2007
Angola
tensions. In fact, the peace agreement reached in mid2006 with the secessionist movement in Cabinda
(Frente para a Libertação do Enclave de Cabinda –
FLEC), which would include the appointment of new
vice-ministers in some areas, was quickly denounced
by some FLEC leaders who were excluded from the deal.
In a post-conflict environment, it is very difficult
for civil society organisations to exercise critical
surveillance over governments’ deeds, and Angola clearly
is no exception. The MPLA extends its control over state
resources to the media, including radio stations and the
press, while the number of people displaced during
the hostilities who have not yet regained their homes
is estimated to be 450 000.
Despite the progress achieved since the end of the
civil war, progress towards good governance is slow
and corruption remains endemic. Transparency
International has ranked Angola at 142nd on the
Corruption Perception Index. Although small
improvements towards democratisation have been
recorded, the parliament does hardly anything to check
the government’s actions and counter balance the
overwhelming power of the presidential elite. In
February 2006, Angola ratified the United Nations
Convention against Corruption, which now requires
domestic legislation to be implemented.
Indicators of living standards are of poor quality and
often rather outdated. The last household spending
survey, covering only 8 provinces out of 16, dates back
to 2001, and the last household living conditions survey
was conducted in 2002. The latter, which is believed
to be more reliable than the former, sets the urban
share of the population as among the highest in Africa.
Rapid urbanisation has had a number of negative
consequences, from the deterioration of living
conditions in overcrowded urban and peri-urban areas
to the abandonment of the countryside and, in
consequence, of many agricultural activities. Since the
population in rural areas is mainly composed of children
and the elderly, food insecurity is an issue (in early
2006, an estimated 800 000 people experienced food
shortages before the main harvest). With the progressive
withdrawal of emergency NGOs and the World Food
© AfDB/OECD 2007
Programme, government has had to take responsibility
for responding to food crises, which it seems to be
doing rather effectively.
The poverty rate was estimated at 68 per cent in
2000/01, with 28 per cent of the national population
living in extreme poverty. Inequality in income
distribution is among the highest in the world (62 per
cent), and it is on the rise. In Luanda, the striking
wealth of a small minority stands in sharp contrast to
the harsh poverty of the large majority, a phenomenon
that is certainly a root cause of widespread frustration
and a rising crime rate. Although Angola enjoys one
of the highest rates of per capita GDP growth in the
world, there are few indications that the country will
achieve any of the MDGs by 2015. This predicament
underscores the responsibility of the government and
the private sector, domestic and foreign, to do more
to foster human development together with growth.
Implementation of the interim Poverty Reduction
Strategy Paper (drafted in 2004 and never formally
approved) would support the social sectors, which still
receive a very small share of the national budget.
Despite the end of the war, the living conditions of
the Angolan population have been deteriorating in
recent years, life expectancy is only 40 years (UNFPA,
2005) and health indicators are among the worst in
the world. The under-five child mortality rate rose from
250 per thousand in 2001 to 260 per thousand in 2004,
the second highest rate in the world, while maternal
mortality (1 400 to 1 700 per 100 000 births) also
remains very high because of the very low rate of assisted
deliveries, which decreased from 24 per cent in 2001
to 22.5 per cent in 2003. The incidence of malaria,
which is one of the most frequent causes of child and
maternal death, increased in the 2000-03 period,
afflicting 22 per cent of the population as against 16 per
cent in 2000. Other major causes of death are diarrhoea
and respiratory diseases. Vaccination coverage for infants
is rather low, ranging from 75 per cent for tetanus to
46 per cent for polio, and 43 per cent of routine
Expanded Programme on Immunisation (EPI)
vaccinations are financed by the government (UNICEF,
The State of the World’s Children 2006). Another
indication of the progressive deterioration of the living
119
Angola
120
conditions of Angolans, especially in urban areas, is the
severe cholera epidemic that struck Luanda and other
towns in 2006 in 10 of the 16 provinces, the illness
having been transmitted through contaminated water.
The epidemic affected 56 213 people between February
and October, and caused more than 2 300 deaths.
schools. The main innovations brought about by the
reform include the restructuring of the school system with
the creation of a compulsory primary school of six years
(ensino primario), updating of the curriculum and teaching
methods (using a child-centred methodology), and a
maximum pupil/teacher ratio of 35.
Many obstacles hamper progress in health services
quality and delivery. These include the low priority
given to primary health care by the government,
insufficient numbers of qualified staff, inefficient
co-ordination mechanisms between different levels of
the public administration and with other sectors (as well
as donors), and inefficient management structures.
The Ministry of Health is still to approve a national
policy and a medium-term strategy that could provide
guidance on tackling vertical programmes.
The demand for education exceeds supply and is
rising. The evidence for this is a gross enrolment rate
above 100 per cent, whereas net enrolment remains very
low (around 50 per cent in 2003), at least when
compared to other African countries. Access remains
problematic for many Angolan children, as only 22 per
cent of children enter primary school at age six. The
reasons for this are manyfold. Since the system is
decentralised, access to schooling and the quality of
teaching are not uniform, and in general rural areas suffer
from a lack of financial resources, resulting in fewer
schools and less well-trained teachers. In particular,
the expansion of the education system has been more
rapid in the littoral area, which accounted for more than
60 per cent of primary pupils, as against almost 39 per
cent in the central areas in 2004. The quality of teaching,
although superior in urban areas, remains very poor.
Nevertheless, the social context is crucial for educational
achievement, and living conditions are often worse in
peri-urban areas than in rural areas – hence the low levels
of learning achievement recorded in some areas of
Luanda. Finally, although schooling is supposed to be
free of charge, in most cases families are obliged to pay
a fee to the teacher in order to let the child attend
school, and learning materials are rarely provided for
free. The result of all this is very low achievement rates
(30.6 per cent in 2003), high repetition rates (26.3 per
cent in 2003) and high dropout rates. In its Poverty
Reduction Strategy Paper, the government has set
ambitious objectives, although the budget share allocated
to the education sector still remains inadequate (7.14 per
cent in the 2005 budget).
HIV/AIDS prevalence is officially one of the lowest
in the region (2.7 per cent according to 2005 local
estimates) owing to the country’s isolation during the
years of war. However, the lack of statistical information
and poor quality of surveillance centres suggest that
actual HIV/AIDS prevalence might be much higher.
Moreover, it seems that the national rate masks large
regional disparities: border areas, where international
mobility is easier, exhibit prevalence rates as high as
10.4 per cent (e.g. Cunene province). Hence, the
increased openness of the country, due to political
stabilisation and peace, could cause an increase in the
national rate, especially when one considers that the
population has limited knowledge of the illness and its
transmission channels.
On the positive side, some progress has been recorded
in education. Since the end of the war in 2002,
government
efforts
to
increase
school
enrolment – through the construction and rehabilitation
of schools and the recruitment and training of
teachers – have led to a measurable increase in enrolment
rates. Since 2003, the government has continued the
recruitment campaign, and the number of teachers at
the primary level is estimated to be around 80 000. In
2006, a reform of the public education system was finally
implemented nationwide, after an initial experiment
with a pilot project started in 2003 in 5 per cent of
© AfDB/OECD 2007
Benin
Porto-Novo
key figures
•
•
•
•
•
GDP per capita, $ PPP valuation (2006)
113
8 703
1 159
55.5
65.3
Benin
B
slowdown in
growth since 2001, from 6.2 per cent in 2001 to 2.9 per
cent in 2005. This has been caused by low cotton
prices, high oil prices, appreciation of the CFA franc
in real terms and the need to restructure the principal
sectors of the economy (cotton, oil, electricity and
telecommunications). Nevertheless, indicators for 2006
improved in comparison with 2005 and the overall
outlook is quite positive. For example, inflation has
slowed down, public and private investment ratios
have increased and the trade deficit has been reduced.
In spite of electoral expenditures, the budget deficit in
2006 fell by 0.2 per cent. GDP growth increased from
2.9 per cent to 4.5 per cent between 2005 and 2006,
with predictions for increases of 4.5 per cent and 4.8 per
ENIN HAS EXPERIENCED A GRADUAL
cent in 2007 and 2008 respectively. However, improving
performance in coming years will be highly dependent
on the ability of the Beninese economy to diversify its
production. At present, the economy relies too heavily
on the cotton sector in a relatively unfavourable
international context, as well as on the activity of the
Port of Cotonou, although Donors released important
relations with neighbouring resources to finance
Nigeria have not entirely infrastructures and social
returned to normal.
programmes but the economy
is still too dependent on cotton
Benin faces a number of and the Port of Cotonou.
challenges, the greatest of
which is the fight against corruption and poverty. The
newly-elected President confirmed that improvements
123
■ Benin - GDP Per Capita (PPP in US $)
■ West Africa - GDP Per Capita (PPP in US $)
——— Benin - Real GDP Growth (%)
7
3500
6
3000
5
2500
4
2000
3
1500
2
1000
1
500
0
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
Source: IMF and INSAE (National Institute of Statistics and Economic Analysis) data; estimates (e) and projections (p) based on authors’
calculations.
http://dx.doi.org/10.1787/801167070428
© AfDB/OECD 2007
Benin
in governance and transparency were key elements in
his political programme and these were mentioned as
priorities in the Poverty Reduction Strategy Paper
(PRSP). Corruption is a perpetual problem affecting
the business climate and Benin’s Corruption Perception
Index ranking in 2006 was even worse than it was in
2005. Furthermore, the country has fallen behind in
the implementation of structural reforms. The
privatisation programme is making little progress and
the cotton, electricity and telecommunications sectors
require profound restructuring.
124
As regards social performance, Benin remains one
of the poorest countries in Africa, with a per capita GDP
at purchasing power parity of $1 159 in 2006, as against
an average of $2 844 in Africa. Despite some recent
improvements, health and education conditions are
often deplorable. Expenditure on infrastructures has
increased significantly and donors have allocated large
amounts of funding in this respect. The Millennium
Challenge Account (MCA) recently made a grant of
$307 million to Benin to help it achieve the Millennium
Development Goals (MDGs). In the areas of water
and sanitation, the goals of access to both by 68 per
cent and 51 per cent respectively of the total population
stand a relative chance of being achieved by 2015, due
to the fact that financial flows and amounts invested
by donors are substantial. In 2004, the coverage rates
were 48 per cent for drinking water and 40 per cent
for sanitation.
From the political point of view, 2006 was notable
not only for the smooth running of the presidential
elections, but also for the victory of independent
candidate Boni Yayi bringing into question the influence
of traditional political parties. The legislative elections
of 2007 and the district elections of 2008 should enable
Benin to take stock of these new internal political trends.
The two main sectors that generally determine
Benin’s growth rate are agriculture (the cotton sector)
and services (the activity of the Port of Cotonou). The
principal weak points of the Beninese economy are
poor production diversification and the dependence of
trade on the status of relations with the Nigerian
authorities.
GDP grew from 2.9 per cent in 2005 to 4.5 per
cent in 2006. The poor result in 2005 was mainly
linked to the significant fall in cotton production.
However, a revival in cotton production and the gradual
recovery of re-exporting activities enabled the country
to register 1.6 percentage-points of additional growth
in 2006. Growth is expected at 4.5 per cent and 4.8 per
cent in 2007 and 2008 respectively, subject to rapid
resumption of trade with Nigeria and satisfactory
continuation of the present restructuring of the cotton
sector.
The primary sector, which accounted for 35.9 per
cent of GDP in 2005 and employed almost 54 per cent
of the population, is dominated by cotton production.
The cotton sector represents around 10 per cent of
GDP and approximately 350 000 cotton producers
support almost 40 per cent of the population of Benin.
However, recent developments have not been very
favourable. Cotton production only reached
190 700 tonnes for the 2005/06 harvest, compared
with 427 000 tonnes for 2004/05. This fall is related
to delays in payments to farmers and insecticide
distributors and to the uncertainties linked with the
privatisation programme and the sector’s future.
Production has been damaged by recent insect
infestations, together with the poor quality or
unavailability of pesticides and insecticides. Production
was originally expected by the Cotton Inter-Professional
Association (AIC) to reach 300 000 tonnes, but is
now not expected to exceed 250 000 tonnes in
2006/07. Moreover, producer prices have fallen along
with world market prices. After long negotiations
between the various actors in the sector, prices for
2006/07 were set at 170 CFA francs per kilogramme
for first-grade quality cotton, compared with 185 CFA
francs the year before and at 120 CFA francs for
second-grade quality cotton, compared with 135 CFA
francs in 2005/06. These prices are nevertheless higher
than those of neighbouring producer countries and
spinning enterprises in Benin have been worried about
potential losses.
© AfDB/OECD 2007
Benin
Other services
(percentage)
Agriculture
18.8%
24.8%
Government Services 11.7%
11.1%
0.3%
5.8%
18.7%
Trade
Forestry, livestock and fisheries
8.7%
Manufacturing
Energy and construction
Other industry
Source: Authors’ estimates based on INSAE data.
http://dx.doi.org/10.1787/577244142618
The cotton sector is in need of restructuring.
Primarily, the government should continue to withdraw
from the sector, particularly from the public ginning
company Sonapra (National Company for Agricultural
Promotion). The government is generally responsible
for ensuring respect for property rights and for
competition in the sector. It has therefore to establish
transparency and a genuine market system for all aspects
of supply, credit and sales. The government has finally
promised to reimburse the payment arrears due to
cotton producers and demonstrated its goodwill by
paying out 2.9 billion CFA francs in October 2006
(equivalent to one-fifth of the total amount).
In 2005, the secondary sector, representing 14.8 per
cent of GDP and 10 per cent of the active population,
made a negative contribution to GDP growth. Apart
from cement and import-substitution products for
basic imports (such as staple food products), industrial
production mainly consists of cotton transformation
industries. In 2005, there was a fall in the value-added
of manufacturing industries due to the reduction in
cotton production, but also due to increased
competition from Asian textile products. Creation of
a new spinning enterprise is planned however, which
should begin production in June 2007. Only the
construction sector and the cement industry showed
positive results, having benefited from the principal
donors’ projects for infrastructures, especially for roadconstruction.
The tertiary sector, consisting mainly of trade with
neighbouring countries and transport, contributed
© AfDB/OECD 2007
almost 49.2 per cent of GDP and employed 36 per cent
of the active population in 2005. Nigeria’s partial
cancellation in November 2004 of the ban on imports
of products from Benin permitted an upturn in reexport activities, but administrative difficulties remain.
Furthermore, in spite of an increase in goods traffic at
the Autonomous Port of Cotonou (PAC) due to
problems with insecurity, rates of return have remained
fairly low (3 per cent in 2005, compared with 5 per
cent in 2004). Moreover, the Port of Cotonou is facing
increased competition from the Port of Lomé (Togo).
Nevertheless, the volume of goods traffic increased in
2005 by 29.8 per cent and the total value of goods traded
was 12.9 billion CFA francs. During the first eight
months of 2006, trade was equal to the first eight
months of 2005, but the destinations for traded goods
changed. The volume of goods traffic with Togo fell
by 67.7 per cent, while it increased with the landlocked
countries of Mali, Burkina Faso and Niger by 133.4 per
cent, 52.6 per cent and 25.5 per cent respectively. The
volume of official goods traffic with Nigeria increased
at a slower rate by 10.5 per cent. Beninese enterprises
still face difficulties in exporting to Nigeria, even after
fulfilling all of the required conditions. They are required
to certify the origin of their products and to register
with ECOWAS (Economic Community of West
African States). Re-export activities represented 40.5 per
cent of total exports in 2005, compared with 41.2 per
cent in 2004 and 52.8 per cent in 2002.
Besides these sectoral developments, private
consumer and investment demand both remained fairly
weak in 2005. The total investment rate stood at 18.2 per
125
Benin
1998
(percentage of GDP)
2005
2006(e)
Percentage of GDP
(current prices)
2007(p)
2008(p)
Public
Private
18.2
4.7
13.4
18.2
8.0
10.2
13.5
25.0
4.5
7.6
10.0
5.4
8.4
11.0
5.9
Consumption
Public
Private
87.3
13.1
74.1
88.8
12.0
76.8
3.2
-1.0
3.7
4.6
4.6
4.6
4.9
4.3
4.9
-5.4
27.1
-32.5
-7.0
21.6
-28.5
5.0
5.2
6.0
7.0
6.8
8.1
External sector
Exports
Imports
Source: National authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/508688751685
126
cent, as against 20.7 per cent in 2004, due to a reduction
in private investment. The growth rate of private
investment by volume is nevertheless expected to
accelerate slightly in 2007 (5.4 per cent) and 2008
(5.9 per cent), in reflection of long-awaited
improvements in the business climate and economic
governance. The upturn in total investment in 2006 to
20 per cent of GDP was chiefly due to public investment,
with a growth rate by volume of 25 per cent. In the
external sector, exports are expected to stabilise at
approximately 21.6 per cent of GDP as trade relations
between Benin and Nigeria return to normal.
As regards macroeconomic policy, Benin has
continued to pursue the reform programme begun
with the IMF under the Poverty Reduction and Growth
Facility programme (PRGF) for the 2005-08 period.
At the time of the first review, Benin had not complied
with the condition forbidding the accumulation of
new payments’ arrears1. Nor did it comply with the
condition forbidding new non-concessional borrowing;
a loan totalling $31 million2 over six years was taken
out with a Chinese bank by the public
telecommunications company, Bénin Telecoms.
In 2006, Benin complied with four out of five of
the first-level convergence criteria of the West African
Economic and Monetary Union (WAEMU), as against
three in 2005. The country’s inflation rate was less
than 3 per cent in 2006 (at 2.4 per cent), whereas it
was 5.4 per cent the previous year. On the other hand,
Benin did not succeed in improving sufficiently the basic
budgetary balance as a percentage of GDP. This ratio
should normally be positive or zero, but it was -1.1 per
cent in 2006, as against -1.7 per cent in 2005. Benin
achieved compliance with only one second-level
criterion out of four. The investments-to-internalresources ratio as a percentage of GDP was higher than
20 per cent (22.8 per cent in 2005 and 23.8 per cent
in 2006). The wage bill as a percentage of fiscal revenue
ratio was 37.7 per cent in 2006 (compared with an
objective of 35 per cent). The current account deficit
(excluding official transfer payments) amounted to
7 per cent of GDP, whereas the threshold is 5 per cent
and the tax burden, which was 15 per cent in 2006,
would have needed to be above 17 per cent to achieve
compliance.
Fiscal Policy
The main objective of budgetary policy is to generate
additional tax revenue and restrict current expenditure,
1. Payment arrears amounted to $62.6 million in 2005.
2. The rate applied for converting CFA francs to dollars is 100 CFA francs = $0.20.
© AfDB/OECD 2007
Benin
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Grants
17.5
12.6
3.0
18.6
15.1
1.7
18.3
14.6
1.9
18.4
14.5
1.7
19.0
14.6
2.3
19.3
14.4
2.7
19.5
14.5
2.9
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
15.5
9.9
8.9
4.5
1.0
5.5
20.5
13.9
13.3
5.2
0.6
6.7
20.1
13.9
13.6
6.8
0.3
6.1
21.3
15.0
14.7
6.8
0.3
6.3
21.8
14.1
13.9
6.3
0.2
7.6
22.0
14.1
13.8
6.2
0.3
7.9
22.4
14.0
13.8
6.1
0.3
8.3
3.0
2.0
-1.3
-1.9
-1.4
-1.7
-2.6
-2.9
-2.5
-2.7
-2.4
-2.7
-2.6
-2.8
Primary balance
Overall balance
in order to release capital for investment in priority
sectors. Until recently the budget deficit, mainly
financed by foreign borrowing, amounted to less than
2 per cent of GDP. The budget situation deteriorated
in 2005 and 2006 following the agreement to subsidise
the cotton sector, expenditure on poverty reduction and
the organisation of the presidential elections. The total
budget deficit went up from 1.7 per cent in 2004 to
2.9 per cent in 2005. It then fell to 2.7 per cent in 2006.
It is expected to remain at around 2.7 per cent of GDP
in 2007 and 2008.
Revenue increased due to reforms in fiscal
administration and tax collection as well as an increase
in grants, which went up from 1.7 per cent of GDP
in 2005 to 2.3 per cent in 2006. These are expected
to account for an even greater proportion of GDP in
2007 (2.7 per cent) and in 2008 (2.9 per cent). However,
in order to limit the impact of the rise in oil prices on
consumer prices, the authorities have eliminated the
specific tax on oil and gas. Revenue increased from
18.4 per cent of GDP in 2005 to 19 per cent in 2006
and this is expected to continue to rise in 2007 (19.3 per
cent) and in 2008 (19.5 per cent). These estimates
depend on the current implementation of financial
administration reinforcement, on the introduction of
“one-stop” customs clearance procedures and on the
strict monitoring of tax exemptions.
Expenditure is expected to increase in 2007 and
2008, after rising from 21.3 per cent to 21.8 per cent
© AfDB/OECD 2007
http://dx.doi.org/10.1787/522276267850
of GDP between 2005 and 2006. However, while
current expenditure represented a smaller proportion
of GDP (14.1 per cent in 2006, as against 15 per cent
in 2005), capital expenditure increased. It rose from
6.3 per cent in 2005 to 7.6 per cent in 2006 and is
expected to represent an increasing proportion of GDP
in 2007 (7.9 per cent) and 2008 (8.3 per cent) due to
funds released by debt relief. The government is planning
major investment in social sectors and infrastructures.
However, the organisation of new elections in 2007 and
2008 is expected to put a strain on current expenditure,
predicted to be approximately 14 per cent of GDP.
Donors are calling for the restructuring of salaries in
public services so that salary increases are merit-related
rather than standard practice. Public-sector salaries are
therefore expected to represent a reduced proportion
of GDP, at 6.2 per cent in 2007 and 6.1 per cent in
2008, as against 6.3 per cent in 2006.
Monetary Policy
Benin’s monetary policy follows that of the Central
Bank of West African States (CBWAS) whose main
objectives are to guarantee price stability and parity
between the CFA franc and the euro. Policy has been
quite strict for many years. Monetary parity has not
changed since 1994. In August 2006, CBWAS raised
its refinancing rate (4 per cent since March 2004) to
4.25 per cent in order to reduce inflationary pressures.
In Benin, following the rise in petroleum-product
prices, the rate of inflation was 5.4 per cent in 2005,
127
Benin
as against 0.9 per cent the preceding year. In 2006,
inflation slowed down to 2.4 per cent because of the
fall in food-product prices. It is expected to be even more
moderate in 2007 and 2008, with estimations of 1.8 per
cent and 2.3 per cent respectively. At the end of 2006,
Benin’s foreign currency reserves at the CBWAS equalled
10 months of imports.
128
Private-sector credit grew by 20.2 per cent in 2005,
compared with 4.5 per cent in 2004. Although the
financial system lacks depth, the majority of banks respect
prudential standards and bad debts represented only
10 per cent of banking assets in July 2006. At that time,
there were 12 commercial banks and 2 leasing companies
operating in the market, along with approximately 100
formal micro-finance institutions. Benin possesses the
largest number of micro-finance institutions in the West
African Economic and Monetary Union (WAEMU).
The sector consists of two main networks: first, the
mutualistic activity of the Federation of agricultural
savings and loan co-operatives (FECECAM), by means
of which collected savings are converted into loans and
second, direct-credit institutions which obtain funding
from the financial markets. At an interest rate of 2 per
cent per month, the cost of micro-finance remains far
below the market price. Nevertheless, some sectors such
as handicrafts have not benefited much from the loans
provided; the financing of agriculture and trade has
received more priority. No Beninese company is quoted
on the West African stock exchange.
External Position
Due to its geographical position, Benin plays an
important role in regional trade. Transport is a key
sector in the economy, providing both internal and
international transit services to neighbouring landlocked
countries (Burkina Faso, Niger, Mali) and neighbouring
coastal countries (mainly Nigeria). Trade with Nigeria
has been marked by complaints by Beninese private
transport operators about non-observance by the
Nigerian authorities of trade regulations signed by both
countries. However, efforts presently under way to
redefine the common border between Nigeria and
Benin and to relax the restrictions on Beninese imports
into Nigeria, should allow trade relations between the
two countries to return to normal.
In 2005, China was the leading export destination
country and the principal provider of Beninese imports.
China accounted for 44.2 per cent of Benin’s exports
and 39.1 per cent of imports. France is the country’s
second trade partner and its principal bilateral donor.
Benin exports mainly cotton and textile products
(which represent 72 per cent of foreign exchange
revenue) and re-export products. In return, it imports
food products (31.2 per cent of total imports in 2005)
and petroleum products (14.7 per cent of total imports
in 2005). However, it is difficult to estimate goods
flows due to the large amount of illegal traffic with
Nigeria. Trade liberalisation is much more advanced in
Benin than in Nigeria, which applies high tariffs and
protectionist import barriers. This creates a strong
incentive to smuggle goods between Nigeria and Benin.
For example, the Port of Cotonou is the principal port
of transit for second-hand vehicles in West Africa. The
majority of vehicles are destined for Nigeria although
no declaration to this effect is made when they arrive
in Benin. Conversely, Benin illegally imports most of
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
-6.4
16.9
23.3
-2.0
-0.5
3.6
-7.8
15.2
23.0
-2.3
-1.1
1.9
-6.8
14.0
20.8
-1.8
-0.9
2.3
-6.7
13.1
19.8
-1.3
-0.9
4.5
-6.5
13.6
20.1
-1.2
-0.9
4.2
-5.9
13.9
19.8
-0.9
-0.9
3.5
-6.1
14.0
20.1
-1.1
-1.0
3.5
-5.4
-9.3
-7.1
-4.5
-4.4
-4.2
-4.6
http://dx.doi.org/10.1787/447086538244
© AfDB/OECD 2007
Benin
■ Debt/GDP
——— Service/X
80
70
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
129
http://dx.doi.org/10.1787/318051655382
its petroleum products from Nigeria, where prices are
highly subsidised.
Following the downturn in production in 2006,
cotton exports fell by approximately 25 per cent.
However this decline was compensated by improved
performance in the exports of cashew nuts and reexport products. Total official exports increased slightly,
from 13.1 per cent of GDP in 2005 to 13.6 per cent
in 2006; they are predicted to rise to 13.9 per cent in
2007 and 14 per cent in 2008, provided that cotton
exports recover. Imports made an increased contribution
to GDP between 2005 (19.8 per cent) and 2006
(20.1 per cent) due to the oil-bill burden; they are
expected to remain at about 20 per cent of GDP in the
years to come. The trade deficit diminished during the
period 2002-07. It stood at 6.5 per cent in 2006, as
against 6.7 per cent in 2005 and is expected to decline
further to 5.9 per cent in 2007. Due essentially to a
reduction in the trade deficit, the current account
balance deficit has continued to diminish during the
period 2003-07. It went down from 4.5 per cent in 2005
to 4.4 per cent in 2006 and it is expected to reach
© AfDB/OECD 2007
4.2 per cent and 4.6 per cent in 2007 and 2008
respectively. As regards the capital account, foreign
direct investments were poor, amounting to only
$21 million in 2005, as against $64 million in 2004.
In spite of the country’s political stability, investors are
discouraged from placing funds in Benin due to bad
governance and the uncertainties that affect the two
principal economic activities, primarily a climate of
unpredictability in the cotton sector and relations with
Nigeria concerning re-exports.
In March 2003, Benin reached the completion
point of the Heavily Indebted Poor Countries (HIPC)
Initiative and benefited from total debt relief amounting
to $460 million. Benin also recently benefited from an
amount totalling over $1.14 billion from the Multilateral
Debt Relief Initiative (MDRI). The IMF cancelled
$62.6 million; the World Bank, $710 million; and the
African Development Bank, $368 million.
The ratio of external public debt to GDP was only
23.9 per cent in 2006, compared with 47.7 per cent
the preceding year. Debt service represented 15.3 per
Benin
cent of exports of goods and services in 2006, as against
14.8 per cent in 2005. It is expected that these two ratios
will continue to decline in 2007 and 2008.
Structural Issues
Recent Developments
Benin offers considerable advantages for privatesector development, namely political stability, a viable
commercial banking sector and existing port and airport
infrastructures. Benin’s geographical position also
favours its role as gateway and best through-route to
the hinterland countries (Niger, Burkina Faso) and
Nigeria. Benin’s private sector succeeded very early on
in taking advantage of these opportunities and in
confirming the country’s position as a hub of the region’s
economy.
130
The authorities have pledged to tackle the cotton,
electricity and telecommunications sectors and the
management of the PAC (Autonomous Port of
Cotonou) through a programme of structural reforms.
Progress with reforms has nevertheless been slow and
privatisation has faltered. In March 2006 for example,
the privatisation of cotton enterprise Sonapra was
postponed until 2007. The privatisation of Bénin
Télécoms and The Benin Electricity and Water Company
(SBEE) has been postponed to 2008/09. Moreover,
Sonacop (Benin Petroleum Company) has suffered
from operating and governance problems since
privatisation in 1999, with the result that the Beninese
people have turned to the black market for their
petroleum-product requirements. In March 2006,
approximately 75 per cent of demand was met by illegal
imports from Nigeria, at prices lower than those on the
official market. However, the government (which holds
45 per cent of Sonacop) decided to regain control of
the enterprise in order to take in hand petroleumsupply difficulties and plan for a more successful
privatisation.
In the energy sector, the country suffered in 2006
from the disruption of electricity supplies and the
Beninese people had to face frequent power cuts.
Electricity is imported from Ghana and Côte d’Ivoire
by the Electrical Company of Benin (CEB), which has
experienced cash-flow problems. In addition to these
difficulties, suppliers have reduced their deliveries by
43 per cent since May 2006 because of low waterlevels in the principal dams, gas-supply problems in Côte
d’Ivoire and the negative effects of increased oil prices
on electricity production. However the regional
integration project for West Africa should improve
power distribution with the installation of a highvoltage electrical line running along the coast and
linking up enterprises in Togo/Benin, Côte d’Ivoire
and Nigeria by 2007. This line has the potential to
become a true regional electrical network by 2020.
This first phase of integration will end also with the
construction of a West African gas pipeline which will
enable Ghana, Togo and Benin to receive supplies of
gas from Nigeria.
Regarding the business climate, the country’s ranking
in Transparency International’s 2006 Corruption
Perception Index went down from 88th place (out of
159 countries in 2005) to 121st place (out of 163
countries in 2006). Promoting governance is one of the
strategic lines of the Poverty Reduction Strategy Paper
(PRSP). The new president also announced that one
of his priorities would be to fight against corruption
and bad governance. Several financial audits have
consequently been carried out in various ministries
and public services. These showed that corruption was
extensive and were followed up by sanctions, sending
out a strong signal that the authorities are determined
to fight against this affliction. In 2006, two former
directors and several members of staff of public
companies were arrested for embezzlement.
Benin possesses substantial water resources, but
these are unequally distributed throughout the country.
Resources and potential waterways are mainly located
in the south, with lakes and lagoons constituting
important reservoirs of water, while the centre and
north of the country suffer from a water resource deficit.
Average annual rainfall in Benin is 800 mm in the
north and 1 500 mm in the south. The coastal
© AfDB/OECD 2007
Benin
sedimentary basin, covering 10 per cent of the total area
of the country, holds about 32 per cent of potential
groundwater reserves.
The exploitation of water resources remains limited
and utilisation of groundwater from basal zones where
borehole flows are low is difficult. Overall, there is a
great deal of pressure on existing water resources, in both
urban and rural areas.
The water sector is under the control of the Ministry
of Mines, Energy and Hydraulics. In urban areas, the
National Water Company of Benin (Soneb) is an
autonomous public enterprise with responsibility for
drinking-water supply. The General Directorate of
Hydraulics (DGH) has this responsibility in rural areas,
but is essentially involved in infrastructure projects,
since management is the responsibility of municipal
bodies and consumer associations. Under the supervision
of the Ministry of Public Health, the Directorate of
Hygiene and Basic Sanitation (DHAB) shares the
responsibility for sanitation in both urban and rural areas
with Soneb and the communities themselves, as well
as with certain departments of the Ministry of
Environment, Housing and Town Planning and of the
Ministry of Public Works and Transport. The Beninese
authorities are unwilling to privatise the water sector
since they regard it not just as a commercial sector, but
above all as a public utility. In this sector, social
imperatives have taken precedence over considerations
of mere financial profitability.
Figures for 2004 show a coverage rate of 48 per cent
of total population for access to drinking water (37 per
cent in 1990) and 40 per cent for access to sanitation
(14 per cent in 1990). The MDG could therefore be
achieved by 2015 if the present financial flows continue
and if the country continues to increase its coverage
rates according to present trends. The goal is to achieve
access to drinking water for 68 per cent of the population
and sanitation for 51 per cent by 2015. Financing
requirements to achieve this are estimated at
$26.8 million per annum for the water sector and
$18.7 million per annum for sanitation. Substantial
progress has been made in access to sanitation and to
a lesser extent in access to drinking water, particularly
© AfDB/OECD 2007
in rural areas. While only 2 per cent of the rural
population had access to sanitation in 1990, the rate
had reached 19 per cent by 2004. For access to drinking
water, the rate increased from 35 per cent in 1990 to
41 per cent in 2004. Nevertheless, the inhabitants of
many villages still obtain supplies from polluted surfacewater sources.
Access to drinking water by the urban population
was estimated at 57 per cent in 2004. However,
drinking-water consumption is concentrated in the
four large towns in the country (Cotonou, Porto-Novo,
Parakou and Abomey-Bohicon) which alone consume
approximately 80 per cent of the water distributed in
urban areas. Other towns have a fairly low access rate,
although this varies from one town to another and
many town-dwellers resort to using alternative watersupply sources such as wells, rivers, backwaters and
storage tanks.
The situation regarding sanitation is more critical.
The waste-water evacuation rate is estimated at 0.2 per
cent for the country as a whole. This means that
independent sanitation is the most common method
for dealing with waste water. However, this randomly
discharged water pollutes the environment and
groundwater tables and creates breeding grounds for
mosquito larvae and other vectors of disease. The
situation is of particular concern in Cotonou because
of high population density, the extremely hydromorphic
nature of the ground and the shallowness of the
groundwater table (between 0.5 and 3 metres from
the surface). The situation regarding excreta
management is critical, particularly in the smaller
towns. Only the principal towns (Cotonu, AbomeyCalavi, Porto-Novo, Parakou, etc.) possess a sewer
network and have a coverage rate of over 60 per cent.
The overall access rate to adequate facilities for the
evacuation of excreta was estimated at 32.1 per cent
in 2001 (61.6 per cent in urban areas and 14 per cent
in rural areas).
In the smaller towns and in rural areas, a national
strategy was adopted in the 1990s. Most of the measures
come within the framework of the Programme for
Support to the Development of Drinking Water Supply
131
Benin
132
and Sanitation in Rural Areas (PADEAR). This
programme is backed by several donors, who will most
probably be the main source of financing in future years.
based on economics is essential, in order to ensure that
management of Soneb is economically viable.
At national level, the various institutions in charge
of the supervision, exploitation and protection of
resources, as well as the distribution of water and
prevention of water-related hazards, have not always
collaborated sufficiently well with each other; policies
and sub-sectoral strategies have not possessed any overall
coherence. The country has recently embarked upon
an ambitious process of reforms within the framework
of Integrated Water Resources Management (GIRE).
GIRE encompasses updating water laws and the creation
of a co-ordinating unit for the sector, as well as for the
Water Board which is responsible for defining a national
strategy for the sector, as well as setting up four interdistrict agencies throughout the country. Prior to this,
Benin possessed a set of legislative texts relating to
water sector and sanitation management that no longer
adequately reflected reality. For example, water law
was inaugurated by an act of September 1987, but
there were never any subsequent decrees to apply it.
The recent extensive legislative reform concerning
water now makes it necessary for related issues be taken
into account, notably decentralisation and devolution,
integrated resources management, contracting
procedures and the reinforcement of the role of women
and the private sector.
The most significant obstacles to the development
of the water and sanitation sectors include the
obsolescence of drinking-water supply systems, the
increasing quantity of rehabilitation works that are
needed and especially, the high costs of water and
sanitation equipment. Moreover, complex procurement
procedures for goods, works and services create real
bottlenecks in project implementation. One of the
greatest challenges in urban areas is the question of
billing and the financing of Soneb. The pricing system
for water consumption is inappropriate, as sale prices
do not cover the real costs of production and
distribution. The system, which applies two price
brackets, is based on a national equalisation scheme to
guarantee the continuity of drinking-water supply to
small towns and villages. Setting up a pricing system
The country has been politically stable for many
years. Benin was one of the first countries in Africa to
set up a liberal democratic political regime with the
separation of powers and a full multiparty system.
Freedom of expression is ensured through participation
by a pluralistic press in the debate on all socio-economic
development issues. The political scene was changed
by the presidential election in March 2006, which was
won by independent candidate Boni Yayi; the traditional
parties lost power and their principal leaders were
excluded from the new government team. The country
is presently preparing for the general election of 2007
and the district elections of 2008. These representative
elections should provide an opportunity to evaluate
the influence of the various parties.
A new Poverty Reduction Strategy Paper (PRSP)
is needed for the period 2006-09, since the term of the
previous PRSP ended in 2005. However, delays in its
preparation will probably lead to similar delays in
implementing the strategy for the fight against poverty.
It seems very unlikely that the country will achieve
any Millennium Development Goals (MDGs) other
than those relating to water and sanitation. Considerable
progress has nevertheless been made recently and donors
have pledged substantial resources. In October 2006,
a grant of $307 million (7 per cent of GDP) was
awarded to Benin by the Millennium Challenge
Account (MCA) for projects in education, health and
infrastructures; this grant is expected to be disbursed
over a period of five years.
Almost 28.5 per cent of the population of Benin
was living below the national poverty line in 2002 (as
against 29.6 per cent in 1999/2000). Although the
average has decreased, inequality among the poor
nonetheless increased between 1999 and 2002 due to
an increase in the severity of poverty in urban areas.
Generally, however, monetary poverty was more
© AfDB/OECD 2007
Benin
prevalent in rural areas (31.6 per cent in 2002) than
in urban areas (23.6 per cent in 2002). Approximately
15 per cent of the population of Benin suffered from
hunger during the period from 2000-02.
In the social sector, years of under-investment have
led to completely ineffective education and health
systems. The 2006 Human Development Index ranked
the country 163rd out of a total of 177 countries. One
challenge is the level of demographic pressure, given
that the fertility rate was still 5.6 children per woman
in 2005 and the population increased by 3.2 per cent
during the period 2000-05. Consequently more than
44 per cent of the population is under 15 years old.
Life expectancy was 53 years for men and 54.5 years
for women, for the period 2000-05.
Years of laxity in the health sector have translated
into poor indicators, with the root cause of numerous
diseases and epidemics being deplorable socioenvironmental and living conditions. According to
data provided by the national health information system,
the five principal disorders in 2002 were: malaria (37 per
cent); acute respiratory infections (16 per cent); gastrointestinal diseases (8 per cent); diarrhoeal diseases (6 per
cent) and injuries (6 per cent). As regards transmissible
diseases, the Extended Vaccination Programme gave
good results and lowered infant mortality. In 2003,
for children aged under 5 years, the vaccination coverage
rates were 99 per cent against tuberculosis and 83 per
cent against measles. Despite these positive results, the
infant mortality rate was 100.6 per thousand in 2005.
At the end of 2003, approximately 62 000 adults were
infected by HIV, of whom more than 56 per cent were
women. The adult prevalence rate was 1.9 per cent, but
the growth rate of the epidemic is disturbing.
Approximately 34 000 children had lost at least one
parent due to the disease.
In 2002, Benin adopted a National Policy for the
Promotion of Women and since then, numerous
feminist non-governmental associations have been
created. In 2003, family law was changed in order to
conform to the Constitution. The policy established
equality between men and women, prohibited genital
mutilations and refused to recognise polygamy. This
© AfDB/OECD 2007
law also authorised ownership of means of production
for women. The abolition of school fees for girls is also
one of the supplementary measures that has been taken
to promote gender equality. In reality, however, the
female population of Benin remains somewhat
marginalised. Almost 97 per cent of working women
are part of the informal economy, mostly in rural areas.
Moreover, the illiteracy rate for women was 71.6 per
cent in 2005, compared with 41.2 per cent for men.
Benin is also known to be a hub for child trafficking.
Because of persistent poverty, poor parents entrust
their children to “smugglers” who are supposed to take
responsibility for their education, in exchange for
amounts ranging from 10 000 to 20 000 CFA francs
(EUR 15 to 30). According to reports by the United
Nations Children’s Fund (UNICEF), these children are
then sold on for ten times these amounts to large farms,
particularly cocoa and sugar-cane plantations in
Cameroon, Gabon, Côte d’Ivoire and Nigeria.
Significant progress has been made in education at
all levels of the educational system due to the efforts
of the authorities and the financing opportunities
opened up by the Education for All - Fast-Track
Initiative (EFA). The goal is to achieve universal primary
education by 2015. In primary education, the net
enrolment rate went up from 45 per cent in 1990/91
to 58 per cent (47 per cent for girls) in 2002/03. Benin
is therefore still far from achieving universal education
and sustained effort will be required with regard to the
education of girls. Moreover, the results within primary
education remain poor, with high rates of school year
repetition (23.6 per cent in 2003) and dropping-out
(13.5 per cent in 2003). Out of 100 children entering
the first year of primary school, only 68 reach the fifth
year. In secondary education, the net enrolment rate
was 20 per cent in 2002/03 (13 per cent for girls). The
gender parity index (which approaches one as parity
is achieved), went from 0.42 in 1997 to 0.48 in 2002/03,
thus indicating a slight reduction in the difference
between boys and girls. Due to the low efficiency and
inadequate capacity of state schools, the increase in
pupil numbers in private education is substantial (from
about 12 000 pupils in 2001 to over 50 000 in 2003).
133
.
Botswana
Gaborone
key figures
•
•
•
•
•
582
1 760
GDP per capita, $ PPP valuation (2006/07) 11 611
34.4
18.8
Botswana
ZAMBIA
i Strip
C
Capriv
Windhoek
O
ka
va
e Kasane
hob
ZIMBABWE
ngo
NAMIBIA
ANGOLA
Bulawayo
Nata
Maun
Lake Ngami
Sua
Francistown
Ghanzi
Lake Xau
Sha
Selebi- Phickwe shi
KALAHARI DESERT
po
Li m
po
Sekoma GABORONE
Jwaneng
Kanye
Johannesburg
Tshabong
Cape Town
SOUTH AFRICA
0
100 km
main airport
major road
500 000 - 1 000 000
secondary road
100 000 - 500 000
railway
commercial port
< 100 000
track
petroleum port
town > l million inhabitants
secondary airport
fishing port
M
and prudent use of
diamond export earnings have catapulted Botswana, a
low-income country half a century ago, to its current
status as an upper middle-income country. Real GDP
growth has averaged more than 9 per cent annually over
most of the past four decades. Although there was a
lull in economic performance starting in the late 1990s,
economic growth has picked up in the last two years.
In 2004/05 and 2005/06 real GDP grew by 8.3 per
cent and 4.2 per cent respectively.
ACROECONOMIC STABILITY
Efforts to create a more diversified economy,
however, have so far had little success, with
mining – largely diamonds – still accounting for a large
share of domestic output and almost all exports. The
government remains committed to reducing dependence
on mining and has recently initiated new measures to
improve the business climate and export
competitiveness. The new National
Excessive dependence
Development Plans (NDPs), the
on the mining sector and
budget and the Vision 2016
the HIV/AIDS pandemic
document have all emphasised the
continues to threaten
need to diversify the economy. The
human development
other major policy priorities are
and economic growth.
poverty, unemployment and
HIV/AIDS. The strategies identified in the Mid-Term
Review of National Development Plan 9 (NDP9,
covering 2003-09) are all aimed at addressing these
challenges in more innovative ways.
The HIV/AIDS pandemic remains the biggest
threat to human development and economic growth
137
■ Botswana - GDP Per Capita (PPP in US $)
■ Southern Africa - GDP Per Capita (PPP in US $)
——— Botswana - Real GDP Growth (%)
14000
12
12000
10
10000
8
8000
6
6000
4
4000
2
2000
0
0
1999/2000
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06(e)
2006/07(p)
2007/08(p)
http://dx.doi.org/10.1787/844335603130
© AfDB/OECD 2007
Botswana
in Botswana. The proportion of people infected with
HIV is still one of the highest in the world. The
government remains committed to finding innovative
ways to address the problem, however, through research,
early detection, new treatment therapies, free
antiretroviral therapy, free testing and ongoing vaccine
trials. The efforts of Botswana’s government are
complemented by the African Comprehensive
HIV/AIDS Partnership, which is a collaborative scheme
between the government of Botswana, the Bill and
Melinda Gates Foundation and the Merck Foundation.
This scheme is expected to continue until 2009.
138
Economic growth in Botswana, though on average
quite good, has exhibited considerable volatility in
recent years. Real GDP growth accelerated from 3.4 per
cent in 2003/04 to 8.3 per cent in 2004/05, but then
decelerated to 4.2 per cent in 2005/06. The slowdown
in 2005/06 is, however, the result of appropriate restraint
in government expenditure and credit to the private
sector. Growth is expected to stabilise at the 4 per cent
level in 2007 and 2008.
The high growth performance in fiscal year 2004/05
was attributable to the mining sector, which grew by
18.2 per cent during the year, as opposed to just 0.3 per
cent in 2003/04. The impressive performance of the
mining sector reflected increased diamond production
in the second half of 2004, making up for lower
production in the first half of the year. Non-mining
GDP, in contrast, grew at the lower rate of 1.9 per
cent in 2004/05, representing a considerable decline
from the 5.6 per cent recorded in the preceding year.
Services were the leading sector in 2004/05, notably
the transport sector, which recorded growth of 5.6 per
cent, and business services, 4.1 per cent. Agriculture
grew at a moderate 3.3 per cent while manufacturing
registered growth of just under 3 per cent.
The mining sector, dominated by diamonds,
contributed over 43 per cent to real GDP in 2005/06.
The services sector, which accounts for 38 per cent of
GDP overall, includes general government services
(15.6 per cent of GDP), financial services (9.2 per
cent), and wholesale and retail trade, including hotels
and restaurants (9.1 per cent). Tourism, although it
contributes only around 4 per cent to GDP, continues
to be Botswana’s second-largest source of foreign
exchange earnings after diamonds.
Agriculture, which was the largest sector in the
1960s, contributed only 2 per cent of GDP in 2005/06.
Agricultural production was adversely affected in 2005
by inadequate rainfall and drought, which hampered
production of food crops. The share of manufacturing
in total domestic output has also exhibited a declining
trend. In 2005/06, the share of manufacturing in GDP
was 3 per cent, in contrast to 8 per cent during the
1970s. Various government initiatives, including those
of the Botswana Export Development and Investment
Agency (BEDIA), have failed to spur diversification.
Although the share of total domestic investment
declined to 34.8 per cent of GDP in 2004/05, from
43.2 per cent in the preceding year, largely on account
Other services
18.1%
Transport, storage and communications
Agriculture
3.8%
2.3%
Government services
Finance and business services
(percentage)
41.7%
7.5%
Mining
3.6%
11.4%
Trade, hotels and restaurants
7.7%
3.9%
Other Industry
Manufacturing
http://dx.doi.org/10.1787/257607704432
© AfDB/OECD 2007
Botswana
of a 23 per cent decline in private investment, the
investment-to-GDP ratio is very high in Botswana by
African standards. The share of private investment in
GDP has risen dramatically since 1998 and is estimated
to have recovered strongly in 2006. Public investment
also declined in 2004/05 but is estimated to have picked
up in 2006. Investment, both public and private, is
projected to continue to grow strongly at around
8 per cent.
1997/98
2004/05
(percentage of GDP)
2005/06(e)
Percentage of GDP
(current prices)
2006/07(p)
2007/08(p)
Public
Private
30.1
15.0
15.1
34.8
9.1
25.6
15.8
18.0
15.0
8.3
9.0
8.0
7.3
8.0
7.0
Consumption
Public
Private
57.4
27.1
30.3
50.5
22.8
27.8
3.1
4.1
2.4
2.8
4.1
1.8
2.7
4.1
1.7
12.5
56.6
-44.1
14.7
49.8
-35.1
1.6
8.7
3.4
4.0
3.3
3.6
External sector
Exports
Imports
http://dx.doi.org/10.1787/261103801637
The Vision 2016 policy document, which sets
ambitious goals for economic growth and poverty
reduction, continues to guide macroeconomic policy
in Botswana. The main elements of the country’s
economic strategy are also articulated in NDP9. A key
objective remains macroeconomic stability in an
economy that is prone to large, unanticipated
fluctuations in earnings from mining, as well as shocks
such as droughts. Another primary objective is to
create an environment conducive to private-sector
development and export diversification.
Fiscal Policy
Botswana is well known for its fiscal prudence.
Fiscal policy is aimed at ensuring that public resources
are effectively used to provide the socio-economic
infrastructure needed for rapid private-sector
development and export diversification. The fiscal
stance of the government is spelled out in the annual
budget statements presented to parliament. It is
noteworthy that, for 16 years prior to 1998/99, the
© AfDB/OECD 2007
government recorded budget surpluses and the Bank
of Botswana (BoB) accumulated a comfortable stock
of foreign exchange reserves. From 1998/99 to 2003/04,
the government incurred moderate fiscal deficits. In
2004/05, a budget surplus of 1.8 per cent of GDP was
recorded, up from a modest deficit of 0.2 per cent of
GDP in the preceding year. Although the government
has estimated a budget surplus of 1.5 per cent of GDP
in 2005/06, many independent forecasts point to a
marginal deficit of around 0.2 per cent of GDP for the
next two years.
The maintenance of this healthy fiscal balance was
made possible by the government’s prudent
macro-economic management and the introduction
of a number of measures to raise revenues and control
expenditure. These include the introduction of the
value-added tax (VAT) system and freezing of growth
in certain expenditure categories such as official travel.
Recently, the departments of Customs and Excise, VAT
and Taxes were merged to form the Botswana Unified
Revenue Service (BURS). Similarly, in 2005 a Fiscal
Rule Budgetary Mechanism was introduced, which
caps total expenditures at 40 per cent of GDP. For
139
Botswana
(percentage of GDP)
1997/98
2002/03
2003/04
Tax revenue
Grants
41.2
33.6
0.6
37.0
31.7
0.2
38.0
33.2
0.1
36.8
33.3
0.7
36.9
33.7
0.4
37.0
33.6
0.6
36.1
33.4
0.0
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
36.3
24.0
23.6
8.4
0.4
13.4
40.6
29.9
29.7
10.2
0.2
10.9
38.2
30.4
29.9
9.7
0.5
10.0
35.7
28.2
27.6
10.5
0.6
8.0
37.1
28.1
27.5
9.8
0.5
9.3
37.1
27.5
27.1
9.4
0.4
9.7
36.5
26.5
26.5
9.0
0.0
10.0
5.3
4.9
-3.4
-3.6
0.3
-0.2
1.8
1.2
0.3
-0.2
0.3
-0.1
-0.3
-0.3
Primary balance
Overall balance
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
140
2006/07, a number of adjustments were made to the
tax system; for example, the income threshold exempt
from taxation was raised to 30 000 pula from 25 000
pula. Civil service salaries were increased by 8 per cent,
slightly below the 8.5 per cent inflation rate forecast
for 2006/07.
Monetary Policy
Monetary policy in Botswana seeks to achieve low
inflation and a stable exchange rate. The BoB’s annual
target rate of inflation was 4 to 7 per cent in 2006. For
the first time, the BoB also set a medium-term target
rate for the 2006-08 period, at 3 to 6 per cent. The
medium-term inflation target was introduced in
recognition of the lag between a policy change and its
impact on the ultimate objective. It also affords the
monetary authorities sufficient time to adjust policy as
needed in response to shocks, such as large changes in
administered prices, and is intended to help stabilise
inflationary expectations.
In controlling inflation, the Bank of Botswana uses
the growth rate of commercial bank credit as an
intermediate target. Although the BoB has no direct
influence on fiscal policy, it does monitor trends in
http://dx.doi.org/10.1787/211722037833
the government budget, focusing on the impact of
fiscal policy on its inflation objective.
In 2006, inflation averaged 12.5 per cent, up from
11.4 per cent in the preceding year, and well above the
target range. The rise in inflation was attributable in
part to increases in administered prices, including the
re-introduction of fees in government secondary schools,
which contributed 1.1 percentage points, and fuel
prices, which were increased three times in the first half
of 2006 in response to high international oil prices
and contributed around 1 percentage point to inflation1.
Core inflation also increased from 11.1 per cent at the
end of 2005 to 12.1 per cent in June 20062.
External Position
Exports of diamonds accounted for around 75 per
cent of total exports on average over the 1980-2005
period, with other mining products accounting for
roughly another 10 per cent. In 2005, diamond exports
were 80 per cent of total exports, followed by copper
and nickel (9 per cent), vehicles and parts (4 per cent),
and textiles (3 per cent). Meat and meat products,
which were Botswana’s main exports until the early
1970s, declined to less than 1 per cent of total exports.
1. Bank of Botswana, Mid-Term Review of Monetary Policy Statement, 2006.
2. Core inflation is based on average inflation excluding outlier months.
© AfDB/OECD 2007
Botswana
The remarkable growth in diamond exports, along
with prudent macroeconomic policies that restrained
import demand, ensured that Botswana maintained a
very strong balance-of-payments position, which led
to the accumulation of large foreign exchange reserves.
As at the end of 2006, Botswana’s foreign reserves stood
at $6.2 billion, enough to cover 27 months of imports
of goods and services.
Botswana’s trade balance has consistently been
positive. In 2004/05, the trade surplus increased to
nearly 11 per cent of GDP, up from 5 per cent in the
preceding year. Similarly, the current account surplus
rose to around 8 per cent of GDP, as opposed to a
deficit of 1.1 per cent of GDP in the preceding year.
The current account surplus is forecast to increase
further in the next two years.
Botswana’s principal trade partners are the Southern
African Customs Union (SACU) member countries
(especially South Africa), the United Kingdom, the
United States and the rest of Europe. Botswana’s trade
policies are largely dictated by its membership of
SACU. The SACU agreement provides for a common
external tariff structure and duty-free movement of
goods originating within the customs union, except
in specified exceptional circumstances. Currently,
Botswana also participates in a number of other bilateral
and multilateral agreements, including the Cotonou
Partnership Agreement between the European Union
(EU) and the African, Caribbean and Pacific (ACP)
states (to be replaced by the Economic Partnership
Agreement – EPA – currently being negotiated between
the EU and the Eastern and Southern African regional
grouping), the Generalised System of Preferences
1997/98
(percentage of GDP)
2002/03 2003/04 2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance
Services
Factor Income
12.6
51.2
38.6
-4.9
2.5
7.8
40.8
33.0
-0.1
-9.2
4.9
33.3
28.4
-0.5
-11.3
10.9
40.1
29.2
-0.3
-7.9
7.7
39.4
31.7
3.2
-6.7
7.4
39.8
32.4
3.3
-5.3
7.7
40.1
32.4
3.3
-4.5
Current transfers
5.0
15.3
3.7
2.2
5.8
-1.1
5.4
8.1
4.5
8.8
5.9
11.3
5.4
11.9
Source: Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations
http://dx.doi.org/10.1787/703668733667
(GSP), the United States’ African Growth and
Opportunity Act (AGOA) and the World Trade
Organisation (WTO).
Exchange-rate policy aims to balance the sometimes
conflicting objectives of boosting non-traditional exports
and lowering inflation. The policy has pegged the
nominal effective exchange rate (NEER) of the pula
to a basket of currencies comprising the IMF Special
Drawing Right (SDR) and the South African rand in
proportions that reflect Botswana’s trade shares. Stability
of the NEER has acted as a nominal anchor for
monetary policy. In recent years, however, the real
exchange rate of the pula has exhibited considerable
volatility. For instance, the NEER appreciated by 25 per
cent between 2000 and 2003, but was devalued by
© AfDB/OECD 2007
7.5 per cent in February 2004. In May 2005, a crawling
peg for the NEER was introduced, under which a
further nominal devaluation of the pula by 12.5 per
cent occurred. During this period, however, the real
effective exchange rate appreciated by about 3.5 per cent
as the downward crawl of the nominal exchange rate
failed to offset fully the differential between domestic
and trading partners’ inflation rates.
To foster a more attractive investment climate,
Botswana has completely liberalised the exchange
control regime. Foreign direct investment (FDI) into
Botswana has steadily declined from $100 million in
1997 to around $37 million in 2004, despite a
relatively favourable investment climate and political
stability. Foreign investors are perhaps deterred by
141
Botswana
■ Debt/GDP
——— Service/X
25
20
15
10
5
0
2000
142
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/213686530562
Botswana’s situation as a small landlocked country. Low
incomes and the HIV/AIDS pandemic might also
curtail the volume of FDI inflows in sectors other than
natural resources.
Structural Issues
Recent Developments
For over four decades, Botswana has based its
development strategies on the NDPs. These plans cover
a six-year cycle, subject to a mid-term review every
three years. The first eight NDPs (from NDP1, 196669, to NDP8, 1997/98-2002/03) focused on the twin
objectives of achieving sustainable economic growth and
diversification of the economy. The current plan
(NDP9, 2003/04-2008/09) continues this focus with
an emphasis on competitiveness in global markets. A
mid-term review of NDP9 carried out in 2005 revealed
that the targets for diversification were again not being
achieved. The government is reassessing its strategy,
focusing on a few key economic reforms, including
privatisation and reform of public-sector management.
Although the investment climate in Botswana is
among the best in sub-Saharan Africa, the World Bank’s
Doing Business indicators reveal deterioration in 2006,
with Botswana’s rank falling to 48th from 44th out of
175 countries. The deterioration was most marked in
the category of business licensing, where Botswana’s
position fell to 136th from 115th. Botswana also ranks
poorly in investor protection, where its position fell to
118th from 114th. Clearly, there is room for improvement
in these matters.
The government has recently created a High Level
Consultative Council (HLCC), chaired by the country’s
president, consisting of government and private-sector
representatives. Sectoral HLCCs were established to
identify constraints at the industry level, and their
recommendations are forwarded to the main HLCC
for consideration. The government has also put in
place other institutions, programmes and policies aimed
© AfDB/OECD 2007
Botswana
at promoting the development of the private sector.
These include the Botswana Confederation of
Commerce, Industry and Manpower (BOCCIM), the
Hospitality and Tourism Association of Botswana
(HATAB), the Botswana Export Credit Insurance and
Guarantee Company Limited (BECI), the Botswana
Bureau of Standards (BOBS), the Industrial
Development Policy, the Small, Medium and Micro
Enterprises (SMME) Policy, the Citizen Entrepreneurial
Development Agency (CEDA) and the Botswana
Export Development and Investment Agency (BEDIA).
The government set up the Public Enterprises and
Privatisation Agency (PEEPA) five years ago, but since
its establishment PEEPA has made little progress in
divestiture. It has, however, undertaken a review of the
operations and activities of local and central government
departments and public enterprises, and has examined
the availability of opportunities for private-sector
participation in these public institutions. PEEPA also
developed the Privatisation Master Plan for Botswana,
which has since been approved by government. The
Master Plan provides the framework and guidelines for
the implementation of reforms to increase private sector
participation in the economy. In addition, PEEPA has
developed guidelines and manuals to help managers of
public institutions implement privatisation in a
consistent, transparent and equitable manner. These
include the Contracting Out Guidelines and the
Divestiture Procedure Manuals, and plans are under
way to introduce procurement guidelines for publicprivate partnerships. PEEPA’s annual work plan for
2005/06 included a feasibility study on merging the
National Development Bank (NDB) and the Botswana
Savings Bank (BSB). The study has since been completed,
and the government has requested revisions of the
recommendations. PEEPA is now finalising the
procedures for the establishment of the Privatisation Trust
Fund, which will hold shares of the privatised entities
for the purpose of citizen economic empowerment.
Both surface and underground water resources are
scarce in Botswana. Over most of the country, rainfall
is low, varying from 250 mm a year in the far south© AfDB/OECD 2007
west to 650 mm in the extreme north; the national
average is only 450 mm. Most of the rainfall, surface
water and water in the soil is lost through evaporation
and evapotranspiration, as open water evaporates at a
rate of about 2 000 mm per year. Recurrent periods of
drought exacerbate water scarcity.
Eighty per cent of Botswana is covered by the sands
of the Kalahari desert, which has no effective drainage
system apart from dry valleys, which hardly carry any
water even after intense rainfall. The thickness of the
Kalahari sand beds inhibits groundwater recharge
through rainfall in most areas. Groundwater can be
found beneath these sand beds, but generally at great
depth, and with low yields that can support few people
and livestock. Away from the Kalahari, groundwater
is found closer to the surface (30-100 metres in eastern
Botswana) and is recharged from rainfall. Surface water
resources are concentrated in the thinly populated
Ngamiland and Chobe districts, where the only
perennial sources – the Okavango delta and the Kwando,
Chobe and Liyanti rivers – are found. These two river
systems provide 95 per cent of Botswana’s surface water
resources.
Although Botswana continues to develop its water
resources at very great expense, demand for water has
been rising over the years owing to the increasing degree
of urbanisation coupled with the increasing affluence
of the population. Botswana’s total annual water demand
reached 20 million m3 in 1990, with the agricultural
sector, mainly livestock and limited irrigation, consuming
about half of this. By 2006, water demand in Botswana
has risen to about 88.3 million m3. This demand level
is projected to rise to about 104.8 million m3 in 2015
and 186.5 million m3 in 2035.
A review of the water balance situation in Botswana
reveals that, on average, more than 46 per cent of it is
wasted though leakage, lack of demand management
programmes and inefficient use. The current average
water losses of the Department of Water Affairs (DWA)
are 28 per cent and those of the Water Utilities
Corporation (WUC) 10 per cent. Thus, significant
savings could be made by addressing water conservation
and demand management in Botswana. The need for
143
Botswana
accurate reporting and monitoring is therefore essential,
as a starting point for future demand management and
water conservation.
Botswana’s future water demand will be met by
utilisation of shared watercourses because the available
water resources may be insufficient to meet future
demand projections. Thus, participation in transboundary water resources management is one of the
government’s priorities, since most of the country’s
major rivers share courses with neighbouring countries.
Botswana has entered into four trans-boundary
agreements concerning watercourses, namely the OrangeSenqu, Limpopo, Okavango and Zambezi rivers.
144
Water resources management is the responsibility
of a number of institutions, including the Ministry of
Minerals, Energy and Water Resources (MMEWR),
Ministry of Local Government (MLG), Ministry of
Agriculture (MOA), district councils, the National
Conservation Strategy (Coordinating) Agency (NCSA),
and the Department of Waste Management and Pollution
Control (formerly the Department of Sanitation and
Waste Management). The MMEWR has overall
responsibility for policy in the water sector. Within
MMEWR, the DWA is responsible for groundwater
investigations, protection and monitoring of resources,
and water supply development in rural areas.
In the area of water resources development
(i.e. construction of dams and well-fields, water transfer
from source to user point, and water reticulation at the
end user point), the WUC, a wholly government owned
parastatal, is responsible for development of
infrastructure and water supply to six urban centres.
WUC supplies clean, safe drinking water to about
34 per cent of Botswana’s population.
Significant progress has been made in the provision
of water infrastructure, and the government of Botswana
is committed to implementing the NDP9 projects in
the water services sector. Planned projects in the next
two years include: i) construction of the Lotsane,
Ntimbale, Lower Shashe and Thune dams;
ii) construction of new village water supply systems and
major rehabilitation works on 13 existing systems;
iii) expansion of urban water supply systems to address
increasing demand (which is growing by 16 per cent
annually); iv) groundwater resources investigation and
development (four projects).
Water quality issues are governed by regulatory
standards formulated by the Botswana Bureau of
Standards, which stipulates product quality standards
and the penalties for breach of such standards. In terms
of water charges, the government subsidises the
operating costs of water delivery by more than 40 per
cent. In addition, there is a subsidy on water
infrastructure. The structuring of water charges clearly
reflects the government’s policy of making water
available to rural communities at an affordable charge.
Although water is scarce in Botswana, the country
is determined to provide universal access to safe drinking
water. The proportion of the population with sustainable
access to safe drinking water increased from 77 per cent
in 1996 to 97.7 per cent in 2000. Recently, however,
this figure has marginally declined, as the data for 2005
indicate that 96 per cent of the population had access
to safe drinking water. Surface water resources, though
limited, continue to constitute the main sources of
water supply in urban areas, while rural areas largely rely
on groundwater resources. There are around 25 000
officially registered boreholes in Botswana, of which
10 000 are owned by the government. All officially
recognised settlements have at least one standpipe within
an average radius of 400 metres for every household,
provided and maintained by the government.
Some disparities are found between urban and rural
areas in terms of access to water. In 2000, nearly all
households in urban areas had running water in their
homes (52.1 per cent) or could fetch it from a nearby
public standpipe. Only 9.1 per cent of rural households
had piped water in their homes. About 84.2 per cent
have access to public standpipes, while about 7 per
cent of rural dwellers did not have access to safe drinking
water at all.
Although Botswana has made great strides in terms
of potable water supply, the wastewater and sanitation
sector has not grown to the same extent. Currently, only
© AfDB/OECD 2007
Botswana
41 per cent of the population in Botswana has access
to sanitation. The Botswana’s Landfill Guidelines and
Waste Management Act (1998) and the Sanitation and
Waste Management Policy of August 2001 provide the
necessary institutional, administrative and legal
structures for the implementation of a programme of
action on sanitation. The creation of the Department
of Sanitation and Waste Management in the Ministry
of Local Government was instrumental in the
development of the National Master Plan for Wastewater
and Sanitation (NMPWS) in 2003.
Gaborone has a wastewater treatment plant, and
there is a biological filtration plant in Francistown to
treat the city’s wastewater. With the exception of these
two cities, all of the municipal wastewater treatment
plants in Botswana are currently using waste stabilisation
pond systems, with or without anaerobic pre-treatment.
The wastewater from government institutions is also
treated in waste stabilisation pond systems except for
the smallest institutions, where communal septic tanks
are used.
The NMPWS aims to double sewerage coverage
from 12.5 per cent of the population to 25 per cent
by 2030. Botswana currently has about 75 wastewater
treatment facilities and manages to recover only half
of its annual throughput of wastewater for reuse. To
improve the coverage of waste management and
sanitation in the country, NDP8 (1997-2003) provided
for the construction of 22 000 latrine substructures in
villages and other remote settlements. A total of 18 635
latrines (about 85 per cent of planned) have been
completed. In addition to the latrines, other
technological approaches have been tried in the villages.
One such technology is the Enviro Loo, a sealed dry
compost unit incorporating accelerated dehydration
utilising a wind-powered turbine ventilator.
Botswana is well known for political stability and
good governance, and democratic principles are deeply
entrenched following decades of successful democratic
© AfDB/OECD 2007
transitions. Botswana operates a multi-party democracy
with a parliamentary system of government. In the last
election, President Festus Mogae was re-elected, and
his party, the Botswana Democratic Party (BDP), won
44 of the 57 parliamentary seats. Despite the country’s
long experience of democracy, the opposition parties
are very weak, fragmented and unco-operative.
In spite of its excellent economic performance,
Botswana faces the serious development challenges of
chronic unemployment, high levels of poverty and the
HIV/AIDS pandemic. The rate of unemployment
increased from 14 per cent in early 1990s to 24 per cent
in 2004/05. Unemployment is much higher among
women (24 per cent) than among men (17 per cent),
even though the labour force participation rate for
women is far lower than that for men.
In terms of regional distribution, unemployment
is highest in urban villages (25 per cent), followed by
rural areas (18 per cent) and lowest in urban towns
(16 per cent). As in most developing countries,
unemployment is most prevalent among young people
aged between 15 and 24 years. The overall youth
unemployment rate in Botswana is over 40 per cent;
the rate for females is higher at 48 per cent
unemployment, while male youth unemployment is
35 per cent.
A number of factors have contributed to the growing
unemployment in Botswana, including skill shortages
(especially entrepreneurial skills), poor attitudes towards
work that contribute to low productivity and lack of
funds to start up a business. Recent studies on
productivity in Botswana confirm that workers have a
relaxed attitude to work and seem to lack motivation.
There have been numerous efforts to address these
problems in recent years, some by the Botswana
National Productivity Centre.
A recent status report on progress towards the
Millennium Development Goals (MDGs) shows that
Botswana is on target to achieve many of these goals,
including the poverty reduction target. Even so, the
incidence of absolute poverty is still high in Botswana.
Estimates from the 2002/03 Household Income and
145
Botswana
Expenditure Survey data indicate that the proportion
of people living below the poverty line fell from 47 per
cent in the 1990s to 30 per cent in 2003. The United
Nations Human Development Report for 2006 also
estimates that 23.4 per cent of the population was living
below $1 per day during the 1990-2004 period; in fact,
the report ranked Botswana 93rd out of 102 developing
countries in terms of the human poverty index (HPI)3.
For the economy to achieve its Vision 2016 goal of
zero poverty, there must be concerted efforts and new
strategic thinking towards poverty eradication.
146
The HIV/AIDS pandemic is imposing high
budgetary expenditures on treatments as well as disabling
a sizeable part of the workforce, thus reducing
employment and output. The government continues
to implement the comprehensive national strategic
framework (NSF) for HIV/AIDS, aimed at having an
HIV-free generation by 2016. The NSF involves a
triple approach of prevention, care and treatment,
which has already begun to yield dividends, as the
proportion of the sexually active age group (15-64
years old) infected with HIV appears to have declined
below 35 per cent. While the increased government
expenditure on the NSF is important, behavioural
change is also required if the incidence of HIV infection
is to be reduced. The government remains committed
to finding innovative ways to address the problem, and
its efforts are being seconded by the African
Comprehensive HIV/AIDS Partnership. Such a
collaborative scheme between the government and
non-governmental organisations is expected to continue
for the next three years. The international community,
led by bilateral and multilateral donors, is providing
additional support towards addressing the HIV/AIDS
pandemic in Botswana.
Botswana has made significant progress on the
other MDGs, particularly on those relating to universal
education and gender equality. The country has already
achieved the 100 per cent target for primary school
enrolment and 100 per cent transition rate from primary
education to junior secondary education. Secondary
school enrolment is currently above 90 per cent, and
the immediate focus is on raising it to 100 per cent
within the next few years. The government is also
striving to improve the quality of education at all levels,
with strong emphasis on technical, management and
vocational education. With regard to gender equality,
Botswana has already surpassed its targets in primary
and secondary education, as the net school enrolment
rate for girls is greater than that for boys, while the female
literacy rate exceeds the male rate. Despite these
impressive statistics, women remain relatively
disadvantaged in terms of access to social services and
economic opportunities, and women are also
disproportionately afflicted with HIV/AIDS.
Overall, the human development index (HDI) for
Botswana is relatively favourable but exhibits a declining
trend since the early 1990s. From a peak of 0.68 in 1990,
it had fallen to 0.57 in 2004, largely due to the relatively
low value of its life expectancy index. The HIV/AIDS
situation and other health-related problems have
combined to reduce average life expectancy to only
35 years.
3. Of the 102 countries, only nine (Mozambique, Sierra Leone, Guinea, Swaziland, Ethiopia, Niger, Chad, Burkina Faso and Mali) have
worse poverty situations than Botswana.
© AfDB/OECD 2007
Burkina Faso
Ouagadougou
key figures
•
•
•
•
•
274
13 634
48.9
78.2
Burkina Faso
main airport
500 000 - 1 000 000
secondary airport
100 000 - 500 000
commercial port
petroleum port
fishing port
W
ITH A PER CAPITA INCOME OF $400 in 2005 (World
Bank data), Burkina Faso is one of the poorest countries
in the world. More than 45 per cent of the population
lives on less than a dollar a day. Nonetheless,
development perspectives appear good based on recent
economic performances. Over the 1996-2005 period,
Gross Domestic Product (GDP) grew on average by
4.6 per cent a year. It was estimated to have grown by
5.5 per cent in 2006 – after having reached 7 per cent
in 2005 – and is forecast at 5.4 per cent for 2007.
The economy is very vulnerable and highly exposed
to internal and external shocks. The country’s economic
performance is deeply dependent on that of agriculture,
itself at the mercy of climatic hazards. Poor rainfall, a
locust invasion or even floods are enough to jeopardise
the entire harvest and to plunge the country into
recession. The solid economic performance of the last
five years is primarily the result of good climatic
conditions, which have made possible cereal surpluses
of several hundred thousand
Cotton remains the dominant
tonnes. This trend appears
economic sector but there have
to be continuing, with
been promising developments
cereal production expected
in mining linked largely
to rise in the 2006/07
to the liberalisation policy.
campaign by 6 per cent over
the previous harvest, and by 18 per cent over the fiveyear average. Thus, a net cereal surplus of more than
1 million tonnes will be produced for the 2006/07
agricultural campaign.
149
Source: IMF and national sources data; estimates (e) and provisions (p) based on authors’ calculations.
http://dx.doi.org/10.1787/207675023222
© AfDB/OECD 2007
Burkina Faso
GDP should continue to grow at a sustained pace
notwithstanding predictable climatic shocks. The
combination of a more than 13 per cent rise in the price
of cotton in 2006/07, the first gold exports from new
commercial mines and the implementation of new
reforms should all help sustain growth. Measures are
being taken in line with the following strategic policies:
improving the legal environment of business, continuing
state withdrawal, strengthening business capabilities,
developing institutions to support the private sector,
financing the private sector, developing infrastructure,
and developing the mining sector.
150
Real GDP grew by 5.5 per cent in 2006, thanks to
the favourable agricultural season. A growth rate of
5.4 per cent is forecast for 2007. This solid performance
is primarily attributable to increased growth of cotton
production and the first exports from new gold mines.
The rate of increase in exports has in general exceeded
that of imports in recent years. However, owing to a
deterioration of the terms of trade, the current account
deficit increased from 10.4 per cent of GDP in 2005
to an estimated 12.4 per cent in 2006. In the medium
term it is expected that the current account deficit will
drop to 11.4 per cent in 2008.
The primary sector is the chief source of income
and employment for the majority of the population
(80 per cent). In 2006, it accounted for 37.2 per cent
of GDP. The performance of the Burkinabè economy
is overwhelmingly reliant on harvests. Four primary
shocks marked the 2006/07 agricultural campaign: i)
the late arrival of the rains; ii) floods and locust attacks
in some provinces; iii) a reduction in crop surfaces
planted with cereals; and iv) falling profitability of
crops and the bursting of dykes of irrigation works. In
spite of this, the agricultural sector posted volume
growth of 6 per cent in 2006.
Gross cereal production for the 2006/07 harvest
reached 3 858 713 tonnes, including 3 669 048 tonnes
of cereals (sorghum, millet and maize) and
189 176 tonnes of rice. These results, chiefly due to
good rainfall and the continuation of village irrigation
programmes, translate into a rise of about 6 per cent
over the previous year, and of 18 per cent over the fiveyear average. The production of other food crops (yams
and sweet potatoes) fell by 1 per cent over the 2005/06
campaign and rose by 13 per cent over the five-year
average. As a result, the available stocks at the end of
October 2006 were estimated at 233 553 tonnes.
These represent growth of around 23 per cent over the
last harvest. The expected cereal harvest should permit
annual consumption needs to be met at the level of
284.9 kilogrammes per inhabitant. But despite an
expected sizeable cereal surplus of more than 1 million
tonnes, areas with food security risks remain. These
areas were hit by the shocks experienced during the
2006/07 campaign. Six regions (Sahel, Central-North,
North, Boucle du Mouhoun, Hauts Bassins and the
South-West) were affected by floods. The regions of
Sahel and Central-East suffered from pest invasions
and in August-September, periods and pockets of
(percentage)
Source: Authors’ estimates based on Ministry of Economy and Finance data.
http://dx.doi.org/10.1787/808303161368
© AfDB/OECD 2007
Burkina Faso
1998
(percentage of GDP)
2005
2006(e)
2007(p)
2008(p)
Percentage of GDP
(current prices)
Public
Private
24.2
11.3
12.9
20.6
11.1
9.5
6.1
5.0
7.3
6.8
6.7
7.0
6.4
9.4
3.0
Consumption
Public
Private
91.1
22.3
68.9
94.1
21.5
72.5
5.3
8.2
4.5
4.5
3.7
4.7
5.4
3.7
5.8
-15.3
12.8
-28.1
-14.6
9.7
-24.3
9.7
8.4
12.1
5.5
8.4
6.8
External sector
Exports
Imports
Source: Source: National Institute of Statistics and Demography data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/112662154136
drought were observed in the provinces of Oudalan,
Soum and Séno.
200 000 people and are the source of income for many
households.
Cash crops (cotton, groundnuts, sesame and soya)
rose by 2.26 per cent over the previous campaign
though they fell by 1.01 per cent over the five-year
average. The cotton harvest reached a record level, with
730 000 tonnes in 2006. But the price paid to producers
fell, from 210 CFA francs per kilogramme in 2004/05
to 175 CFA francs per kilogramme in 2005/06. A
further decrease is expected in 2006/07. These
fluctuations played a major part in the collapse of
producer profits, leading some to abandon cotton
farming, and to an increase in rural poverty.
Nevertheless, the government’s creation of a stabilisation
fund to protect farmers from fluctuations in world
prices, and the expansion of the investments of Sofitex,
the fibre and textile company, raising its capital from
4.4 billion CFA francs to 38 billion CFA francs, will
enable cotton production to continue to grow.
The secondary sector’s GDP share (including
mining) should stabilise at around 20 per cent in
2006/07. The total contribution of the secondary sector
to growth should rise from 1.2 per cent of GDP in 2005
to 10.9 per cent in 2007. This performance is explained
by the dynamism of manufacturing industries.
Gold is Burkina Faso’s principal mineral resource
and the 1996 liberalisation of the sector attracted several
foreign investors. Production of 9.4 tonnes is expected
for 2008, against 7.4 tonnes in 2006 and an estimated
8.7 tonnes in 2007. Several projects are under way. The
sector is experiencing difficulties, however, as safety
concerns in small mines will eventually lead to their
closure, entailing heavy economic and social
repercussions as these mines employ some
© AfDB/OECD 2007
The tertiary sector grew by 5.2 per cent in 2005.
This rate could increase to 5.4 per cent in 2006 and
7.8 per cent in 2007. The growth is attributable to
commercial and non-commercial services the GDP
share of which should pass from 42.8 per cent in 2005
to 43.6 per cent in 2007. With the transport, trade and
telecommunications sectors expected to flourish, the
contribution of the tertiary sector to economic growth
will be 2.1 per cent of GDP in 2006 and 3.1 per cent
in 2007.
Fiscal Policy
Burkina Faso is a member of the West African
Economic and Monetary Union (WAEMU). Within
it, countries retain a discretionary margin solely over
budgetary policy with convergence rules that must be
151
Burkina Faso
respected. One of the convergence criteria sets out a
minimum contribution from taxes of 17 per cent of
GDP. In 2003 however, Burkina Faso did not comply
with this criterion. Indeed, fiscal revenue only barely
exceeded 11 per cent of GDP, although a rising trend
has been observed since 2006. This weak fiscal pressure
prevented Burkina Faso from meeting the first
convergence criterion, which calls for a neutral or
positive basic fiscal balance in relation to GDP.
The budget deficit (including grants) fluctuates. It
rose from 2.9 per cent in 1998 to 4.4 per cent in 2002.
It is expected that the budget deficit will fall from
4.9 per cent of GDP in 2005 to 3.3 per cent in 2006.
This relative improvement was due to larger foreign
assistance in the form of grants. Over the period the
ratio of grants to GDP was fairly unstable, although
since 2002 a significant fall has been observed.
152
From the perspective of the International Monetary
Fund fiscal policies in 2006 struck a fair balance between
the implementation of priority social spending and
debt sustainability: they draw on resources released by
the Multilateral Debt Relief Initiative (MDRI),
concessionary loans and budgetary support from donors.
According to the IMF, the primary balance went from
a deficit of 4.9 per cent of GDP in 2005 to a deficit
of 2.8 per cent in 2006, reflecting the cancellation of
the debt.
Without the MDRI, the deficit would have
increased to 5.2 per cent of GDP. Nonetheless, the
IMF stressed that the improvement of the debt
indicators should not encourage the government to
begin borrowing. It recommended instead that the
government capitalise on the savings realised through
the MDRI by adopting a prudent fiscal policy,
improving the mobilisation of resources, redoubling
efforts to contain the risks attendant on international
grants and borrowing only on concessionary terms.
These are all prerequisites for meeting the Millennium
Development Goals and for reducing poverty.
For 2006, fiscal reform focused on VAT
reimbursement procedures, improving customs
administration and adopting a new investment code.
The government maintained the tax on oil products
but it increased its subsidies to the national electricity
provider (Sonabel) by 18 billion CFA francs (0.6 per
cent of GDP) in 2006 in order to prevent a rise in the
price of electricity of around 30 per cent. These subsidies
will be removed between now and 2009 (with an
exception being made for low income households)
once the country is connected to the electricity grid of
Côte d’Ivoire.
In spite of the macroeconomic results, the IMF
remarked on the slowdown in the privatisation
programme.
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Total revenue and grants
Tax revenue
Other revenue
Grants
18.3
11.1
0.9
6.3
17.5
10.9
1.2
5.4
17.1
11.8
1.0
4.3
16.8
11.1
0.9
4.8
19.8
11.2
0.9
7.8
16.9
11.2
0.9
4.9
17.2
11.3
0.9
5.0
Total expenditure and net lending
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
21.2
9.5
8.8
4.4
0.8
11.7
20.4
10.4
9.7
4.5
0.7
9.0
21.4
10.5
9.8
4.4
0.7
11.1
21.7
11.2
10.6
4.8
0.6
10.9
23.1
11.8
11.3
4.8
0.5
11.1
22.6
11.6
11.1
4.8
0.5
11.1
23.1
11.5
11.0
4.7
0.4
11.7
Primary balance
Overall balance
-2.1
-2.9
-2.2
-2.9
-3.6
-4.3
-4.3
-4.9
-2.8
-3.3
-5.3
-5.7
-5.5
-6.0
http://dx.doi.org/10.1787/506787344782
© AfDB/OECD 2007
Burkina Faso
To implement its policy, the finance and budget
ministry is focusing on sustainable growth and the
fight against poverty through: i) economic liberalisation;
ii) good economic governance; iii) ongoing stabilisation
of public finances and of the banking sector; iv)
strengthened mobilisation of domestic and external
resources; and v) regional integration. The execution
of poverty-reduction policies contained in the Poverty
Reduction Strategy Framework (PRSF) should increase
both the supply of essential goods and services and
facilitate access to them, as well as strengthening the
capacity of groups to acquire basic goods and services.
for the approval of the National Assembly, during the
Finance Act.
Monetary Policy
Burkina Faso’s monetary policy is determined by
the BCEAO (Central Bank of West African States)
whose priority is to control and contain inflation. Its
monetary policy nonetheless remains influenced by
the European Central Bank as the WAEMU currency
(the CFA franc) is pegged to the euro. It is thus obvious
that Burkina Faso’s BCEAO-led monetary policy is
strongly influenced by the policy conducted in the
euro zone. The consumer price index (CPI) was more
or less contained up until 2004. In 2005 it rose however
to reach the record level of 6.4 per cent, a figure unseen
since 1998. This increase is explained by the rise in the
price of oil and gas, which had a severe impact on
household living standards. Inflation dropped noticeably
in 2006 to2.4 per cent. This drop is partly explained
by the stabilisation of the price of oil on world markets.
According to projections, this decline should be
sustained in 2007 with an inflation rate of around
2.7 per cent of GDP.
The finance and budget ministry intends to keep
up its reform efforts in order to boost growth while
keeping inflation below the 3 per cent ceiling fixed by
the WAEMU convergence programme. In terms of
fiscal policy, the goal is to limit the overall deficit to
3.5 per cent of GDP through increased control of
spending and improved fiscal revenues. Attention will
also be given to improving the quality of public
investment in order to increase its effectiveness. The
government also wishes to strengthen reforms
undertaken in recent years regarding budget
formulation, monitoring budgetary execution, control
and audits.
External Position
In terms of revenue, the authorities are planning
to focus on developing a computerised revenue tracking
system following the example of the computerised
expenditure tracking system, in order to widen the
fiscal base and strengthen the efficiency of fiscal and
customs administration. They seek to improve the
collection of both direct and indirect taxes as well as
revenue from services. The spending programme will
be based on the identification of operational measures
likely to reduce the delays noted in executing spending
financed by the HIPC (Heavily Indebted Poor
Countries) initiative. It also aims at better management
of public consumption of water, electricity and
telephones, as well as the wage bill.
The country’s current account deficit should remain
sizeable in 2006 and for the coming two years. The
country has a structural trade deficit. Nevertheless, the
deficit has been fairly well contained in recent years.
Indeed, the trade deficit on GDP fell from 11.1 per
cent in 1998 to 9.7 per cent in 2006. This improvement
should continue, and the deficit should stabilise in the
neighbourhood of 8.6 per cent in 2007 and 2008.
These positive results are attributable to an increase in
cotton and gold exports. Imports should, however,
increase under the strong influence of the rise in the
price of oil products, a trend towards deteriorating
terms of trade, and the vibrancy of the Burkinabè
economy.
The drawing up of a procedures manual should
enable more effective execution of HIPC-funded priority
programmes. Utilisation authorisations for these funds
will henceforth be submitted, with details of all activities,
The services deficit relative to GDP exceeded 5 per
cent in 2006 having been limited to 4.5 per cent since
1998. This indicates a fairly strong dependence on
external aid. An examination of the ratio of current
© AfDB/OECD 2007
153
Burkina Faso
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
-11.1
11.5
22.6
-4.4
-0.4
6.7
-8.4
7.6
16.0
-4.4
-0.6
4.9
-7.6
9.4
17.0
-4.5
-0.6
3.7
-9.4
8.3
17.6
-4.1
-0.7
3.7
-9.7
8.6
18.3
-5.4
-0.7
3.4
-8.6
9.0
17.6
-5.4
-0.3
2.9
-8.6
9.3
17.9
-5.6
-0.3
2.9
-9.2
-8.5
-8.9
-10.4
-12.4
-11.4
-11.6
http://dx.doi.org/10.1787/003136308577
154
Source: IMF.
http://dx.doi.org/10.1787/683167457327
transfers in GDP shows a drop over the period, dropping
from 6.7 per cent in 1998 to 3.4 per cent in 2006. This
decline should continue in 2007 and 2008 with the ratio
contracting to 2.9 per cent. These results can be
explained by unfavourable circumstances at the regional
level, particularly the crisis in Côte d’Ivoire, which
contributed to a major reduction in the volume of
transfers to Burkina Faso.
In 2005, public debt stabilised at 34.8 per cent of
GDP because of debt relief granted under the HIPC
initiative. Revenues will continue to benefit from various
debt relief programmes under the HIPC initiative and
the Multilateral Debt Relief Initiative (MDRI). In
January 2006, Burkina Faso was granted relief totalling
$89 million. Following this, in March and April 2006,
the World Bank and the African Development Bank
cancelled $861 million and $340 million of public
debt, respectively. The government committed itself to
allocating the amounts saved by debt cancellation to
the reduction of poverty and to spending in priority
social sectors.
© AfDB/OECD 2007
Burkina Faso
Structural Issues
$321 million including an annual drilling capacity of
311 000 ounces of gold for eight years.
Recent Developments
The various structural reforms undertaken and
the increase in investment in some sectors seek to
maintain sustained growth. Furthermore, the poor
ranking of the country in the World Bank’s Doing
Business index – 163rd in 2006 – prompted several
reforms with the goal of improving the business
environment and, in particular, encouraging private
sector development.
In the cotton sector, the government introduced a
programme to insulate farmers from the market volatility
of the past few years. This programme consists of special
reserve funds to protect producers from price
fluctuations. For the 2007/08 agricultural season, the
price paid to farmers will depend on past prices and
anticipated international prices. If there are fluctuations,
stabilisation funds will be used for adjustments. This
equalisation system will make it possible to safeguard
producer revenues and to reduce rural poverty in the
coming years. The price-fixing mechanism has not yet
been set, however, and the IMF has advised the
government only to use this equalisation system in
exceptional circumstances. The European Union and
the Agence Française de Développement (AFD) have
expressed interest in the programme.
In November 2006, the chief shareholders of
SOFITEX textile and fibre company, which include the
state (35 per cent) and the French group DAGRIS
(34 per cent), agreed to increase the company’s capital,
which should rise from 4.4 billion CFA francs to
38 billion CFA francs. This recapitalisation is a sign of
better times for the cotton sector.
The liberalisation of the mining sector in 1999
succeeded in attracting several foreign companies.
Orezone Resources (the owner of the Essakan mine)
has set up the largest project in the gold-mining sector.
Some 1.9 million ounces of measured and indicated
gold deposits and another 1.5 million ounces of inferred
deposits have been identified in the northeastern Dori
region. The total cost of the project is estimated at
© AfDB/OECD 2007
Goldrush announced the implementation of a
mining permit acquired in August 2006 for Falagountou.
Finally, in November 2006, five large mining projects
intensified their activities: i) Riverstone Resources
completed its operations on the Tao project and work
will continue throughout 2007; ii) Goldcrest Resources
began exploitation of the mines at Kampti and Gaoua
in the southwest of the country, where mines could
hold millions of ounces; the company is also planning
to operate the mines of Malba and Souhouera; it has
also purchased the Danyoro mine, assumed to contain
significant quantities of gold; iii) Etruscan Resources is
sinking a mine at Youga, near the border with Ghana,
where extractions should reach 86 000 ounces of gold
annually during six and a half years; the company is
planning to invest $44 million in the second half of 2007;
iv) The Canadian company High River Gold increased
its financing for the Bissa project, put at $12 million,
which it expects to yield 1.3 million ounces, with an
initial annual production of 100,000 ounces rising to
140 000 ounces; v) Goldbelt completed its feasibility
study for the Belahouro project, 220 kilometres northeast
of Ouagadougou; this project includes the sites of Inata,
Souma and Fete Kole. The Inata mine could produce
100 000 ounces of gold annually during the first five
years, and up to 140 000 ounces once development
works have been completed.
For 2007, gold exports from commercial mines
will grow significantly. They are estimated at 8.7 tonnes
in 2007 and 9.4 tonnes in 2008.
In September 2006, the Minister of Transport
announced plans to construct a new airport at Donsin,
35 kilometres northeast of the capital Ouagadougou. The
project will cost 235 billion CFA francs, and the first phase
of the project beginning in 2007 will cost 115 billion
CFA francs. The new airport will make it possible to
process more than 1.5 million passengers a year, compared
to 250 000 passengers in the current airport.
The banking sector in Burkina Faso is comprised
of commercial banks and microfinance institutions.
155
Burkina Faso
On 31 December 2005, 11 banks were operating, in
addition to five financial institutions (unchanged from
2004). In 2006, three new institutions authorised at
the end of 2005 (Banque Régionale de Solidarité
Burkina, Banque de l’Habitat du Burkina Faso – BHBF
– and Banque Atlantique Burkina) were due to expand
their operations.
156
Microfinance institutions have expanded rapidly
over the past few years and microfinance plays an
important role in Burkina Faso. According to the
BCEAO, on 31 December 2005 almost 600 000 people
used the services of the main networks. Deposits, which
had risen 22 per cent over the end of 2004, were assessed
at 34 billion CFA francs, and credits (up 19 per cent)
at 31.5 billion CFA francs. Since starting operations at
the beginning of the 1990s, the sector has moved towards
increased professionalism. The average portfolio loss rate
of the decentralised financial systems in Burkina Faso
has improved over the last five years, reaching 5 per cent
in 2005, down from 12.5 per cent in 1999. In 2006,
the Banque Régionale de Solidarité Burkina expanded,
having been created at the end of 2005 with the aim of
financing individual projects and of micro-enterprises.
The government aims to reinforce supervision of
the financial sector in co-operation with the monetary
authorities, and an overall strategic plan to improve the
organisation of the microfinance sector is also expected.
Elsewhere in the field of finance, savings taxes will be
re-examined both to adapt to the regional context and
to promote their mobilisation to finance SMEs.
a new approach to water and established a distinction
between urban centres, semi-urban zones and rural
areas. The water and sanitation sectors are faced with
several operational and infrastructural constraints. The
government’s first priority is to pursue the Millennium
Development Goal (MDG) to reduce the number of
people without access to clean water. Several strategic
actions have been put in place. These include: i)
developing sanitation policies, especially in rural and
semi-urban areas; ii) developing decentralised
governance capacities; and finally, iii) ensuring proper
co-ordination in the two sectors.
The relationship between the water sector and the
poverty reduction strategy remains weak. Funds are
limited and the sanitation system is not included in the
programme. Still, in May 2005, a roadmap for the
MDG in the sectors of drinking water and sanitation
was adopted for 2007-09. With the aim of making the
national strategy more effective, the following measures
were decided upon: i) improving co-ordination in the
sector; ii) increasing transparency and financial flows;
and iii) aligning national budget objectives with those
of the sector.
Burkina Faso has scant renewable water supplies:
only 906 m3 per inhabitant per year in the 2003-07
period.
In Burkina Faso, the water management department,
the DGRE (Direction de Gestion des Ressources en
Eaux) and the national water and sanitation office, the
ONEA (Office National de l’Eau et de l’Assainissement)
share responsibility for infrastructure and water and
sanitation projects. In urban zones, the ONEA is putting
in place a set of strategies for managing water, while
in rural areas, the Charte Générale des Collectivités
Territoriales (CGCT) is investing local communities
with responsibility for managing water and sanitation
until 2009. Given the low level of decentralisation in
Burkina Faso and the lack of technical and legislative
mechanisms for transferring responsibilities, the
execution of this policy remains unclear. The project
is still being developed and has set out some ambitious
targets both for urban and rural zones. Only the two
largest cities (Ouagadougou and Bobo-Dioulasso) have
adopted sanitation plans.
In March 2003, the government adopted an action
plan for drinking water and sanitation. This laid out
The ONEA has more than 60 000 subscribers. In
February 2003, it began increasing its rates. Households
Since 2004, the privatisation process has been
remarkably slow because of administrative delays, trade
union opposition, and, above all, the weak capacity of
the government to implement reforms.
© AfDB/OECD 2007
Burkina Faso
pay 188 CFA francs per m3 of water, instead of 180 CFA
francs, for consumption between 0 and 6m3. These
prices are progressive depending on the level of
consumption.
During the last decade, performance in terms of
access to clean water and sanitation has been highly
contrasted in urban and rural areas of Burkina Faso.
Coverage rates are inadequate despite the efforts devoted
to the subject over the past several years. In urban areas,
the proportion of the population with access to running
water rose from 66.3 per cent in 1993/94 to 88.5 per
cent in 2003. In rural areas, however, the rate fell from
4.8 per cent to 4 per cent over the same period. Similarly,
the proportion of the rural population with access to
well water fell sharply: it was estimated at 78.4 per
cent in 2003, compared to 90 per cent in 1993 and
92 per cent in 1999.
In 2003, 67.3 per cent of urban households were
located 15 minutes or less from their most frequently
used water source, while in rural areas this proportion
dropped to 49 per cent. The significant increase recorded
between 1992/3 and 2003 (from 43 per cent to 49 per
cent) should, however, be noted. The increase in the
population using surface water (groundwater and rivers)
as a source of domestic water supply should also be
noted, having risen from 4.8 per cent to 17.4 per cent
between 1993 and 2003.
Improvements in sanitation have also taken place.
In urban areas, the proportion of households with
access to a flush toilet rose from 4.7 per cent to 9.9 per
cent between 1992/3 and 2003. An overwhelming
proportion of the urban population (83.3 per cent)
continues, however, to use latrines. In rural areas, flush
toilets are practically non-existent: 0.4 per cent in 2003.
The use of latrines is stable (14 per cent), and a large
part of the population thus has no access to toilets of
any description. This situation increases the spread of
infectious disease in the population, exacerbating
poverty. It also increases mortality and morbidity rates.
In 2005, 8.03 million (62.5 per cent) inhabitants
of Burkina Faso had access to drinking water and only
1.4 million (11 per cent) to sanitation. With the various
© AfDB/OECD 2007
investments committed to the sector by the ONEA,
the MDG of reducing by half the proportion of the
population without access to clean water could be
reached for urban residents: 5.83 million people should
thus have access to drinking water, and 7.88 million
to sanitation. In contrast, the situation in rural areas
is alarming. The laudable developments in terms of
access to toilets in the urban milieu were not reproduced
in the countryside. If corrective measures are not put
in place quickly, the gap will be maintained or even
widen further.
The estimated cost of meeting the MDG sanitation
goal is $116.25 million per year for the nine coming
years, with $88 million a year for the water sector and
$28.25 million a year for sanitation.
The proportion of the budget devoted to the sector
is very low. Total public investment is estimated at
$17.76 million per year: $13.3 million for water and
$3.96 million a year for sanitation.
157
In urban areas, the ONEA has invested around
$30 million a year over the past nine years, but 70 per
cent of this investment is allocated to the Ziga project,
a project to dam 200 million m3 of water managed by
the ONEA and primarily designed to improve the
inhabitants of Ouagadougou’s access to a reliable and
plentiful supply of clean water. Additional funds remain
necessary for the water and sanitation sectors, as well
as for urgent improvements to the sanitation system and
management of waste water.
The drinkinge water and sanitation sectors
additionally require a management-assessment
programme. This was recommended by the MDG
roadmap. In February 2006, with the technical and
financial support of foreign partners (International
Development Agency, AFD, European Union, Swiss
and Danish co-operation, and Arab financial
institutions), the African Development Bank financed
a complete assessment of sanitation and clean water
resources in semi-urban and rural areas. This assessment
should permit the implementation of a national water
and sanitation programme valid until 2015. Overall the
great challenge confronting the government in these
Burkina Faso
sectors is to improve its capacity to implement the
various national strategies.
Development Resources
158
Blaise Compaoré, president of Burkina Faso, has
been in power since 1987. In 2005, he was re-elected in
the first round with 80.3 per cent of the vote. In February
2006, the prime minister, Paramanga Ernest Yonli, who
has been in office since 2000, was reappointed. Despite
the social stability that exists in Burkina Faso, a disturbing
social, political and military crisis rocked the country at
the end of 2006. The altercation pitted soldiers against
police and ended with the death of five people and the
destruction of many public resources (equipment and
buildings). These incidents led to the cancelling of the
WAEMU and ECOWAS (Economic Community of
West African States) summits scheduled for 22 and
23 December 2006 in Ouagadougou. In January 2007,
the ECOWAS summit appointed Compaoré president
of the organisation.
The country has made progress in the fight against
poverty. The incidence of poverty fell from 46.5 per cent
in 2003 to 43.7 per cent in 2005 and it is hoped that
it will contract to 43.3 per cent in 2007 thanks to
economic growth. Similarly, the incidence of rural
poverty should drop from 50.4 per cent in 2003 to
48.1 per cent in 2007 and the incidence of urban poverty
should fall from 21.5 per cent in 2003 to 16.6 per cent
in 2007. With the aim of attaining poverty reduction
goals, a strategy has been in place since 2000. Public
bodies have been elaborating several initiatives to promote
development in order to: i) reduce poverty and
vulnerability, as well as disparities in the population; ii)
put in place macroeconomic policies to promote better
and sustainable growth; iii) accelerate the decentralisation
process and modernisation of the public administration;
and iv) engage the country in a process of regional
integration and globalisation.
In November 2002, the government adopted a
policy aimed at improving the business environment.
An action plan was subsequently introduced in 2004,
and two important measures were taken: the dialogue
between the government and the private sector was
strengthened and mechanisms for private sector
development were reinforced. The government and
private sector actors discussed their problems during
a conference in June 2004 and put forward potential
solutions. A series of projects and programmes are
under way: i) an arbitration structure; ii) a business
formalities centre; iii) a support project to encourage
competition and business development; iv) a programme
to strengthen the capacities of businesses in Burkina
Faso; v) infrastructure projects: a road freight and
passenger terminal at Bobo; expanding the terminal at
Ouagadougou, renewing the refrigerated abattoirs at
Ouagadougou and Bobo; vi) simplifying investment
formalities by creating a one-stop bureau and
introducing an attractive framework for conducting
business; and vii) lightening taxes and complying with
regional reforms relating to business law, the organisation
of financial and insurance markets and to a harmonised
accounting system.
Burkina Faso has the highest illiteracy rate in the
world: 87.2 per cent of the population in 2003, more
than double the average for sub-Saharan Africa. While
measures have been taken to improve basic education
indices, the results remain poor. Between 1996 and
2003, the net schooling rate went from 32.6 per cent
to 39.9 per cent. However, great disparities persist
between boys and girls (44.6 per cent and 35 per cent
respectively in 2003) on the one hand, and between
urban and rural areas, on the other. Progress has been
constant since 1996, but the gap between boys and girls,
on one hand, and between the rural and urban milieux,
on the other, remain very large.
A set of measures, including the school initiative,
Bright, under the Millennium Challenge Account
(MCA) and the Ten-year Basic Education Development
Plan (TBEDP) seek to correct both inequalities between
cities and the country and between boys and girls. The
Bright school initiative costs around 6 billion CFA
francs and is financed by the MCA through the United
States Agency for International Aid (USAID). It is
implemented by the Bright consortium of national
and international non governmental organisations.
© AfDB/OECD 2007
Burkina Faso
The TBEDP is used as a reference framework for the
interventions of all actors in the basic education system
for the 2000-09 period. Its broad aims are fourfold: i)
increase supply of basic education and reduce disparities
between types, geographic regions and the
socioeconomic situation of pupils; ii) improve the
quality, relevance and effectiveness of basic education
and develop the consistency and integration between
various levels and education methods; iii) promote
literacy as well as new types of alternative education;
iv) develop capacities to guide, manage and evaluate
the central and decentralised structures leading the
sector, as well as capabilities to co-ordinate foreign
assistance. The overall cost of the plan is estimated at
235 billion CFA francs.
According to the UNDP Human Development
Report 2006, the net rates of primary schooling rose from
29 per cent in 1991 to 40 per cent in 2004. The net
rate of secondary schooling was stable at 10 per cent
in 2004. As a result, international donors introduced
a strategic plan for the education sector with the aim
of bringing schooling rates up to 70 per cent for primary
schooling and 25 per cent for secondary schooling by
2010. Between 1998/99 and 2002/03, the proportion
of budget expenditure allotted to education rose from
10 per cent to 14 per cent. In July 2005, a $12.9 million
Millennium Challenge Account fund was invested to
encourage female education.
A retrospective evaluation of the nutritional situation
in Burkina Faso was carried out from 11 to
22 September 2006 under a joint government-UN
mission to assess and plan UN interventions in the
fight against malnutrition. Mortality figures are alarming
with very high infant and juvenile mortality, respectively
at 81 per 1 000 and 184 per 1 000 in 2003
(Demographic and Health Survey, DHS 2003). In
fact, almost 50 000 children under the age of 12 months
and more than 110 000 children under the age of five
die each year, meaning almost 50 per cent of infant
mortality occurs under the age of 12 months. Mortality
thus remains very high despite having fallen since 1998.
It is estimated that 50 per cent of deaths in children
under the age of five are due to malnutrition.
© AfDB/OECD 2007
Malnutrition, including micro-nutritional deficiency,
is severe, beyond the critical threshold of the World
Health Organization (WHO). Thus, 19 per cent of
children, or more than 450 000, under the age of five
suffer from acute malnutrition (emaciation), while
39 per cent or nearly 925 000 children, have chronic
malnutrition (growth retardation), and 38 per cent are
underweight for their age, representing more than
905 000 children. Finally, 21 per cent of women of
reproductive age are malnourished, and 15 per cent of
newborns are underweight at birth.
A further study of nutrition in the country revealed
that deficiencies in vitamin A, iron and iodine pose a
great problem for public health. Anaemia affects 91 per
cent of children aged between 6 and 59 months, 68 per
cent of pregnant women and 54 per cent of women of
reproductive age. Despite a national policy of salt
iodisation being in place since 1996, as well as obligatory
sale of iodised salt, only 48 per cent of households have
access to salt that is sufficiently iodised. Vitamin A
deficiency is endemic is some areas, 13 per cent of
pregnant women suffer from night blindness, and use
of supplements remains low (DHS, 2003).
Malnutrition appears very early in the youngest
children, particularly those aged between six and
23 months. Most worrying is that the situation has
deteriorated over the last 10 years, despite an
improvement in some health indicators and lower
mortality. This is due to inadequate diet (in terms of
quantity and/or quality), and recurrence of illnesses.
These factors are themselves affected by other underlying
factors such as food insecurity in households, problems
accessing health services, lack of hygiene and sanitation,
lack of treatment for mothers and children, and deeper
causes such as poor education of mothers, household
poverty or the status of women.
Illnesses such as malaria and schistosomiasis remain
endemic. Furthermore, each year during the Harmattan
wind season, from January to April, meningitis is
pervasive and kills between 1 000 and 1 500 people.
Weaknesses and poor organisation in the health system
make it difficult to organise effective immunisation or
vaccination campaigns.
159
Burkina Faso
The problem of avian flu from now on presents a
fairly acute challenge. In April 2006, the health
authorities announced that an outbreak of avian flu had
been detected at Gampela, a town about 15 kilometres
from the capital, Ouagadougou. Measures were been
taken to inform and protect local people. Imports of
poultry and poultry products from affected countries
were banned. An inter-ministerial ruling was
promulgated involving a number of ministries so that
the fight against avian flu would become national in
scale. Finally, measures were introduced to raise
awareness among various groups, particularly among
poultry farmers. In October 2006, a quick test on
laying hens came out positive in Sector 30 of
Ouagadougou and led to the implementation of
phytosanitary policing measures (slaughter, disinfection,
medical monitoring of personnel and promises of
compensation procedures).
160
© AfDB/OECD 2007
Cameroon
Yaoundé
key figures
•
•
•
•
•
475
16 601
46.2
32.1
Cameroon
T
CAMEROON ECONOMY appeared to regain
momentum in 2006 after its sluggish performance in
2005. Real GDP growth rose to 3.8 per cent in 2006
from 2.8 per cent recorded in 2005, and the economic
upturn is expected to continue. Real GDP growth is
projected to reach 4 and 4.1 per cent in 2007 and
2008 respectively, with domestic investment rising due
to increased confidence in the economy following the
government’s recent reforms, which culminated in
Cameroon reaching the completion point of the Heavily
Indebted Poor Countries (HIPC) process in 2006.
HE
Although the recent reforms have begun to yield
positive dividends, especially in the management of
public finances, with continuing sound monetary and
financial indicators, much remains to be done. The
continued very high dependence on oil revenues does
not augur well for sustained improvement in the
government’s finances or in the external accounts. The
pace of structural reforms remains slow and there are
many gaps in the effort to improve
High dependence on oil
governance. The structural deficit
revenues threatens
in electricity remains a major
sustainability in growth
bottleneck that hinders economic
and development, while
development. Limited access to
governance reforms
safe drinking water and sanitation
are too slow.
in the country constitutes an
affront to human dignity. In the area of governance,
Cameroon enjoys relative political stability, but it needs
to address the rampant abuse of human rights and the
perceived high level of corruption.
163
Source: IMF and Ministry of Finance and Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/063478386420
© AfDB/OECD 2007
Cameroon
Following its sluggish economic performance in
2005, the Cameroon economy appeared to regain
momentum in 2006 when real GDP growth rose to
an estimated 3.8 per cent from the 2.8 per cent recorded
in 2005. The improved economic performance in
2006 was led by the petroleum sector and supported
by gains from recent reforms. It is anticipated that
the upturn will continue in 2007 and 2008, with
projected growth rates of 4 and 4.1 per cent respectively.
These stronger growth rates are expected to reflect
higher levels of domestic investment as the economic
reforms take root.
164
The growth performance in 2006 was broad-based,
observed across most sectors of the economy. In
particular, there was a substantial rise in mining activity
as well as major improvements in manufacturing and
the telecommunications sector. Mining activity, which
accounted for a 9 per cent share in total GDP in 2005,
picked up further in 2006, driven largely by increased
crude oil production and the high price of crude on
the international market. Oil output rose to an estimated
average of 94 386 barrels per day (b/d) in 2006 from
the average 82 337 b/d in 2005. Nonetheless,
Cameroon’s oil output remained well below the peak
of 186 000 b/d attained in 1985. Since 1985, Cameroon
has not seen any significant discoveries, and production
from the maturing oil fields has continued to stagnate.
Recently, the government has shown a commitment to
reviving the oil industry by attracting oil companies to
develop marginal and deep-water offshore fields. To this
end, the national oil company (Société national
d’hydrocarbures – SNH) signed two production-sharing
agreements in 2005 and 2006 with Total E&P to
explore for oil in the Dissoni and Bomana offshore
blocks in the Rio del Rey basin.
Cameroon has intensified its efforts in exploring
for natural gas exploration as well as in crude oil
production. In addition, the country’s vast mineral
deposits offer hope of continuing mining activity in
the country for some time to come, when the oil
deposits run out. A fairly large gas field has been
discovered at Sanaga, which could supply the planned
thermal power plant at Kribi. In 2006, SNH signed
a production-sharing agreement with the French-based
firm Perenco to develop the South Sanaga gas field.
As for minerals, two bauxite exploration permits were
issued in 2004 to the Hydromine Company in the
Minim Martap and Ngaoundal areas. These vast
deposits could supply the Alucam smelter, especially
after it has increased its capacity, and could also be
exported. Furthermore, plans are far advanced for the
Geovic Company to begin cobalt mining in some of
the forest areas of the country.
These efforts to develop mineral extraction are not
commensurate, however, with the extent of the country’s
mineral wealth. Indeed, exploitation has remained
minimal except for the small-scale, clandestine mining
of gold and diamonds that occurs in some eastern parts
of the country. The situation appeared to change in
2006, when the Australian firm Sundance Resources
acquired Cam Iron, which owns an exploration permit
for an 875 square kilometre prospect in the southeastern MBalam area. Also in 2006, Geovic Cameroon,
the local subsidiary of a US-based firm, completed a
pre-feasibility study on the extraction of cobalt and
nickel. It is expected that about 4 000 tonnes of cobalt
and 3 000 tonnes of nickel will be produced per year
as from 2007. Nevertheless, Cameroon needs to do more
to increase mineral extraction, at least of its known
deposits, which include rutile (titanium ore), of which
there are 3 million tonnes of reserves in the Akonolinga
area; bauxite, of which there are an estimated 1 billion
tonnes of reserves; and iron ore, of which there are an
estimated 300 million tonnes of deposits, particularly
in Kribi. It is ironic that in spite of such known deposits
the government has not revised the mining law it passed
in 2001 to replace the outdated 1964 mining code.
Cameroon’s manufacturing sector is more diversified
than those of its neighbours. In 2005, manufacturing
activity contributed about 18.9 per cent of total GDP.
The overall output of the sector increased by 5.1 per
cent in 2006, as against 4.7 per cent in 2005. However,
the various components of manufacturing displayed
uneven performance. Aluminium output increased by
6.2 per cent, with production of 92 000 tonnes, buoyed
by the continuing high international price of the
© AfDB/OECD 2007
Cameroon
(percentage)
Source: Authors’ estimates based on Ministry of Finance and Economy data.
http://dx.doi.org/10.1787/283154630854
commodity. The agro-food sector, badly hit by a 4 per
cent decline in household consumption in 2005, rose
by an estimated 3.5 per cent in 2006. Beverages, in
contrast, fell by 9 per cent in 2006, prolonging the
12.5 per cent decline recorded in 2005.
The growth of the manufacturing sector, though
relatively robust in 2006, continued to be limited by
structural problems, particularly inadequate energy
supply, aggressive competition from Asia and smuggling,
which gives an unfair advantage to informal activity.
Electricity remains expensive in Cameroon and is always
in short supply, reflecting the country’s inability to
exploit its huge hydroelectric potential. Cameroon’s
hydro resources are the second richest in sub-Saharan
Africa (after the Democratic Republic of Congo), but
scarcely 1 per cent of this potential has been harnessed.
Hydroelectric power accounts for about 77 per cent of
the country’s installed generating capacity of 933 MW,
but the recent depletion of water levels in the main dams,
along with the poor condition of power plants and
transmission equipment, have cut capacity by about onethird. Thus, power supply remains well short of demand,
currently estimated at 1 000 MW.
Cameroon has a rich, varied agricultural sector that
in 2005 accounted for about 20.5 per cent of GDP. In
2006, the sector expanded by 4.8 per cent, up from
4.3 per cent in 2005. The expansion in agricultural
production in 2006 was experienced across all the subsectors. The cash crops – cocoa and coffee – have seen
increased production in recent years following the
recovery in their international prices, which seems to
have enticed farmers back into production of these
© AfDB/OECD 2007
crops. In 2005/06, cocoa output rose to 198 000
tonnes, up from 116 000 tonnes in 1999/2000. Coffee
production rose to 68 000 tonnes in 2005/06 from
65 000 tonnes recorded in the previous season. Similarly,
cotton production has continued to increase despite the
recent drop in the international price of the commodity.
Cotton output rose slightly from 273 000 tonnes in
2004/05 to 274 500 in 2005/06. Cotton producers in
Cameroon have been somewhat cushioned from the
international price fall by the policy of the cotton
development agency (Société de Développement du
Coton – Sodecoton) of ring-fencing farm-gate prices
from the volatility of world prices.
Cameroon’s cash crop production, particularly
cocoa and coffee, has been unable to reach its full
potential owing to a number of constraints – primarily
the ageing of plantations, the high costs of imported
inputs, the poor state of rural infrastructure and limited
credit facilities – all of which have affected productivity
and reduced quality. The government is pursuing plans
to boost output by increasing the area under cultivation,
introducing higher-yielding strains and providing more
technical, financial and institutional support to farmers.
In 2006, the government set up a fund to finance the
development of the coffee sector. In addition, the cocoa
development agency (Société de Développement du
cacao – Sodecao) has been restructured and placed
under new management.
Food crop production increased in 2006, benefiting
from good climatic conditions. The thriving subregional market for Cameroon’s food crops – particularly
tubers, plantain, maize, sorghum and millet in Nigeria,
165
Cameroon
Gabon and Equatorial Guinea – continues to serve as
a demand pull for increased production.
The timber industry remains an important
component of the economy, contributing about 13 per
cent of exports in 2006. The sector’s growth rate rose
from only 2.1 per cent in 2005 to 3.8 per cent in 2006.
While some forestry firms lost their licences in 2005
as part of the government’s re-organisation of the sector,
new forestry concessions granted in late 2005
contributed to the upturn in 2006. Prospects for the
industry remain bright in 2007 and beyond as the
opening up of new areas for mining, particularly forested
areas for cobalt mining, as well as the planned opening
of the Lom Pangar dam in 2009, could also boost
timber extraction.
166
The services sector expanded by an estimated 4.9 per
cent in 2006, following the 4.7 per cent growth rate
recorded in 2005. Services contributed about 45 per
cent of GDP in 2005. In 2006, telecommunications
recorded a 52.5 per cent increase in subscribers,
especially for mobile phones (up 54.6 per cent), partly
as a result of extended coverage by mobile phone
operators and Camtel. However, the telecommunications infrastructure in Cameroon is still
not good enough to support the kind of quality call
centres seen in countries such as Senegal. Ongoing
projects to modernise telecommunications, including
the fibre-optic network along the Chad-Cameroon
pipeline, are investments in the right direction.
Tourism is important in Cameroon, but the country
has yet to fulfil its enormous potential by exploiting
to the full its nature reserves, spectacular rock pinnacles
and attractive beaches. Although tourism expanded by
an estimated 6 per cent in 2006 (as against 4.2 per cent
in 2005), with the number of visitors rising to 467 500
(from 411 000 in 2005), the sector continued to be
hampered by expensive airfares, cumbersome procedures
for obtaining visas, and inadequate and underdeveloped
tourist infrastructure. The government appears to be
making efforts to enhance Cameroon’s tourist
attractions. Since 2005, it has opened tourist promotion
offices in key foreign markets. In addition, a national
tourism council has been established to oversee the
promotion of the industry, and the government is
considering issuing tourist visas on arrival at airports.
These measures, however, need to be supplemented by
efforts to tackle the perceived high crime in the country,
which deters visitors on safety grounds.
Cameroon’s economic growth is traditionally driven
by domestic demand, although exports remain a
significant driver. In 2006, slower growth in domestic
consumption was a drag on growth. This was offset by
higher investment, however, especially from the public
sector. It is anticipated that high investment will
continue to propel growth in 2007 and 2008. The
reaching of the HIPC completion point in 2006 is
expected to boost public investment and consequently
private investment in 2007; projects already in the
pipeline include the construction of the Lom Pangar
1998
2005
Percentage of GDP
(current prices)
(percentage of GDP)
2006(e)
2007(p)
2008(p)
Public
Private
15.0
3.9
11.2
19.4
4.9
14.5
7.5
15.0
5.0
6.9
12.0
5.0
6.4
10.0
5.0
Consumption
Public
Private
81.2
9.1
72.1
81.7
9.9
71.7
3.0
7.9
2.4
4.0
6.3
3.7
4.1
4.0
4.1
3.7
21.4
-17.7
-1.0
20.4
-21.4
3.4
4.4
2.2
4.5
2.0
4.7
External sector
Exports
Imports
http://dx.doi.org/10.1787/337472506108
© AfDB/OECD 2007
Cameroon
dam (between 2007 and 2010) and of a $900 million
hydroelectric power plant at Nachtigal. Other major
investments expected include the building of an
86 billion CFA francs thermal power plant at Kribi, a
cobalt processing plant (by Geovic), a new cement
plant at Limbe and major road projects.
Fiscal Policy
Cameroon is implementing a new Poverty
Reduction and Growth Facility (PRGF) programme
with the IMF for the 2006-08 period, aimed at
strengthening its fiscal position, preserving
macroeconomic stability, promoting investment and
boosting poverty reduction.
The main challenges of Cameroon’s public finances
have been to increase non-oil revenue to compensate
for the expected gradual decline in oil production and
to control recurrent expenditure. In 2006, the
government made great efforts to improve its fiscal
performance, especially as regards monitoring spending
and transparency of public accounts. In a novel move,
the 2006 budget was presented to parliament before the
start of the budget session so that it could be thoroughly
examined. In addition, the government drew up plans
to implement the Extractive Industries Transparency
Initiative (EITI) and gave a commitment not to use
surplus oil revenue to finance recurrent spending.
Further, a determined effort was made to adhere to the
integrated budget management system introduced in
2005, which provides running accounts, including
monthly updates on budget execution that compare
commitments and disbursements. Efforts were also
made to improve execution of capital spending through
a medium-term expenditure framework (MTEF) in
construction, health, education and rural affairs.
Moreover, in 2006 the government began to incorporate
HIPC spending into the budget to allow proper
supervision. The prior arrangement, whereby the
spending of HIPC funds was agreed after approval of
the budget, was considered to slow down disbursement
of HIPC funds. Consequently, it was agreed that specified
© AfDB/OECD 2007
projects would be HIPC-funded in 2005, and these
were put in the national budget for 2006.
In 2006, improvements in the government’s fiscal
performance were reflected in an increase in the overall
fiscal surplus from 3.6 per cent of GDP in 2005 to 4 per
cent in 2006. Although the budget is projected to
remain in surplus, the balance will fall to 2.9 per cent
in 2007 and to 2.6 per cent in 2008 owing to higher
spending (especially capital spending) and a slowdown
in oil revenues.
In 2006, the government’s total revenue increased
to 18.8 per cent of GDP (18.1 per cent in the preceding
year). The improved performance in 2006 was the
result of increases in oil revenues and grants. Oil revenue
rose as a result of increased production and higher
prices on the international market. Non-oil revenue
remained stable as a percentage of GDP after tax
increases and improvement in the tax and customs
administrations. The government implemented a fourfold increase in windscreen licences in 2006, and the
introduction of a value-added tax (VAT) on mineral
water and non-alcoholic beverages took effect during
the year as well. In addition, the government took
measures to reduce tax evasion in the forestry sector.
On the expenditure side, although the government’s
programme in 2006 was expansionary, expenditure
was held to the target levels through prudent
management. Total government expenditure increased
to 14.8 per cent of GDP in 2006 (up from 14.6 per
cent in 2005). The spending increase in 2006 was due
largely to higher capital expenditure, with continued
reconstruction of the bridge over the Mungo river and
the initiation of a national programme of road
rehabilitation. Moreover, spending by local authorities
was boosted in 2006 following the government’s reversal
of its policy of retaining a proportion of municipal
revenues at the central level. Furthermore, the public
sector wage bill was held in check as a result of
continuing efforts to remove “ghost workers” from the
public payroll. In addition, the substantial debt writeoff granted under the enhanced HIPC initiative and
the Multilateral Debt Reduction Initiative (MDRI)
exerted downward pressure on debt service obligations.
167
Cameroon
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Grants
14.9
9.7
0.0
16.5
10.0
0.7
15.5
9.3
0.2
18.1
10.4
0.5
18.8
10.3
0.6
18.1
10.3
0.4
17.9
10.3
0.3
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
13.1
11.1
8.8
4.6
2.3
1.9
15.4
13.3
11.0
5.3
2.3
2.1
16.0
14.0
12.1
5.4
2.0
2.0
14.6
12.0
10.5
4.7
1.5
2.3
14.8
12.2
10.9
4.7
1.4
2.6
15.2
12.4
11.2
4.7
1.2
2.8
15.3
12.4
11.3
4.7
1.1
2.9
4.1
1.8
3.4
1.1
1.5
-0.5
5.0
3.6
5.4
4.0
4.1
2.9
3.7
2.6
Primary balance
Overall balance
168
Despite the government’s efforts to exert fiscal
control, the country’s public finances have persistent
structural weaknesses. They remain very dependent
on oil revenue (28 per cent of total revenue, excluding
grants, in 2006) at a time of great uncertainty over the
continuation of production increases. The domestic
effort to fund the budget through taxation is rather weak
because the tax base has remained narrow, given the
large informal sector. The budget outcome may suffer
further from reduced revenue collection, as the
Economic Partnership Agreements (EPAs) with the
European Union (EU) in 2008 will reduce customs
revenue. A particular problem of Cameroon’s fiscal
system is the huge proportion of current expenditure
(80 per cent of total government spending), with the
wage bill alone accounting for over 30 per cent of the
total in 2006 despite the effort to purge “ghost names”.
Moreover, capital expenditure (only 20 per cent of
total spending) is never entirely disbursed, reflecting
major absorption problems that could hamper
implementation of future investment plans.
Monetary Policy
The monetary policy of Cameroon is determined
by the regional central bank, the Bank of Central
African States (BEAC). The main monetary policy
objectives of the BEAC are to control inflation and
maintain the stability of the CFA franc, which is pegged
to the euro. Accordingly, the BEAC’s policies are heavily
http://dx.doi.org/10.1787/475751853845
influenced by those of the European Central Bank
(ECB), with the BEAC’s rate broadly reflecting
movements in the ECB’s main intervention rate.
In 2006, monetary policy was more accommodating
of the expanding economic activity. By end-September
2006, the money supply (M2) had risen by about
12 per cent, compared with a rise of only 2 per cent
for the same period in 2005. Moreover, interest rates
followed a downward path. In March 2006, the BEAC
reduced its discount rate by 25 basis points to 5.25 per
cent. Short-term rates in the financial system followed
suit, with the average lending rate falling from 18 per
cent in 2005 to 15 per cent in 2006. The average
deposit rate also fell, but very slightly from 5 per cent
in 2005 to 4.5 per cent in 2006.
Inflation rose from an average of 2 per cent in 2005
to an estimated average of 4.5 per cent in 2006, mostly
as a result of the increase in taxes, particularly VAT, and
the rise in fuel prices. Cameroon does no oil refining,
so the world price of refined oil was partly (and with
a delay) passed on to the pump price, which rose
16 CFA francs in August 2005, then 4 CFA francs a
month between October and December 2005, and
then by a further 12 CFA francs in mid-2006. These
prices hikes, in turn, significantly pushed up the price
of transport. The prices of consumables, including
tobacco and beverages, rose also as a result of tax
increases. However, inflation is expected to settle back
© AfDB/OECD 2007
Cameroon
to about 2 per cent in 2007 and 2008 as prudence in
the government’s fiscal programme and sound monetary
policies take hold.
in 2006. China has also emerged as a major supplier
of imports, although it is not yet a major buyer of
Cameroonian goods.
External Position
Developments in Cameroon’s current account
balance largely reflect fluctuations in merchandise
trade, which in turn is driven by oil export earnings.
Cameroon’s current account has traditionally been in
deficit, as weaker trade balances have been compounded
by persistent deficits on the services and income accounts
owing to heavy spending on shipping, insurance, foreign
travel and other services.
Cameroon stands to gain considerably from the
creation of an integrated regional market as part of the
future regional EPA with the EU. The country is a
major pillar in the CFA franc zone, accounting for
over 50 per cent of the wealth in the CEMAC countries.
The port of Douala is the main shipping port for
countries in the sub-region. The country’s location, its
relatively large economic clout and the relative
diversification of its productive capacity all give it
growth potential in a context where regional trade can
only expand.
Currently, however, Cameroon trades very little
with the other CEMAC countries. The CEMAC
accounted for only 4 per cent of its exports and 3.5 per
cent of its imports in 2006, although this should not
be expected to hinder negotiations for an EPA between
the EU and CEMAC. The second (“regional”) phase
of these talks started in 2006, and a full draft agreement
is expected by end-2007. Cameroon’s main trading
partners remain the EU countries, which accounted for
about 58 per cent of exports and 45 per cent of imports
In 2006, the trade account showed a relatively
strong surplus equivalent to 3.1 per cent of GDP, up
from 1.5 per cent of GDP in 2005. The strong
performance in 2006 was due to the high international
oil price and rising oil production, as well as stronger
performance of non-oil exports. The trade surplus in
2006 thus rose to an estimated $1.2 billion from
$215 million in 2005, and as a result, the current
account balance moved out of its persistent deficit to
register a small surplus equivalent to 0.3 per cent of GDP
in 2006 – the first time in about a decade. The trade
surplus is forecast to decline in 2007 and 2008 on
account of a more than proportionate fall in exports
against imports, and consequently the current account
balance should return into deficit.
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
3.7
18.7
15.0
-2.2
-4.8
1.1
1.7
17.3
15.6
-1.4
-3.9
1.5
0.0
16.7
16.7
-1.8
-2.6
0.9
1.5
18.2
16.7
-1.5
-2.8
1.3
3.1
19.9
16.8
-1.4
-2.5
1.2
2.3
18.7
16.4
-2.2
-2.2
1.2
1.8
18.1
16.3
-1.9
-1.6
1.0
-2.1
-2.0
-3.4
-1.5
0.3
-1.0
-0.7
Source: IMF data estimates (e); and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/605135178485
Cameroon had accumulated substantial external
debt, estimated in 2005 at $9.5 billion, or 61.5 per cent
of GDP. As a result of the country reaching the HIPC
completion point in May 2006, the overall debt stock
fell to $3.7 billion in that year. The country’s debt
© AfDB/OECD 2007
burden, as measured by the debt service ratio, is also
estimated to have fallen from 12.4 per cent in 2005 to
7.7 per cent in 2006. Since reaching the HIPC
completion point, Cameroon has benefited from debt
relief amounting to $1.3 billion and reduced its debt
169
Cameroon
170
Source: IMF.
http://dx.doi.org/10.1787/543617210040
service obligations by about $4.9 billion in nominal
terms. In addition, Cameroon has become eligible for
debt relief under the MDRI, an estimated amount of
$1.1 billion. As part of the HIPC debt write-off, in June
2006 Cameroon reached an agreement with the Paris
Club of creditors to reduce bilateral debt by a further
$921 million. In addition, the Paris Club creditors
have committed themselves to further bilateral debt relief
of $2.6 billion.
Structural Issues
of the biggest drags on the growth of the otherwise
vigorous formal private sector.
The competitiveness of business is limited by the
high cost of production factors and the poor business
environment. Administrative delays and bureaucratic
bottlenecks force entrepreneurs who want to start a
business to go through 12 steps that require an average
of 37 days in total to complete. Moreover, contracts
are extremely difficult to enforce: 58 procedures are
needed to enforce a contract, requiring an average of
800 days at a total cost of 36 per cent of the value of
the claim.
Recent Developments
Although Cameroon has made progress in structural
reforms under the PRGF – including improving public
financial management, strengthening the judiciary and
enhancing transparency in the petroleum sector – much
remains to be done, especially in the areas of improving
the business climate, private sector development and
privatisation. The poor business climate is probably one
The private sector and the government in Cameroon
seem to have developed mutual mistrust, which the
government is now trying to change. In 2006, the
government continued with efforts to re-establish
dialogue with the private sector, including expansion
of the 2005 inter-ministerial committee to include the
private sector, a meeting with all the country’s main
business operators in January 2006 and consultation
© AfDB/OECD 2007
Cameroon
of the private sector in drawing up the 2006 national
budget. Nonetheless, increased private sector
participation in the Cameroonian economy will also
depend to the government’s ability to reduce the high
levels of crime and corruption, which add to the cost
of doing business in the country.
Privatisation did not advance much in 2006, but
as part of the PRGF the government has committed
itself to revamping the process. The major state firms
still to be divested include the national water company
SNEC, Camtel, Sodecoton, Camair and the CDC
agro-industrial complex. Concerning the privatisation
of Camair, the winner of the tender process was selected
in June 2006, but the privatisation deal is yet to be
finalised. According to the government’s plans, SNEC
will be disposed of through a leasing arrangement;
takers were sought at a meeting of investors at end-2005,
but no firm offers have so far been forthcoming. Camtel
was put to tender in mid-2006 with 51 per cent of its
shares on offer. In order to attract investors, Camtel’s
mobile phone licence will be divested at the same time
as its fixed-line business. The future of Sodecoton
remains very unclear, in view of its difficulties stemming
from very low world cotton prices, but talks with the
French firm Dagris are continuing. Privatisation of the
CDC is set for 2007.
Within the financial sector, the banking sector has
become quite solid after the restructuring that transferred
supervision of the sector to the Banking Commission
of Central Africa (COBAC). The banking system
comprises ten commercial banks. The loan recovery rate
of the sector has improved significantly to about 139 per
cent in June 2006, and six of the banks had liquidity
ratios in excess of 200 per cent in 2006. Prudential ratios
are rising steadily, and almost all the banks meet the
six key ratios set by the COBAC.
The entire sector, however, is dominated by just three
banks, which hold over two-thirds of all loans and
deposits – a situation that undermines competition.
Furthermore, despite the relative soundness of the
sector, the rate of financial intermediation in the country
is rather low. Fewer than 10 per cent of households have
bank accounts, and large areas of the economy still
© AfDB/OECD 2007
lack access to loans. In addition, there are regular
complaints from bank customers about high charges,
reflecting the lack of active competition in the sector.
The World Bank is currently helping BEAC to improve
the efficiency and security of the regional payments
system, with the introduction of an electronic bulk
clearing system and a real-time gross settlement
mechanism for the instant settlement of transactions.
Cameroon is well-watered, with uneven distribution
of rainfall from one part of the country to another. The
country boasts major underground water resources
spread over the country’s main water-bearing areas. In
all, the country has at least 120 billion m3 of useable
groundwater resources, unevenly distributed.
Groundwater resources are the main source of drinking
water in rural areas.
A number of players are involved in the management
of the water and sanitation sector. These include not
only public and private structures but also civil society.
The sector’s co-ordination is the responsibility of the
Ministry of Water Resources and Energy (MINEE),
which is in charge of designing, preparing and
implementing the national policy and of co-ordinating
and monitoring operations and projects concerning
water and sanitation in urban and rural areas. It is also
responsible for planning projects, making an inventory
of water resources and helping to set water and sanitation
rates. In the sanitation sub-sector, MINEE’s
responsibility is limited to the management of
wastewater. The Urban and Rural Land Development
Mission (MAETUR), under the supervision of the
Ministry of State Property and Land Affairs (MINDAF),
is responsible for putting in place water supply and
sanitation systems in low-cost housing estates. Other
ministries with cross-cutting remits are involved in the
preparation and implementation of the government’s
water and sanitation policy. So-called urban
communities are responsible for managing sanitation
services and the use of equipment.
The proportion of Cameroon’s population with
access to safe water was estimated at 57.8 per cent in
171
Cameroon
2005. For urban areas, the estimate was 77 per cent,
while in rural areas, water supply projects have made
it possible to reach a service rate of 42 per cent. Access
to sanitation services is difficult for most of the
population, especially the poorest who live in areas
with little infrastructure. Indeed, the rate of access to
adequate wastewater drainage systems is estimated at
17 per cent in urban areas and 15 per cent in rural areas.
Where they do exist, such systems consist mainly of
natural channels (mostly rivers) or underground outlets
that are also used to evacuate household garbage, solid
waste and wastewater, which stagnate and end up
clogging the systems and causing floods during the
rainy season.
172
Cameroon’s water and sanitation sector faces a
number of institutional, technical and financial
constraints. The main institutional constraint stems
from the large number of sector players, leading
sometimes to fragmentation and overlapping of
responsibilities and poor co-ordination of their
operations. The National Water Committee (CNE),
established to co-ordinate activities in the water subsector, is not yet operational. Regarding urban sanitation,
the following bodies are engaged in similar and uncoordinated activities: urban communities, the Ministry
of Public Works, the Ministry of Urban Development
and Housing (MINDUH) and some non-governmental
organisations (NGOs) involved in the construction of
tertiary structures.
On the technical front, there are weaknesses in the
management of sanitation infrastructure and services.
Municipal technical departments, local contractors
and consulting firms often lack the skills necessary to
conduct studies and works properly, especially the
design and implementation of labour-intensive works.
Poor institutional and human capacity at the levels of
elected officials, officers and other sector players,
together with a lack of project monitoring and
evaluation, also hinder the sector’s development.
Lack of adequate funding for the sector is another
major obstacle to its development. In the context of
decentralisation, the transfer of competencies to local
communities has not been accompanied by allocation
of adequate financial resources which enable them to
assume these responsibilities. The government’s plan
to establish a National Water and Sanitation Fund,
which is expected to mobilise resources for the sector,
will contribute in the long run to lifting the constraints
facing the use and management of sanitation structures.
Cameroon’s national water and sanitation policy
incorporates the guiding principles of the millennium
MDGs. The main lines of this policy are as follows:
i) promoting access to drinking water for all
Cameroonians by 2025; ii) promoting a demanddriven approach to the supply of water and sanitation
services; iii) decentralising the planning and
management of drinking water supply and sanitation
services; iv) building capacity; v) redefining the role of
various institutions involved in water and sanitation
services with a view to greater participation on the part
of the population; vi) supporting the private sector; and
vii) redeploying the private sector as facilitator.
The government has defined public sector guidelines
for the water and sanitation sector with the primary
aim of redefining the role and responsibilities of the
government in the management of infrastructure and
basic services, especially in rural areas. This implies
replacing the supply-based approach by a demandbased approach that takes into consideration the needs
of the population, especially the most underprivileged.
In the short term, the government’s strategy is to be
implemented through a partnership of the three leading
players in urban development – local authorities in
urban areas, the private sector and civil society – within
the framework of the “urban contract” concept. Urban
contracts are an institutional mechanism which enables
the government and local authorities to express their
urban planning priorities and facilitates the introduction
of cross-financing. In the context of this participatory
management policy, urban communities, in partnership
with grassroots communities and the private sector,
join forces with the population in establishing and
maintaining infrastructure.
Several bilateral and multilateral donors have been
involved in the water and sanitation sector of Cameroon
in terms of project and programme financing (see Box 1).
© AfDB/OECD 2007
Cameroon
The Yaounde Sanitation Project: How the African Development Bank Group Is Making
a Difference in Water and Sanitation Provision
The population of Yaoundé, capital of Cameroon, has increased by 6 per cent every year since the early
1990s and stands today at nearly 1.5 million. The Survey on the Living Environment of Yaoundé’s population
(CAVIE), carried out in 2002, highlights the predominance of so-called squatter areas, which cover about
62.4 per cent of the city’s area. The main rainwater drainage systems are regularly blocked by all types of
solid waste. As a result, during the rainy season, floods (15 to 20 major floods annually) totally disrupt the
city’s socio-economic activities and especially those of the squatter areas. Some 53 000 persons (or about
9 000 households) are subject to regular floods, and a further 243 000 persons (or around 40 000 households)
to occasional floods. Thus, quality of life is very adversely affected, as the people must dwell in damp, filthy
and unhygienic surroundings.
In addition to the discomfort caused by these floods, their effects on health, the environment and the
economy are enormous. In terms of health, not only do floods cause latrines to overflow, thus polluting
drinking water wells, but they create breeding sites for mosquitoes and the waste carried by the rainwater
accumulates, thereby increasing the spread of waterborne diseases. Concerning the environment, floods cause
soil erosion, land subsidence and slides, and the pollution of the Akomnyanda water treatment station, which
supplies Yaoundé with drinking water. As for the economy, the floods cause the destruction of houses and
businesses, loss of income for traders, etc. In short, the lack of rainwater drainage in Yaoundé, where rainfall
is considerable (nearly 2 000 mm a year), has a far-reaching impact on the population, most of whom already
live in poverty.
In order to control flooding in Yaoundé and address the difficulties inherent in its increasing filth, the
government prepared a Yaoundé City Sanitation Master Plan (PDA), which was financed by the African
Development Bank Group. As a follow-up, a project was conducted on the emergency phase of Yaoundé
City Rainwater Drainage, consisting mainly of the re-calibration of the Mfoundi Canal and the cleaning
of the collectors. An update of the project engineering designs was also financed by the African Development
Bank Group. The Bank Group is also financing the entire foreign exchange cost of the Yaounde Sanitation
Project. This project is to: i) contribute to rainwater drainage in Yaoundé City; ii) contribute to improving
the living conditions of the city’s population; and iii) build the capacity of the sector’s stakeholders. The
project comprises the development of sanitation infrastructure, capacity building and project management.
Specifically, it involves a study for landscaping along the Mfoundi Canal; the establishment of a project
monitoring and evaluation system; construction of a canal 4.32 kilometres long; protection and cleaning
of three underground collectors, about 2.35 kilometres long; development of two maintenance roads on
either side of the canal and the construction of access ramps; construction of two footbridges, a rail bridge
and a road bridge; construction of four disposal structures at forks in the canal; construction of 50 containers
and installation of 50 garbage bins along the canal; development of the areas around the canal (4 kilometres
of paved footpaths, planting of trees and gardens, installation of 54 public benches and public lighting,
construction of two parking areas of 400 square metres each and two shelters); and training Cameroonian
sanitation professionals and other staff. The project is being implemented over four years, starting January
2006 and scheduled for completion in December 2009.
© AfDB/OECD 2007
173
Cameroon
174
In particular, the Japanese government, the French
Development Agency (AFD), the African Development
Bank, the Islamic Development Bank (IDB), Belgian
Technical Cooperation, German Financial Cooperation
(KFW), the European Union, German Technical
Cooperation (GTZ), the Canadian International
Development Agency (CIDA), United Nations agencies
such as the UNDP and UNICEF, NGOs and various
associations. The World Bank has also been involved
in major road network and sanitation projects. The
AFD is involved in rural water supply projects and has
also contributed funds for the rehabilitation of
deteriorated sanitation and road networks. The IDB
funds rural water supply projects. Belgium’s Technical
Cooperation Department also finances rural water
supply projects, particularly in the far north of the
country, and projects to rehabilitate and extend water
and rainwater drainage systems in Maroua. In addition
to rural water supply, KFW has financed the
development of water and sanitation services in four
secondary towns. It remains the responsibility of
Cameroon to complement these forms of assistance
with effective management of the water and sanitation
systems to improve access for the population.
Cameroon has remained a politically stable country
over the past 20 years, and the government is intensifying
efforts to strengthen the political process and deepen
the country’s democratic propensities. President Paul
Biya, in office since 1982 with the full support of the
ruling party, has consolidated his grip on power following
his re-election for a seven-year term in October 2004.
The government continues to make efforts to
improve the democratic and administrative governance
of the country. Following measures taken in late 2005,
such as the requirement for public officials to declare
their assets and property, and the establishment of an
anti-corruption commission, the government made
further efforts to improve governance in 2006. In
particular, it announced in early 2006 the creation of
an independent electoral body to replace the system
whereby the Ministry of Territorial Administration
manages the electoral process. The government is yet
to provide details of this new body, but even the
Cameroonian opposition has already hailed the move
as a significant step in the right direction.
Nonetheless, Cameroon still has major hurdles to
clear in improving governance. Continuing flagrant
abuse of human rights constitutes an indictment of the
government. The security forces are often accused of
human rights abuses, including the use of excessive
force, without any response or redress from the
government. As reported by the International Centre
for Prison Studies, Cameroon has the second-highest
prison occupation rate in sub-Saharan Africa, with twothirds of the inmates awaiting trial. In addition,
corruption remains the bane of socio-economic activity.
Cameroon’s ranking in the Transparency International
corruption perception index has continued to deteriorate,
dropping from 129th in 2004 to 137th in 2005.
For sub-Saharan Africa, Cameroon is a relatively
high-income country in per capita terms, at $862 per
capita. It nonetheless remains a poor country, where the
national household survey ECAM II (2001) indicated
that 40 per cent of the population lived below the poverty
line (of 232 547 CFA francs per adult per year). The 2005
UN Human Development Index put Cameroon in
148th place out of 177 countries. As with most African
countries, poverty in Cameroon is a rural phenomenon.
In recent years, however, poverty in towns and cities has
become worse due to increasing urbanisation. A shortage
of housing and inadequate public facilities underlie the
poverty situation in towns and cities. As mentioned
above, the structural deficit of electricity remains one of
the main hindrances to poverty reduction, as household
access to electric power is rare and unevenly distributed
among regions. The third national demographic and
health survey (EDSC-III), carried out in 2004 and
published in June 2005, found that 52.8 per cent of all
households (and 84.5 per cent in rural areas) had no
electricity, a situation that undermines individuals’ efforts
to move up the economic ladder.
In the education and health sectors, Cameroon has
better facilities than the average sub-Saharan country,
© AfDB/OECD 2007
Cameroon
but major efforts continue to be needed to address
regional inequalities. The results of the ECAM-II
(2001) survey indicated a fairly high and rising literacy
rate of 68 per cent, up from 47 per cent in 1987. Net
school attendance was 77.8 per cent at the primary level
but fell very significantly to 32.8 per cent in secondary
school. The even greater problems at the tertiary levels
may be a disincentive for pupils who might otherwise
pursue secondary education. The state universities in
Cameroon are having severe problems coping with an
unprecedented influx of new students. As a result of
the country’s policy of granting admission to anyone
who has completed secondary school, university facilities
are overstretched and severely overcrowded.
The government is making great efforts to improve
education in Cameroon. In 2005, about 29 per cent
of the national budget was earmarked for the sector,
and the government recruited about 1 700 supply
teachers to equip schools. Although the government’s
emphasis appears to be on primary education, with
the aim of reaching the MDG of universal access to
primary education by 2015, it is also paying attention
to higher education. In 2005, it gave approval for the
opening of two new medical schools and an engineering
faculty, which will go some way to alleviating the
problems faced in the tertiary sector.
© AfDB/OECD 2007
The government of Cameroon attaches great
importance to the health sector, and health performance
is satisfactory relative to the rest of sub-Saharan Africa.
In 2006, government outlays on health amounted to
about 5.8 per cent of total spending. The government
is making special efforts to combat Malaria and AIDS,
the two main causes of death in Cameroon. In an effort
to reduce the spread of malaria, the price of treated
mosquito nets was reduced from 5 000 to 3 500 CFA
francs in 2004, but only 20 per cent of households have
at least one such net (17 per cent in the countryside).
The HIV infection rate is estimated at 5.5 per cent in
the 15-49 age group. The national anti-AIDS plan
drawn up in 2000 has been revised for the 2006-10
period. The government has opened 19 new prevention
and testing centres, and in 2006 about 55 000 people
were tested, up from only 6 000 in 2003. The price of
antiretroviral (ARV) drugs was brought down from
7 000 to 3 000 CFA francs per dose in 2005, and they
are now given free to infected children. Infected pregnant
women and newborn babies receive nevirapine at no
charge. The cost of the half-yearly follow-up tests of
ARV patients has also been cut, from 18 000 to
16 000 CFA francs.
175
.
Chad
N’Djamena
key figures
•
•
•
•
•
1 284
10 032
44.2
74.3
Chad
T
CHADIAN ECONOMY ENTERED the oil age at
the turn of the millennium. In 2004, the exploitation
of “black gold” was the country’s main engine of
growth, enabling it to reach a record growth rate of
31.3 per cent. However, the “oil boom” was followed
by a disappointing performance of the sector. Chad’s
GDP nevertheless rose by 8.6 per cent in 2005,
reflecting the recovery of the country’s non-oil-sector,
where growth primarily occurred, at a rate of 11.6 per
cent. However, 2006 was marked by rising violence
in the easternmost part of Chad, at the Sudanese
border, as a result of clashes between government
forces and rebel troops opposed to the current regime.
This military escalation, with Chad accusing Sudan
HE
of serving as a rear base for the rebellion, is exposing
the two countries to a full-blown conflict and could
lead to considerable movements of refugees and
displaced persons. This acute military tension is also
engendering an alarming
Disappointing performance in
food situation in the refugee
the oil industry affected other
camps and increasing
sectors where compensating
insecurity amongst the host
for the drop in oil revenues
population. In 2006,
is proving difficult.
national economic activity,
although down from the performances recorded in
2005, remained buoyant despite the decline in oilsector activity. Real overall GDP growth is estimated
at about 1.3 per cent for 2006.
179
Source: IMF and National Institute of Statistics and Economic and Demographic Studies (Inseed) data; estimates (e) and projections (p)
based on authors’ calculations.
http://dx.doi.org/10.1787/018610673606
© AfDB/OECD 2007
Chad
In the harvest season 2005/06, the primary sector
(oil and agriculture) contributed 3.8 percentage points
to growth. Growth of the primary sector is estimated
at 0.2 per cent for 2006. This weak performance of
primary-sector activities was mainly due to the decline
in oil extraction, leading to a fall of 3.6 per cent of its
value added. Sustained growth in the other sectors was
barely able to offset the decline in oil production. The
return to normal weather and pest conditions should
set agricultural growth at about 7 per cent, as against
26.6 per cent in 2005. The contribution of the
agricultural sector to GDP growth is estimated to be
no more than 0.1 percentage point for 2006. As for
food-crop production, its normal growth rate (6.7 per
cent per year on average) will not be able to make up
for the decline in oil activity, which is expected to settle
at 1.6 per cent, -0.6 per cent and -6.1 per cent in 2007,
2008 and 2009, respectively.
180
The final results announced by the agricultural
statistics division indicate 53 per cent progress in cereal
production thanks to good rainfall distribution over the
year and around the country, and to the increase in
cultivated areas. Contrary to forecasts, which had
predicted stagnation, seed-cotton production increased
by 7.5 per cent in 2006. It is estimated at 215 000 tonnes
by the national rural-development bureau. This progress
is apparently due to the fact that farmers were highly
motivated to pursue cotton production subsequent to
their joining the board of CotonTchad, but also to
the government’s decision to exempt CotonTchad from
paying value-added tax (VAT) on the materials,
equipment and services necessary for production, and
to the government’s will to take on part of the costs of
inputs in the future.
The estimated slow-down in the primary sector is
explained by the decline in oil output. Activity in the oilproduction sub-sector, which made a strong contribution
to growth over the past few years, now shows disappointing
performance. The growth rate of the oil-production subsector took a sharp drop, from 293 per cent in 2004 to
2.1 per cent in 2005, due to the decline in oil extraction.
The initial output forecast of 175 000 barrels per day on
average for 2005 was not met for technical reasons,
including the water content in the crude oil extracted from
the three fields (Miandoum, Komé and Bolobo) and the
quality of the crude oil (heavy, viscous and acidic). By
the end of 2005, average production was only
172 400 barrels per day on average, despite the start of
production in the Nya field (June 2005).
Since 1999, management of the proceeds generated
by oil production had been regulated by the oilrevenue management law drawn up with the World
Bank. Under the terms of this law, direct revenues,
i.e. royalties and dividends (12.5 per cent of the selling
price of crude oil on the international market), were
paid into a Chadian state account. Ten per cent of this
revenue was then placed in an escrow account opened
with an international institution for the benefit of
future generations. The remaining 90 per cent were
(percentage)
Source: Authors’ estimates based on Inseed data.
http://dx.doi.org/10.1787/512540586074
© AfDB/OECD 2007
Chad
deposited in special accounts of the Chadian treasury
and distributed as follows: 80 per cent to finance
specific development projects in priority sectors such
as education, health, infrastructure (roads), rural
development, the environment and access to drinking
water; 15 per cent to general administrative and
investment expenditures in the state budget; and 5 per
cent to the decentralised authorities of the oilproducing region.
On 29 December 2005, however, the National
Assembly of Chad unilaterally revised this law. The
government, facing an armed rebellion attempting to
overturn it, decided to turn part of its oil revenues over
to security expenditure. The World Bank responded
immediately by freezing the funds it had granted to
Chad and part of the country’s assets reserved for future
generations in the London-based escrow bank account.
The World Bank also suspended the disbursement of
$124 million in loans to Chad. Negotiations were held
in April 2006, and on 15 July, a budget law was adopted
specifying that 70 per cent of oil revenues would be
used for priority poverty-reduction programmes and,
thanks to the creation of a stabilisation fund, would
contribute to long-term growth and to the development
of new opportunities. The priority programmes
identified by this agreement are directed towards health,
education, agriculture, infrastructures, the environment,
rural development, de-mining and good governance in
public affairs. The agreement also stipulates that security
spending will be funded from the state treasury’s general
revenues. The Chadian authorities also agreed to
strengthen their support of the Collège de contrôle et de
surveillance des ressources pétrolières, an independent
body in charge of monitoring and supervising the use
of oil revenues. The protocol includes provisions
whereby the Collège’s own resources will be increased
in order to help it accomplish its task of supervision.
In addition, it stipulates that 5 per cent of oil proceeds
will be allocated exclusively to the Doba region, where
the oil is extracted and then transported to the sea via
a pipeline that goes through Cameroon.
The secondary sector showed sustained activity in
2005, contributing 1 percentage point to growth.
© AfDB/OECD 2007
Incentive measures taken by the government in the
cotton sector made it possible to relaunch ginning.
Moreover, the manufacturing industries (sugar, beverages
and cigarettes) benefited from tariff-protection measures
set up to curb fraudulent imports. Investments in the
industrial sector also increased, in response to demand.
The water and electricity utility Société tchadienne d’eau
et d’électricité (STEE) contributed to the growth of this
sector thanks to the rehabilitation of old generators
and a number of different investments. The contribution
of the construction sector is also to be noted, in
particular through road construction and works in the
N’Djamena power station.
The steady, sustained growth of the secondary sector
(17 per cent in 2005 and 14.5 per cent in 2006) is
estimated to be largely due to the recovery of researchand-development activities undertaken to overcome
geological constraints. Its contribution to growth in 2006
is estimated at 0.4 percentage point. The continuance of
major construction works (roads and buildings) is
estimated to have supported construction-sector activity,
which realised 11.3 per cent growth. The handicraft,
bakery and milling sector, dominated mainly by cereal
flour production, is estimated to have benefited largely
from the excellent 2005/06 agricultural season: its value
added is expected to progress by 17.5 per cent in real terms.
The energy (water and electricity) sector has maintained
its buoyancy, thanks in particular to the upcoming
commissioning of the new Farcha power station. Although
the contribution of the secondary sector to total growth
was not very great (around 10 per cent of GDP at constant
prices), it is estimated to have contributed 1.5 percentage
points to growth in 2006. Although this sector has
recorded a favourable trend in its activities, the good
performance of its sub-sectors has not compensated for
the drop in oil investments. In 2007, the activity of the
secondary sector is expected to fall considerably, by
8.8 per cent. However, it is expected make a recovery in
2008 and 2009 reaching 3.7 per cent and 3.3 per cent,
respectively, thanks to the lint-cotton industry, water and
electricity, and handicraft sub-sectors.
Despite competition from the informal sector, the
tertiary sector marked clear growth in 2005 thanks to
181
Chad
182
the development of commercial activities, mobile
telephony, transport and tourism. The contribution
of this sector to growth amounted to 3.5 percentage
points. The tertiary sector received support from the
state’s continued policy to settle its debts towards local
economic operators. The steady progression of tertiarysector activity since 2000 continued in 2006. Growth
of the value added of the sector is estimated at 7.4 per
cent, driven by: the public-administration sub-sector
(12 per cent), which increased its expenditures on
poverty reduction; the transport and communications
sub-sector (6.4 per cent), thanks to the development
of roads (which should increase domestic trade) and
the expansion of mobile telephony; and the trade subsector (5.4 per cent), which benefited from the effects
induced by recovery in the other sub-sectors. This
sector’s contribution to growth in 2006 is expected to
stand at 2.7 percentage points including a contribution
of 1.2 points made by the public-administration subsector. The strong activity of the tertiary sector recorded
since 2001 is expected to slow down and grow by
2.9 per cent, 2.2 per cent and 2 per cent in 2007, 2008
and 2009, respectively. The tertiary sector is projected
to contribute 1.1 point and 0.8 point to growth in
2007 and 2008/09, respectively.
On the demand side, new investments were realised
in the oil sector in order to cope with geological
constraints. This new pace was reinforced by the increase
in public-investment expenditures. Growth of final
consumption in real terms is estimated to have fallen
to 1.6 per cent in 2006. There is hope of a slight
recovery in 2007, but it is not expected to become
consolidated. Most (about 70 per cent) of the good cereal
production of the 2005/06 agricultural season is
estimated to have been consumed in 2006, with a
considerable increase in non-market consumption
(reflecting the importance of home-consumed
production in rural areas). It is estimated to have risen
by 15.6 per cent and contributed 4.1 percentage points
to growth. Market consumption also contributed to this
increase, benefiting from an improvement in the
purchasing power of households brought about by
perspectives of wage increases in the civil service. As
for the external sector, for the first time since the start
of oil production in the Doba Basin, exports are
estimated to have fallen by 1 per cent in real terms.
Imports, on the other hand, are estimated to have
increased significantly, by 7 per cent in 2006, benefiting
from the recovery in oil investments. The estimated
employment level is down by 10.4 per cent in real
terms, but is projected to climb slightly in 2008 and
2009 to 0.6 per cent and 0.4 per cent, respectively. This
is seen as the result of the weakness of gross fixed capital
formation (GFCF) in the oil sector and of the slowdown
in exports related to the fall in oil output.
1998
2005
(percentage of GDP)
2006(e)
2007(p)
2008(p)
Percentage of GDP
(current prices)
14.3
6.4
7.9
26.6
8.7
17.9
7.3
4.8
8.5
8.3
4.8
10.0
7.0
4.8
8.0
Consumption
Public
Private
101.9
41.1
60.8
45.5
20.8
24.7
1.6
3.5
0.6
4.3
2.7
5.2
3.7
3.3
3.9
External sector
Exports
Imports
-16.1
20.4
-36.5
27.9
54.4
-26.6
-1.0
7.0
-0.2
6.6
-3.0
5.4
Public
Private
http://dx.doi.org/10.1787/332031360071
© AfDB/OECD 2007
Chad
Fiscal Policy
Given the problems that the country had met in
executing its budget, Chad’s finance law was revised in
2005. Budget execution finally ended with a deficit (on
a commitment basis, including grants) of 31.3 billion
CFA francs. Non-grant receipts went up by 27.9 per
cent due to the increase in oil receipts (+65.3 per cent)
reinforced by the high level of prices. Non-oil receipts
went up by 7.9 per cent thanks to the increase in
income tax (+22.2 per cent) and in customs receipts
(+22.4 per cent). Current expenditure increased by
52.4 per cent in 2005, owing in part to hiring in the
primary sector and to the rise in transfer and subsidy
expenditures. Capital expenditures declined (-20 per
cent) partly as a result of the 33 per cent drop in
investments in external resources.
The Chadian authorities adopted a corrected
finance law for 2006 which takes into account the
rise in prices of crude oil and the agreement signed with
the World Bank on the use of oil proceeds. The
corrected budget sets state expenditures at
641.29 billion CFA francs and its revenues at
607.5 billion CFA francs, as against the 539 and
510.33 billion CFA francs, respectively, of the initial
text. This change takes account of the outcome of the
negotiations with the World Bank, which released the
frozen funds, and of the addition of new oil-related
revenues. The latter are due to the constant rises in the
price of the barrel on the international market and on
the proceeds from the company income taxes paid by
the oil consortium, estimated at 69 billion CFA francs,
as well as from another tax amounting to 9.434 billion
CFA francs, none of which had been taken into account
in the initial finance law. The new budget text also
includes non-recurrent security expenditures. In the
2007 finance law, the estimated additional taxes from
oil companies are expected to create budget surpluses
for the first time ever. This unprecedented situation
has led the authorities to decide to no longer tax
building materials as of 2007; the costs of building
materials had previously been amongst the highest in
the sub-region.
© AfDB/OECD 2007
In 2006-09, it is expected that public finances, in
terms of receipts, will evolve in line with the revenues
received from oil activities, and in terms of expenditures,
according to the implementation of the national povertyreduction strategy, the Stratégie nationale de réduction
de la pauvreté. The overall volume of receipts collected
by the general administration is predicted to evolve
very positively. As a percentage of GDP, expenditures
are expected to be twice the percentage noted in 2005,
settling at an average of 18.6 per cent of GDP. Nonoil tax revenues (i.e. revenues excluding the taxes on
the oil-consortium companies) are expected to progress
slightly to reach 10 per cent of non-oil GDP in 2007,
up from 9.6 per cent in 2006. As for non-tax revenues,
excluding oil royalties, they are projected to stagnate
as a percentage of non-oil GDP despite the revenues
expected from the announced privatisations of Novotel
(2006), CotonTchad (2007) and the telecommunications company Sotel Tchad (2007/08).
Monetary Policy
183
Monetary policy is managed at the regional level
by the Bank of Central African States (Banque des États
de l’Afrique centrale – BEAC) with the priorities of
keeping inflation under control and pegging the CFA
franc to the euro. Monetary policy in the zone is
therefore strict, like that of the European Central Bank
(ECB). The only difference is that the BEAC’s monetary
policy takes account of the economic situation of its
member countries with respect to inflationary pressures
and banking liquidity levels.
In the area of inflation, tensions arose in the prices
of most food products: the average inflation rate in
the first five months of 2006 was 14.1 per cent higher
compared with the first five months of 2005. This
situation was mainly the result of the sharp increase in
the prices of meat and fish products brought about by
the Avian Flu outbreak in Nigeria, which resulted in
a massive output of fish from Lake Chad into bordering
countries. There was also a marked fear on the part of
the local population of the possibility of a local outbreak
of the virus. This situation resulted in a high demand
for meat, which was in limited supply: the
slaughterhouse company Société moderne des abattoirs
Chad
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Oil revenue
11.0
6.0
0.0
15.2
6.6
0.0
11.3
4.8
2.5
12.3
4.1
4.2
11.7
4.0
4.3
11.5
4.1
3.8
11.1
4.3
3.5
Tax expenditure and net lendinga
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
14.8
7.2
6.4
3.8
0.8
7.6
22.0
9.4
8.8
4.7
0.6
12.6
14.4
6.6
6.2
3.4
0.4
7.8
13.0
6.0
5.7
3.3
0.3
7.0
13.3
6.3
5.8
3.3
0.5
7.0
14.0
6.6
6.1
3.6
0.4
7.4
14.7
6.9
6.5
3.8
0.5
7.8
Primary balance
Overall balance
-2.9
-3.7
-6.2
-6.8
-2.7
-3.2
-0.4
-0.8
-1.1
-1.7
-2.1
-2.5
-3.1
-3.6
184
in Farcha, which has a monopoly on meat production
for N’Djamena, recorded a 4 per cent drop in its
production. Inflationary pressures increased in the
second half of 2006 partly because of the break-up of
markets in the east and south of the country resulting
from the growing insecurity there. This could make trade
increasingly difficult and lead to a continuing rise in
demand from refugee populations. Nonetheless, the
conservative monetary policy of the BEAC should
prevent any pronounced increase in inflation, which
is estimated at an average of 8.8 per cent in 2006 and
projected at 4 per cent in 2007; this is still above the
convergence criterion of the Economic and Monetary
Community of Central Africa (Communauté économique
et monétaire de l’Afrique centrale – CEMAC), which sets
it at 3 per cent.
External Position
Chad is a member of the CEMAC and of the
Economic Community of Central African States
(ECCAS). In February 2005, in the framework of the
Poverty Reduction and Growth Facility (PRGF), the
International Monetary Fund (IMF) and Chad
negotiated a new three-year programme amounting to
$38 million. This programme with the IMF is currently
suspended because of the poor macroeconomic results
obtained by the authorities. The European Union (EU)
signed a co-operation programme with Chad for
EUR 273 million in the framework of the 9th European
Development Fund (EDF). During the period 2004African Economic Outlook
http://dx.doi.org/10.1787/043648417017
06, the World Bank granted an IRSC (Institutional
Reform Support Credit) of $25 million to finance
institutional reforms.
There was no significant change in Chad’s exports
or imports: between 2005 and 2006, exports moved
from 52.8 to 52.6 per cent and imports from -13.8 to
-13.9 per cent.
Chad is applying a cautious external-debt policy and
contracting most of its loans under very privileged
conditions. The country also became eligible in mid2001 for debt relief under the Enhanced Heavily
Indebted Poor Countries (HIPC) Initiative. However,
in 2006 Chad did not receive any HIPC funding.
External-debt servicing (after the overall borrowing
operation) was estimated at the end of 2004 at
780 billion CFA francs, up from 732 billion CFA
francs in 2000. Debt stock declined from 75 per cent
of GDP in 2000 to 34 per cent in 2004. In 2004,
Chad’s long-term external debt amounted to nearly
93 per cent of total debt, rising by 8.2 per cent to reach
$1.58 billion, as against $1.46 billion previously.
Recourse to IMF credit declined by 9.4 per cent. Shortterm debt stabilised at $23 million. Chad was expected
to reach the HIPC Initiative completion point by the
end of 2005 and to be able to benefit from the
Multilateral Debt Relief Initiative. However, the
November 2005 to July 2006 break in relations between
Chad and the World Bank made it impossible for Chad
to reach the completion point. The adoption of the new
© AfDB/OECD 2007
Chad
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
-1.1
14.9
-16.0
-9.9
-1.1
2.9
-6.5
22.1
-28.6
-27.8
-16.5
3.6
29.1
49.0
-19.8
-27.3
-13.3
5.0
39.0
52.8
-13.8
-29.5
-9.8
5.3
38.7
52.6
-13.9
-26.6
-8.9
4.8
34.0
48.5
-14.5
-26.8
-18.4
3.7
29.9
45.2
-15.2
-23.5
-13.3
3.4
-9.2
-47.1
-6.5
4.9
7.9
-7.5
-3.5
Source: IMF and BEAC data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/267852762744
185
Source: IMF.
http://dx.doi.org/10.1787/124118888446
oil-revenue management law in July 2006 should make
it possible not only to release suspended World Bank
credits but to clear up Chad’s situation with regard to
the HIPC Initiative completion point.
Structural Issues
Recent Developments
One of the challenges facing the country is the
establishment and stabilisation of national institutions
© AfDB/OECD 2007
whose role will be to set the “rules of the game” in the
economic, political and social arenas.
In the areas of decentralisation and good governance,
it is true to say that decentralised institutions remain
weak and that the establishment of solid local governance
remains a non-negligible challenge. Today, municipalities
are the only local authorities with a distinct legitimate
organisation. Decentralisation is limited by the quality
of communications between the central government and
the regions. Despite the development and validation
in December 2005 of a blueprint for decentralisation
Chad
which was intended to render the Chadian authorities’
commitment to decentralisation operational, the
associated legal framework remains to be completed and
the establishment of regional authorities is hanging on
the organisation of elections. The country organised a
general convention of justice in 2003 and of the army
in 2005, to consolidate the foundations of the rule of
law. Subsequently, commercial courts were set up in four
main towns in the country (in addition to N’Djamena)
to facilitate the settlement of conflicts related to
commercial transactions. The country has stated its
determination to fight corruption. A Ministry of General
State Control and Moralisation was created in June
2004. Nonetheless, the measures against corruption are
not always well-targeted and run into highly complex
procedural rules and mystifying results. In 2005, Chad
was ranked in first place as the most corrupt country
in the world. This situation argues in favour of the use
of information technology by the financial authorities
(customs, taxes, etc.).
186
In the area of agricultural-sector reforms, analyses
cover mostly the cotton sub-sector, for even though the
latter benefits from considerable state support and
donor backing, it is facing a drop in production, due
particularly to purchase prices that provide little
incentive and to marketing problems. Smallholders’
production is often paid as much as six months late.
All of this discourages production. The government and
its partners have drawn up a list of measures to be
taken (roadmap) in order to prepare effectively the
privatisation of the CotonTchad company in 2007. In
the framework of a crop-diversification policy, many
studies were conducted for the launching of new
agricultural sub-sectors, including poultry, peri-urban
livestock, Spirulina and pasture-fattened bovine animals.
So far, these studies have not resulted in the launching
of new projects. Chad is the second world producer of
gum arabic, a sub-sector that is booming. Finally,
sesame and groundnut production offer potential for
substantial monetary income for rural populations,
but these sub-sectors are badly known, badly exploited
and badly organised.
The Chadian banking system comprises seven banks
(no change with respect to 2004): the Banque agricole
du Soudan au Tchad (Bast), the Banque commerciale du
Chari (BCC), the Banque internationale pour l’Afrique
au Tchad (Biat), the Commercial Bank Tchad (CBT),
the Financial Bank Tchad (FBT), the Société générale
tchadienne de Banque (SGBT) and the Banque sahélosaharienne pour l’investissement et le commerce (BSIC).
The Chadian economy still possesses a poor level of bank
utilisation and suffers from low bank density.
Microfinance is a relatively important sector,
representing nearly 4 billion CFA francs of loans granted.
Informal mutual-help entities have constituted fertile
ground for the blossoming of microfinance, through
not-for-profit organisations, mutual societies and
associations. This sector is expanding. The Microfinance
Institutions (MFI) movement actually started in the
1990s as an offshoot of the Vita project financed by
the United States Agency for International Development
and the savings-and-credit union – Union des clubs
d’épargne et de crédit (UCEC) – in Pala, funded by the
diocesan bureau for development, the Bureau d’Études
et de Liaison, d’Action Caritative et de Développement
(BELACD). In 2001, according to the microcredit
division of the Ministry of Finance and Information
Technology, there existed 128 microfinance
organisations, 111 of which were grouped into 5
networks; these organisations had collected 635 million
CFA francs in savings and granted 1.3 billion CFA
francs in loans to users. Moreover, 32 000 persons had
used these MFI financial services. In the framework of
the implementation of the CEMAC/COBAC (Central
African Banking Commission) procedure, 214 MFIs
were identified in 2004, 187 of which were networked
and 5 in project status; these represented 4 419 billion
CFA francs of collected deposits and 3 669 billion CFA
francs of loans granted to 98 378 users, tripling the 2001
figures. On 31 December 2005, 97 MFIs had been
accredited by the COBAC.
The government drew up a national transport
programme (PNT) for 2000-09 aimed primarily at
contributing to economic growth and reducing poverty
by means of: better access within, and from outside of,
the country; reduction of transport costs, both within
the country and internationally; minimum access to all
regions of the country, even during the rainy season;
an adequate network of roads suitable for motor vehicles
© AfDB/OECD 2007
Chad
all year round linking up the main towns in the country;
pursuit of the liberalisation process of the sector and
of the modernisation of its administration; development
of rural infrastructures; and so on. One of the objectives
of the national transport programme is the improvement
of the system in rural areas. The results obtained so far
in this domain have been limited. To correct this, the
government has set up a division for roads and earth
roads (DRPR), which is to be responsible for
implementing the “rural transport” component of the
national transport programme support project
(Papronat) funded by the World Bank. The government
has drawn up a five-year investment plan (2006-10)
for roads and earth roads for a yearly amount of 4 billion
CFA francs. This plan should make it possible to repair
3 000 to 4 000 kilometres of rural roads with national
funding (oil revenues). In addition, some other major
projects include a “roads and earth roads” component,
such as: the project to build 100 kilometres of earth
roads in the target zone selected for the 6th EDF (EU
funding); the project to repair earth roads in the former
Biltine prefecture (Swiss co-operation funding); and the
repair and maintenance project for earth roads in the
former Mayo-Kebbi prefecture (KFW [Bank of
Reconstruction Credit] – German development cooperation funding).
A postal-services and telecommunications strategy
is currently being finalised. Its goal is to improve the
coverage of urban and rural areas, particularly through
the development of mobile telephony. Sotel Tchad (a
subsidiary of the Anglo-Dutch company MSI
Mobicom), which is the leading mobile-telephony
operator, runs a telephone network that has
infrastructure and intercity transmission connections
linking up 16 of the country’s towns. In June 2006, the
company announced a 24 billion CFA franc expansion
plan. The mobile-telephony market has experienced
rapid development. In 2004, there were about 1 200 000
subscribers. The expansion of mobile telephony has
brought about considerable improvement in overall
access to the telephone (15 per cent in 2004). Since
October 2005, the quasi monopoly held by Celtel has
been challenged by the Swedish group Millicom
International. The rural-telephony project has succeeded
in installing VSAT antennas in 15 out of the 25 initially
© AfDB/OECD 2007
targeted secondary towns, which represents a 63 per
cent completion rate. The Internet penetration rate is
only 0.3 per thousand inhabitants. The Ministry of
Postal Services and New Communications Technologies
is currently developing a national strategy for
information technology and telecommunications.
In the energy sector, the policy and strategy letter
for the electricity sub-sector (2002-06) states as its
main purpose to meet at a lesser cost the energy needs
of the population as a whole and to extend access to
energy for the benefit of agricultural and industrial
production. Its also aims to promote alternative energy
sources (solar and wind energy) so as to limit the impact
of firewood cutting on the regeneration of forest
resources. Ligneous fuel (stove wood and wood charcoal)
still represents 90 per cent of energy consumption,
leaving only 10 per cent for conventional energy (oil
products and electricity). From 2001 to 2005, annual
energy consumption went up from 240 to 292 kg of
oil equivalent per capita.
187
Chad has considerable water resources. This should
not, however, obscure the major constraints involved
in the mobilisation of water resources – especially, the
unequal distribution (both spatially and temporally) of
rainfall and surface water, as well as the lack of knowledge
regarding how the main aquifers work. Improving the
rate of access to drinking water in Chad, amongst the
lowest in Africa, is one of the country’s most important
socio-economic challenges.
In 2003, the government adopted an integrated
plan for Chad’s water and sanitation development and
management (Schéma directeur de l’eau et de
l’assainissement – SDEA), which is still the main reference
in the sector. The SDEA constitutes a strategic, multisectoral master plan providing guidelines for the
sustainable development and management of water
resources in Chad, with a view to meeting the
population’s basic needs and promoting the economic
and social development of the country. It is through
the SDEA that the government’s environmental policy
has been defined.
Chad
188
The three institutions principally involved in water
and its management are: the National High Committee
for the Environment (HCNE), the Ministry of the
Environment, Quality of Life and National Parks
(formerly the Ministry of the Environment and Water –
MEE), and the Ministry of Fishing and Rural
Waterworks. The HCNE’s mission is to ensure that there
is effective application of the recommendations of
Agenda 21 (drawn up by the United Nations
Conference on Environment and Development held
in Rio de Janeiro in June 1992). The National Water
Management Committee (CNGE) is attached to the
HCNE. The two ministries are in charge of designing
and implementing policies for environmental
protection, the fight against desertification, and naturalresources management; they are also responsible for the
implementation of policies for urban, agricultural and
rural waterworks and sanitation, as well as for
meteorology and hydrology. The Ministry of the
Environment, Quality of Life and National Parks is
also in charge of the HCNE Secretariat. Finally, the
ministry in charge of decentralisation under the
authority of the prime minister is responsible for the
implementation of the decentralisation policy in this
area, so enabling participation and decision-making
at the lowest possible level.
Since 2001, the main institutional actors in the
domain of urban water have been the MEE – through
the Directorate of Hydraulic Affairs (DH), which deals
with the non-concessionary sector – and the Ministry
of Mines, Energy and Petroleum (MMEP) (now the
Ministry of Mines and Energy), responsible for the
utility company STEE – which deals exclusively with
the concessionary sector. The main producers have
been water-point management committees (Comités de
gestion des points d’eau) in conurbations equipped with
thermal or solar drinking-water supply (DWS) stations,
for the non-concessionary sector, and the STEE for the
concessionary sector.
Artisans and associations comprised of hydraulic
engineers and street-fountain managers often act as
intermediaries between network owners and retail
water-carriers or non-subscribed consumers. They are,
in a sense, wholesalers.
In the area of water management, it is worth noting
that the management system is of the community type,
based on the experience of the Directorate of Hydraulic
Affairs. The water-management committees comprise
7 to 10 members covering the different management
functions. They are backed by a technical team in
charge of equipment servicing and maintenance. The
main finding regarding the DWS stations run by a
management committee is that the management systems
set up recently often do not work properly. Moreover,
water is often under-invoiced as the price of water is
set with no reference to real operating costs. Water is
too commonly supplied for free and in unlimited
quantities to notables and public services. There is little
or no maintenance, and servicing is limited to system
drainage and lubrication.
The main actor in the institutional framework for
urban sanitation is the Ministry of Public Health,
which is responsible particularly for promoting
environmental hygiene, for the purification and quality
of water for consumption, and for drawing up
legislation and regulations in the area of hygiene and
sanitation. The Ministry of Regional Development,
Urban Planning and Housing is responsible for
regulations in the area of town and country planning,
urbanism and construction, and for defining viability
levels for the different types of neighbourhoods. The
Ministry of the Environment, Quality of Life and
National Parks is responsible for project design and
construction supervision for all activities related to
urban hydraulics and sanitation. The Ministry of the
Interior and Public Security, through its sanitation
section, is in charge of: disinfestation, disinfection
and rodent control in homes; disaster response
(epidemics, floods, etc.); and the hygienic disposal of
urban solid and liquid wastes and faeces.
Municipalities also play a role in the sanitation
chain – as well as the populations, which have organised
sanitation committees in a number of towns. These
committees are involved in the maintenance and
construction of channelling systems to drain rainwater,
in waste collection and in repairing streets after the
rainy season.
© AfDB/OECD 2007
Chad
The basic prices of water and connections vary
according to the management. Management
committees, for lack of customer market research and
of any real calculation of the local cost price, sometimes
apply STEE rates when new installations are
commissioned (connection, renewal or reinforcement).
The price of water is usually broken down into three
categories. The first, so-called “social” category
(15 m3/month) is set at 105 CFA francs. The second
(15 m3 to 100 m3/month) varies depending on the
centre: it is 230 CFA francs/m3 for the sites manages
by the STEE and can go up to as much as
490 CFA francs/m3 (in Pala). The third category is set
at 110 CFA francs/m3. Generally speaking, the prices
do not reflect the real costs to the owners. STEE rates
have been frozen since 1984. The most underprivileged
populations sometimes buy water from a reseller for
up to 15-25 times more than the price paid by
subscribers with private connections.
The drinking-water supply rate for the Chadian
population as a whole was only 42 per cent in 2004
according to the United Nations Environment
Programme (UNEP); this was almost twice the rate of
2001, when it was 23 per cent (16.5 per cent in rural
areas, 25 per cent in centres in the non-concessionary
sector and 40 per cent in towns in the concessionarysector managed by the STEE).
Regarding sanitation, there is practically no basic
infrastructure in either rural or urban areas. Everything
remains to be done in this domain. In 2002, 30 per
cent of the urban population had access to sanitation,
but in the rural areas the prevailing rate was practically
equal to zero. In 2004, sanitation needs in terms of
percentage of population were estimated at 35 per cent
in urban areas and 56 per cent in rural areas. According
to the SDEA drawn up in 2002, village needs amount
to more than 12 500 new water points by 2015 to be
able to supply 70 per cent of the rural population: this
will require considerable investments.
For the village areas, outside of a few projects, there
are very few villages equipped with improved traditional
latrines or ventilated pit latrines, or even waste or wastewater collection systems. This means that 10.6 per
© AfDB/OECD 2007
cent of households are using rudimentary latrines,
0.6 per cent are using improved traditional latrines
and 88.5 per cent are relieving themselves in nature.
Moreover, there is no waste collection in the villages
and domestic animals are left wandering about. In
Chad, the major (current and future) village-hydraulics
projects do not systematically include a sector for
“village sanitation” – which is inexpensive, but requires
specific programmes for local mobilisation and
awareness raising.
There is not a single town with a functional wastewater disposal system. The collection networks are
decrepit. Less than 2 per cent of town-dwellers have
sanitation installations with running water. Moreover,
only four towns – N’Djamena, Moundou, Sarh and
Abéché – adopted urban reference plans (Pur) in
February 1997; these plans identify built-up areas and
outline the main road-networks and rainwater-drainage
options.
Hospitals and health centres have neither
infrastructures in good working condition (incinerators,
waste-processing plants, etc.) nor well-established
“procedures” to process and dispose of biomedical
waste. This waste often ends up in the streets, where
it can be picked up by children or anyone wishing to
“recover” it. Waste-water from health facilities is rarely
processed: it is merely disposed of in the environment,
often in natural streams; in some cases, it is re-used for
a variety of purposes (to water small market gardens,
etc.). In addition, most industries discharge their liquid
wastes into large waterways, such as the Chari and the
Logone Rivers, with no prior treatment.
Only the four largest towns –N’Djamena,
Moundou, Sarh and Abéché – have a more-or-less
organised secondary network of open gutters to evacuate
rainwater, but they are rarely in good condition.
In the past 25 years, the main donors for urban
and semi-urban hydraulics have been Chinese
Taipei (15 346 billion CFA francs), Germany
(10 756.6 billion CFA francs), the European Investment
Bank (1 486.8 billion CFA francs), the European
Development Fund (1 395.3 billion CFA francs),
189
Chad
France (985.8 million CFA francs), Italy
(835.2 million CFA francs), the Inter-American
Development Bank (105 million CFA francs), the
World Bank (54 million CFA francs) and the African
Development Bank, which has launched a project in
this sector.
190
The real challenge that is facing the government is
to contain the resurgence of insecurity and conflicts in
Chad. The public life of the country is marked by the
continuing existence of focal points of tension, making
it difficult to build a social fabric and maintain a stable
political consensus. After having been weakened over
several months by defections within his regime and by
rebellion – backed, according to N’Djamena, by
neighbouring Sudan – Idriss Déby, who had been in
power since 1990, was re-elected on 3 May 2006 for
five years on the first round of an election that was
boycotted by the opposition. The rebel groups Union
of Forces for Democracy and Development (UFDD),
Rally of Democratic Forces (RAFD) and United Front
for Democratic Change (FUC) confronted the national
Chadian army in violent combats. This armed
confrontation has affected the areas of Chad bordering
Sudan and the Central African Republic, as well as
towns in the centre of the country, without sparing the
capital. This situation has resulted in nearly 50 000
displaced persons who are fleeing to escape from combat
zones or because of fears of reprisal from armed militia,
usually called djandjawid. In this deteriorating context,
several missions have been sent to the country, including
emissaries from the African Union’s Peace and Security
Council; also, the United States Ambassador to Chad
visited the refugee camps. Combats have led to a
deterioration of the security situation, to additional
inflows of refugees at the southern border of the country
and to displaced persons in the eastern region. The
measure of insecurity, considered by the humanitarian
organisations present to be often of great concern, has
forced the latter to relocate their staff temporarily to
the larger towns. The political dialogue between the
government and the opposition which was organised
by President Déby under international pressure, with
the aim of restoring a “healthy political climate” in
Chad after the presidential election of 3 May, resulted
in the adoption of several resolutions relating to the
general elections. Fifty-four political parties, most of
them with very low representativeness, took part in
the dialogue process, but it was boycotted by the two
main opposition groupings: the main member parties
of the Coordination of Political Parties for the Defence
of the Constitution (CPDC) – the most important
Chadian opposition coalition – and the Federation
Action for the Republic (FAR) pulled out before it
began. The CPDC, which comprises some twenty
political groupings including four of the five main
opposition parties in the National Assembly, and the
FAR, the second parliamentary opposition force,
denounced the non participation of the armed
opposition, the opposition in exile and civil-society
opposition.
Chad drew up its National Poverty Reduction
Strategy in 2003. This strategy sets out the framework
for co-operation with all the donors represented in
the country. The authorities plan to fund the
programme for the fight against poverty with oilexport revenues. According to the Human
Development Report of the UNDP (United Nations
Development Programme), Chad was ranked 171 out
of 177 countries, with a Human Development Index
(HDI) of 0.341 in 2006, as against 0.359 in 2000. This
means that over 65 per cent of the Chadian population
lives with less than one dollar a day. If this trend
continues, the number of persons living in absolute
poverty in Chad, which was 6.3 million in 2005, could
grow to 8.2 million in 2015. The latest consumptionbudget survey (ECOSIT II) of 2003, confirmed in
2006, estimated the percentage of poor populations
in Chad at 55 per cent. Poverty is mostly rural (more
than 80 per cent of the rural population lives under
the poverty line). The priority areas on which the
donors have focused their efforts include education,
health, rural development, transport, urban planning
and housing. In its National Indicative Programme,
the European Commission has channelled its efforts
(9th EDF, 2002-07) through the framework of the
National Poverty Reduction Strategy.
© AfDB/OECD 2007
Chad
Under the terms of a Framework Partnership
Document (FPD) signed in June 2006, France will
grant Chad EUR 130 million for its development up
to 2010. According to this document, 80 per cent of
this commitment will be devoted to the three major
priority sectors of basic education, water and sanitation,
and health and the fight against HIV/AIDS. French
aid will also be directed towards the sectors of governance
and the rule of law, on the one hand, and to the
influence of the French language in culture and research,
and higher education, on the other.
staff, 468 of which were graduates with state diplomas
and technical health officers. Only 7 per cent of the
total staff were doctors, giving a ratio of 1 doctor per
26 054 inhabitants. This scarcity was exacerbated by
the unequal distribution of qualified personnel amongst
the provinces, the urban and rural areas, and amongst
curative- and preventive-care institutions. About onethird of the health personnel was in N’Djamena alone,
for only 8 per cent of the population. In 2003/04, the
expenditure execution rate in the sector did not exceed
36.4 per cent of budget provisions.
The situation of the HIV/AIDS epidemic is a
subject of great concern. Starting with 2 cases in 1986,
a total of nearly 20 000 cases of AIDS had been recorded
by health groups by the end of 2004. A seroprevalence
survey conducted in 2005 showed that in Chad, 3.3 per
cent of persons aged 15 to 49 were HIV carriers. This
rate is lower than that estimated by UNAIDS (Joint
United Nations Programme on HIV/AIDS) in 2004,
which was 4.8 per cent. The prevalence rate was 7 per
cent in urban areas, as against 2.3 per cent in rural
areas. More women (4 per cent) than men (2.6 per cent)
were infected. In urban areas, seroprevalence reached
8 per cent amongst women. A declaration of national
policy for the fight against HIV/AIDS covering
prevention aspects as well as overall care is included in
the 2006-10 national strategy framework. To improve
the institutional framework of the fight against this
pandemic, the government, with the support of its
development partners, intends to implement a number
of measures, including: i) reinforcement of the
institutional basis of the co-ordinating body;
ii) decentralisation and multi-sectorisation of the fight;
iii) networking of non-governmental organisations
(NGOs) and private-sector actors; and iv) making it
an obligation to produce results for all actions taken
in the framework of the fight against HIV/AIDS, along
with periodical and systematic assessments of these
actions with a view to taking appropriate adjustment
decisions. A number of constraints, however, are likely
to complicate the implementation of these programmes.
Particularly problematic is the shortage of qualified
staff and the low execution rate of health expenditures.
In 2003, the total human resources of the Ministry of
Public Health were estimated at 4 265 members of
In the area of education and training, the progress
achieved in the primary-education sub-sector is
encouraging. The gross enrolment rate went up from
72 per cent in 1999/2000 to 87.58 per cent in 2003/04,
which is much higher than the average for the 15
francophone African countries (80.4 per cent); this
represents an average rate of increase of 22 per cent over
the last five years. The net enrolment rate reached
63 per cent and the primary completion rate 60 per
cent in 2002/03, whereas the girl/boy ratio in primary
schools was 0.68. Gender equality holds a major position
in the country’s development programmes. There is a
pro-women action programme featuring a large variety
of activities. In practice, however, the situation of
women is far from satisfactory. The percentage of
women members of parliament is only 6 per cent, with
about the same ratio in the government.
© AfDB/OECD 2007
191
.
Congo Republic
Brazzaville
key figures
•
•
•
•
•
342
4 117
1 394
53.2
13.4
Congo Republic
D
situation
foreshadowing a brighter future, Congo is still suffering
overall from the 1990s civil wars, whose devastating
effects on the populations and infrastructures continue
to weigh heavily on economic and social recovery. The
social and political climate has nevertheless gradually
tended towards normality, thanks to peace and nationalreconciliation efforts, and to the continuation of the
disarmament, demobilisation and reintegration (DDR)
process of the 9 000 ex-combatants. Presidential,
parliamentary, senatorial and local general elections
were held between January and June 2002, making it
possible to set up the new constitution’s democratic
institutions. The attack on a United Nations
Development Programme (UNDP) convoy in the Pool
region in April 2005 and rebel attacks on the main
ESPITE AN IMPROVED ECONOMIC
railway line from Brazzaville to Pointe- Noire show
that the political and social situation remains explosive.
Nonetheless, parliamentary elections are to be held in
2007 to complete the country’s political normalisation.
Fuelled by the leap in
Social and economic recovery
world oil prices over the
is still inhibited by the effects
past few years and by an
of the 1990 civil war, but higher
increase in oil production in
oil prices and growing production
2005, Congo’s real GDP
are aiding a fragile economic
recorded strong growth, up
recovery.
from an average of 4 per
cent in 2000-04 to nearly 7.7 per cent in 2005 and
6.8 per cent in 2006. The country’s overall economic
activity has nonetheless remained vulnerable to external
shocks because of its excessive dependence on oil.
195
■ Congo - GDP Per Capita (PPP in US $)
■ Central Africa - GDP Per Capita (PPP in US $)
——— Congo - Real GDP Growth (%)
3500
9
8
3000
7
2500
6
2000
5
4
1500
3
1000
2
500
1
0
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
http://dx.doi.org/10.1787/603045674464
© AfDB/OECD 2007
Congo Republic
As one of the oldest oil-producing countries in
Africa (also endowed with substantial natural and
mineral resources), Congo is capable of mobilising
additional resources from donors and private investors
and of putting its economy on a sustainable growth
track, provided that it extends its reforms. The high
prices of oil and the upturn in non-oil production in
2006 contributed to an increase in the country’s tax
revenues. Furthermore, the cancellation of bilateral
debts decided by some of the Club of Paris creditors
and the debt relief granted under the Enhanced Heavily
Indebted Poor Countries (HIPC) Initiative will allow
the country to settle part of its external arrears and
have at its disposal additional resources for development.
196
In order to address the challenges specific to the postconflict situation, and to broaden the foundations for
economic growth and step it up, in September 2004
the government adopted an Interim Poverty Reduction
Strategy Paper (I-PRSP) based on five pillars:
i) consolidation of peace and promotion of good
governance, ii) macroeconomic stabilisation and revival
of key sectors, iii) access to basic social services and social
welfare, iv) infrastructure development and
v) reinforcement of the fight against HIV/AIDS. The
medium-term reform programme (2004-07)
underpinning I-PRSP implementation benefits from
the support of the major donors, including: the
International Monetary Fund (IMF), which approved
a Poverty Reduction and Growth Facility (PRGF) for
Congo in December 2004; the World Bank, through
an Economic Recovery Credit; and the African
Development Bank (AfDB), which approved a loan to
support economic-reform programmes. These measures
are aimed at attaining an average annual growth rate
of 5.2 per cent in 2005-07 (with an average annual
growth of non-oil GDP of 5.4 per cent); at containing
the inflation rate at 2 per cent and at maintaining the
current-account balance at an average of 3.3 per cent
of GDP. The expenditure policy is structurally geared
towards poverty reduction through an increase in the
share of resources allocated to the priority I-PRSP
sectors, i.e. education, basic health, the fight against
HIV/AIDS, basic infrastructure, water, energy and
agriculture. The government has pledged to devote the
additional tax revenues generated by the rise in oil
prices to increasing the share allocated to the priority
I-PRSP sectors, in order to take this share from 20.6 per
cent of total primary expenditures in 2004 to 30 per
cent in 2007.
The Congolese economy suffers from a very high
dependence on the oil sector – from which it still draws
most of its export and tax revenues – and from very low
diversification. Congolese oil comes mainly from offshore fields, whose operating costs are high compared
with average costs world-wide, so that the gap between
the price obtained and the world price can only decrease
when the latter declines. The economy recorded a solid
7.7 per cent growth rate in 2005 and progressed by
6.8 per cent in 2006. The decline recorded in 2006 can
be essentially attributed to the oil sector, which grew
by only 9.6 per cent, as against 12.8 per cent in 2005;
this was mainly due to a 9.3 per cent reduction in oil
production at the end of June 2006 (5 455 000 tonnes,
as against 6 017 342 tonnes at the of end June 2005),
despite the commissioning of the Mboundi field, which
had contributed nearly 12.5 per cent to the growth in
total output in 2005. If this downward trend were to
be confirmed, it would have serious consequences for
GDP growth, which would then amount to only 1.9 per
cent in 2007. At the same time, exports recorded a leap
of 9 per cent, to more than 6 million tonnes, as against
5.5 million tonnes in 2005, mainly owing to the endof-year sale of stocks. The volumes of crude oil delivered
to the Congolaise de raffinage (CORAF) oil refinery
increased by 23.8 per cent over the same period. On
the other hand, the average price of Congolese crude
oil rose considerably, going from $28.9 per barrel in
2000-04 to $53 in 2005 and $69.6 in 2006, and bringing
about a corresponding rise in oil revenues.
In the first half of 2006, exports declined by 11 per
cent, whereas the production of gas remained stable
compared to its 2005 level. However, in the area of oilrelated activities, investments made by the Total, Eni
and Zetah companies in the construction and
maintenance work of oil facilities increased the turnover
of this sub-sector by nearly 37.5 per cent.
© AfDB/OECD 2007
Congo Republic
The primary sector, which represents hardly 5 per
cent of GDP, was particularly characterised by uneven
activity in the fishing sub-sector: while there was an
almost 24 per cent increase in the local production of
fish at the end of June 2006, shrimp production declined
by 18.7 per cent compared with 2005. Forestry, the
second major primary sub-sector, showed an annual
growth of 15 per cent for four years running, after an
even stronger progression in 2002. This growth could
continue for a few more years because production
(1.5 million m3, all species included) is below the
potential of 2 million m3 that is compatible with
international regeneration standards for forest
ecosystems. In the area of wood-processing (sawn
timber, veneer and plywood), the new forest law which
came into force in January 2005 made it an obligation
for operators to process on-site 85 per cent of the logs
produced. The law also introduced a surcharge for
companies not complying with this ratio. Measures
have also been taken: for the implementation of
mandatory management plans for all forests and buffer
zones; for greater co-ordination between the ministries
of forests and of finance to improve the setting, collection
and transfer of taxes due by this sector to the public
treasury; for improvements in forest tax schemes and
in the terms covering the social-responsibility of
operators in the sector; and for greater transparency in
the granting of forest permits.
The secondary sector generates almost two-thirds
of GDP. It is dominated by the extractive industries,
mainly oil and gas (nearly 2 307 billion CFA francs,
(percentage)
Electricity, gas and water
Services
0.7% 12.4%
Oil
64.1%
Government
5%
3% Construction
6.2% Trade, hotels and restaurants
4%
Mining and industry
3.8%
Agriculture, livestock and fishing
0.7%
Forestry
Source: Authors’ estimates based on local authorities’ data.
http://dx.doi.org/10.1787/725642664244
as against 1 389.5 in 2004). The backbone of
manufacturing activity (excluding refining and wood
processing) is made up of food and miscellaneous
industries, chemical industries, and metals and
steelwork; in 2005, turnover progressed by 19 and
13.8 per cent, respectively, for the first two, and declined
by 1.6 per cent for the third. Turnover in the
construction sector grew by 16.2 per cent in the first
half of 2006 compared with the same period in 2005
thanks to the resumption of a number of public works
and to the completion of civil-engineering works
commissioned by oil companies. Despite the
deterioration of its electricity-generation facilities as a
consequence of the war, the electricity sub-sector
experienced an increase in energy consumption of
4.6 per cent in 2006, owing to better management of
supply by the national electricity utility (SNE), which
© AfDB/OECD 2007
is attempting to generalise the installation of electricitysupply meters so as to improve the fight against illegal
connections and fraud. However, the sub-sector does
not generate enough electricity to meet demand, and
the country remains dependent on supplies from
neighbouring Democratic Republic of Congo for nearly
half of its needs.
The services sector, which represents more than
20 per cent of GDP, also contributed to growth,
although moderately (0.7 per cent), mostly in trade,
restaurants and hotels. The modern branch of trade has
however suffered from competition from the informal
sector and also, despite rehabilitation work on the
infrastructure of the Congo-Ocean Railway (COR),
from problems in supplying Brazzaville by rail from
Pointe-Noire. The other services sub-sectors, such as
197
Congo Republic
1998
2005
(percentage of GDP)
2006(e)
Percentage of GDP
(current prices)
2007(p)
2008(p)
Public
Private
26.7
4.7
21.9
22.4
5.4
17.0
19.1
41.7
12.0
10.6
17.0
8.0
5.0
5.0
5.0
Consumption
Public
Private
69.7
24.2
45.5
40.7
13.2
27.4
3.5
-1.8
5.7
9.6
10.2
9.4
6.5
4.0
7.4
3.6
76.3
-72.6
36.9
87.1
-50.2
5.8
7.4
-4.9
6.1
5.1
3.8
External sector
Exports
Imports
Source: Directorate General of the Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/081640884701
transport and telecommunications, also took an upward
turn in 2005 (0.4 per cent), especially for the
telecommunications sub-sector, where the extension of
the telecommunications networks (particularly for
mobile telephony) contributed to growth.
198
Growth was sustained in 2005 by the increase in
net domestic demand, with private and public
consumption rising from 1 114.6 billion CFA francs
in 2004 to 1 280.3 billion in 2005, but falling back to
1 238.1 billion in 2006. Private investments, especially
in the oil sector where they progressed by nearly 36 per
cent in 2005 (536.5 billion CFA francs, as against
395.3 billion in 2004), were a good growth vector;
however, public investments showed relative stagnation.
Although oil investments contributed to the rise in
imports of goods and services, GDP growth was
supported by strong external demand, with exports of
goods and services recording a total of 2 742.5 billion
CFA francs in 2005, as against 1 938.2 billion in 2004.
Fiscal Policy
The state’s fiscal policy remains the main lever in
the fight against poverty, but the authorities’ compliance
with the standards adopted by the Economic and
Monetary Community of Central Africa (CEMAC) for
fiscal management, convergence indicators and mutual
monitoring sometimes falls short of requirements.
In 2005, fiscal revenues increased by 67 per cent
compared with 2004, up from 746 billion CFA francs
to 1 245.7 billion in 2005; this figure includes
1 047.6 billion in oil proceeds, i.e. a 97.5 per cent
increase from 2004, owing to a 12.5 per cent rise in
oil production and to world prices for Congolese
crude oil. Non-oil receipts, which increased by only
6 per cent, nevertheless benefited from improved
VAT (Value Added Tax) and company tax collection.
Other revenues turned out to be lower than predicted
because of a decline in customs revenues due to the
customs-duty exemptions granted on oil sector and
public-enterprise imports.
Thanks to relatively cost-restrictive management,
public expenditures increased moderately, up from
656 billion CFA francs in 2004 to 746 billion 2005.
As a percentage of GDP, current expenditures were
18.3 per cent in 2005 due to continued budgetary
support to the CORAF oil refinery, as well as to a
5.8 per cent increase in wages and a 21.7 per cent rise
in expenditures on goods and services. Subsidies and
transfers to the poor also increased by 26 per cent, but
primary expenditures on the fight against poverty rose
by only 0.5 per cent, to 4.9 per cent of GDP. Investment
expenditures increased by 25 per cent. This expenditurecontainment policy resulted in a primary surplus
© AfDB/OECD 2007
Congo Republic
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Oil revenue
22.9
9.8
12.7
29.6
8.6
20.4
32.5
8.7
23.1
39.6
6.7
32.4
40.1
6.1
33.7
38.0
6.8
30.6
37.6
6.8
30.2
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
42.8
38.1
24.2
8.9
13.9
4.7
29.2
22.6
17.0
5.8
5.6
6.5
28.6
21.6
16.0
5.4
5.6
7.0
23.7
18.3
13.2
4.1
5.0
5.4
21.2
14.0
11.1
3.3
2.9
7.1
25.7
16.1
13.1
3.8
3.0
9.5
25.4
15.8
12.9
3.7
2.9
9.5
-6.1
-20.0
6.0
0.4
9.5
3.9
20.9
15.9
21.8
18.9
15.3
12.3
15.1
12.1
Primary balance
Overall balance
amounting to 20.9 per cent of GDP, but the
improvement is mainly due to the oil sector, which still
largely dominates public resources and exposes them
to unforeseeable external shocks. The overall balance
on a commitment basis also showed a surplus, of
500.1 billion CFA francs (15.9 per cent of GDP), as
against 89.5 billion in 2004 (3.9 per cent of GDP).
This significant fiscal surplus generated some
inflationary tensions, even although inflation was
limited to 2.5 per cent. Oil price subsidies, which were
close to 1.5 per cent of GDP in 2005, were brought
down to 0.5 per cent in 2006, and they are expected
to be abolished in 2007.
In 2006, revenues generally performed very well
(1 870.5 billion CFA francs, as against 1 245.7 in
2005), with the exception of customs revenues, which
balanced out at 2 billion CFA francs less than
projections. Expenditures, on the other hand, largely
exceeded projections, going up from 746 to 984 billion
CFA francs in 2006, and therefore, following a review
of public finances in October 2006, the IMF took the
decision to freeze the third tranche of the PRGF for
failure to comply with budget-restriction measures.
The IMF has set conditions for the resumption of the
Facility in 2007: this will depend on Congo’s application
of ten measures relating to high and low limits for
public-finance expenditures. The reasons for this
uncontrolled slippage were related to: i) the security
precautions taken by the state to face the risk of
population inflows from the Democratic Republic of
© AfDB/OECD 2007
http://dx.doi.org/10.1787/575666174456
Congo, where tense presidential elections were being
held; ii) the election of President Denis Sassou Nguesso
at the head of the African Union for a year, which
resulted in off-budget expenditure assumed by the
Congolese treasury; and iii) the quasi-doubling of the
investment budget, which had initially been estimated
at 185 billion CFA francs, including 150 billion from
internal resources. Moreover, donors are showing
reluctance to disburse their share and are waiting for
the conclusion of talks on the trade debt with the
London Club – a necessary stage in reaching the decision
point of the HIPC Initiative); the Paris Club has
meanwhile already cancelled nearly 25 per cent of the
external debt.
In 2007 and 2008, the country manifested its
intention to use part of the oil-reserve fund for advance
payment of the costly debts guaranteed by oil receipts
and to increase expenditures aimed at achieving the
Millennium Development Goals (MDGs). In addition,
in order to improve the control and auditing of
expenditures, a new law for government purchasing was
presented to parliament in late 2006, and a functional
classification of expenditure will be put in place in the
course of 2007.
Monetary Policy
Congo belongs to the CFA franc zone and to the
CEMAC: this means that monetary policy remains
subject to regulation by the Bank of Central African
199
Congo Republic
States (BEAC), which oversees the stability of prices
and of the exchange rate. Monetary evolution in 2005
was marked by a decline in net domestic credit. The
country’s money supply nevertheless progressed at the
same pace as that of non-oil GDP growth and most of
the exceptional revenues in foreign currency were
sterilised through BEAC deposits. The rate of foreignexchange coverage of domestic currency settled in 2005
at 71.7 per cent, as against 29.3 per cent in 2004,
placing it largely above the statutory minimum of
20 per cent.
As a result of the increase in world prices of crude
oil, of the growth of the volumes of crude oil exports
and of the repatriation of the state’s oil revenues, the
country’s net external position improved substantially,
increasing from 58.3 billion CFA francs at the end of
December 2004 to 466.1 billion at the end of 2005.
Moreover, Congo benefited from debt relief amounting
to nearly 94.9 billion CFA francs under the second
tranche of the PRGF.
200
Domestic credit, which had slightly increased in
2004, fell in 2005, particularly with respect to credits
to the state, indicating that the government resorted
more to public-treasury savings and the central bank
in order to finance its needs. In addition, the state’s
outstanding debts to the banking sector recorded a net
drop, falling from 185.1 billion CFA francs to 59.6 billion at the end of 2005, thanks to the combined
effect of a better control of public expenditure and the
escalation of oil revenues. Hence the state’s net position
moved from 188.8 billion CFA francs in debt in 2004,
to 61.3 billion in credit at the end of 2005.
On the other hand, credits to the economy grew
slightly as a percentage of the broad money supply at
the beginning of the period (1.3 per cent, as against
0.3 per cent in 2004); this increase was driven by
renewed activity in construction, telecommunications
and energy, despite the banking sector’s reluctance to
grant credits to enterprises (especially public enterprises)
because of the large share of non-productive loans in
its portfolio. The real exchange rate, which remained
14 per cent lower than its level prior to the 1994
devaluation, depreciated only slightly in 2005 because
of the relatively low inflation rates in 2005 (2.5 per cent)
and 2006 (3.7 per cent).
External Position
In 2005, Congolese exports continued to be
dominated by oil exports (2 298 billion CFA francs),
representing more than 85 per cent of total exports.
Driven by the imports of goods and services in the
private sector, particularly the oil sector, total imports
also increased appreciably (1 580.6 billion CFA
francs, as against 1 314.5 billion in 2004). The strong
growth of export income resulted in a surplus on the
current account in 2005 amounting to 8.3 per cent
of GDP. This favourable evolution is due to the quasidoubling of the surplus, in nominal terms, on the
balance of current transactions, which came to
1 161.9 billion CFA francs in 2005 as a result of the
improvement in the terms of trade and of the hikes
in the world prices of oil, logs and timber. This
positive situation made it possible to improve the
country’s gross currency reserves, which rose to
7.3 months of imports in 2005.
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
41.5
70.2
28.6
-38.0
-15.8
-0.2
50.7
74.0
23.3
-19.1
-16.4
-0.5
56.7
79.1
22.3
-18.9
-21.8
-0.5
53.9
79.6
25.7
-26.5
-19.5
0.4
53.8
81.1
27.3
-20.3
-14.9
0.3
49.3
74.7
25.4
-17.8
-21.7
-0.4
48.9
73.5
24.7
-17.4
-21.5
0.1
-12.4
14.6
15.5
8.3
19.0
9.3
10.1
http://dx.doi.org/10.1787/003371771264
© AfDB/OECD 2007
Congo Republic
■ Debt/GDP
——— Service/X
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
201
http://dx.doi.org/10.1787/320668854808
The services deficit grew in 2005, reaching
835 billion CFA francs, as against 433.1 billion in
2004, as an effect of the rise in transport and insurance
expenditures. The factor-income balance also declined,
falling from a 501.1 billion CFA franc deficit recorded
in 2004 to a 612.9 billion deficit in 2005, owing to
the increase in transfers of profits by the oil companies.
The country remains highly indebted, with a total
debt stock evaluated at 3 512.4 billion CFA francs at
the end of 2005. Nonetheless, the government has
made significant efforts to reduce the debt, which
amounted to 4 322.4 billion CFA francs in 2000. The
ratios of debt-service to exports and to budget receipts
were thus brought down from 17.4 and 41.5 per cent
in 2004, to 15.8 and 33 per cent in 2005, respectively.
The ratio of debt stock to GDP fell from 160.6 per cent
in 2004 to 111.0 per cent in 2005, but still remains
far from the 70 per cent criterion decided by the
financial community. The state’s overall financing needs
reached 125.0 billion CFA francs in 2005, taking
account of: the payment of domestic and external
arrears (69.7 billion CFA francs); the amortisation of
© AfDB/OECD 2007
the external debt (298.5 billion); the reinstatement of
the state’s position in relation to the banking system
(250.1 billion); and the withdrawal from the nonbanking sector (38 billion). Those needs were covered
by the mobilisation of external resources amounting to
5.9 billion in project grants, 10.4 billion in project
loans, 13.9 billion in treasury loans and 94.9 billion
in debt relief.
Structural Issues
Recent Developments
The programme for public-sector reform and
privatisation which was started in 1994 has suffered
greatly from the successive wars in Congo over the past
ten years. The programme was reactivated in 1998
with technical support from donors, but has developed
under difficult political and economic conditions.
In terms of the objectives of the privatisation
programme, achievements remain marginal. Out of
Congo Republic
six enterprises earmarked for privatisation in the first
part of the programme, only Hydrocongo (fuel
distribution and marketing) has in fact been privatised;
the process is ongoing for the other five, but some of
these need first to be brought up to standard.
Concerning the second part, the MAB (livestock feed
mill), two hotels (Palm Beach and Méridien) and
three banks have been privatised. In some cases,
privatisation is quite problematic because of sociallydeteriorated situations in a number of public
enterprises, such as the national postal services and
telecommunications bureau (ONPT) or the
autonomous Brazzaville port authority. This has led
the World Bank to cancel the International
Development Association (IDA) credit initially granted
for the implementation of the privatisation programme
and to limit its aid to following up the implementation
process of the concessioning of the COR.
202
In the water and electricity sector, the calls for bids
in 2002 for the concessioning of the national electricity
utility (SNE) and of the national water utility (SNDE)
were unproductive, despite the decree granting a
temporary concession of the SNDE to the British
company Biwater, which was later rescinded because
of the substantial investments needed to bring the
infrastructure up to standard, as demanded firstly by
the partners. The World Bank and the government
therefore decided, through the IDA’s Transitional
Support Strategy, to include the entire privatisation
process of the SNE and the SNDE in infrastructure
rehabilitation under the project for the rehabilitation
of the water and energy infrastructure (PRIEE). The
cost of the water programme is estimated at
9 billion CFA francs, 10 per cent of which is to be
covered by the government, while the cost of the
electricity programme amounts to $25 million, to be
entirely financed by the IDA. To improve the SNE’s
financial situation, a programme to install
50 000 electricity meters began in 2005 and 2006,
and the pricing structure will be reviewed in 2007.
Other large public enterprises, such as the harbours
of the former Congolese transport agency, ATC, are
being restructured and the related studies are being
financed by the French Development Agency (AFD)
with the surplus balance of the 1994 structural
adjustment plan (PAS). Also, the by-laws of the
autonomous Pointe-Noire port authority were modified
and a priority investment programme was drawn up;
financing for this amounting to 35 billion CFA francs
will be provided by the European Investment Bank, the
AFD and the Development Bank of Central African
States. For the autonomous Brazzaville port authority
and the secondary ports, a benchmark business plan
was drawn up to increase their performance; however,
the financing of the rehabilitation programme has not
yet been completed. Following a call for bids, the
Golliard company has been declared successful tenderer
for the potential purchase of the shipyard. For the
concession of river transport, the single bid from the
enterprise NBTC (Niger-Benue Transport Company)
is still being examined. After an unsuccessful call for
financial bids for the privatisation of the COR, the
government opted for direct negotiations with
SHELTAM-MVELA, a consortium that submitted the
financial parameters for the concession in 2004 and is
waiting for the authorities’ decision. Finally, decisions
will have to be made to finalise the
liquidation/privatisation of the LINA CONGO airline
company; negotiations are also in progress with an
Italian company for the concessioning of the Sangha
Palm palm groves (palm oil). In the telecommunications
sector, the authorities have yet to define the final
privatisation scheme (total or partial transfer of the
public assets) for the Congolese telecommunications
company (SOTELCO), for which the state has financed
an organisational audit. As regards the Congolese postalservices and savings enterprise (SOPECO), which
remains public, the government has financed a study
to establish SOPECO’s opening-balance sheet and
ONPT’s closing balance sheet.
In a context of a downward trend in oil production,
a thorough institutional reform of the oil sector was
undertaken in 2005: this reform had become essential
for a sector that generates important resources for the
country. The purpose of the reform was to allow the
state to allocate oil revenues to the country’s
development with greater efficiency and transparency.
The reform began in 2005 with the adoption of a
strategy aimed at refocusing the activities of Congo’s
© AfDB/OECD 2007
Congo Republic
national oil company, the SNPC, on its basic business
concerns, and this resulted in the liquidation of two
of SNPC’s subsidiaries in 2005. The reform continued
into 2006, mainly addressing the organisation and
management of the SNPC, which markets nearly twothirds of the state’s share of oil (profit oil), controls 40 per
cent of the state’s total oil income, and supervises the
oil sector and the budget flows on its behalf. With the
backing of AfDB, IDA and IMF, the state also
undertook: i) to review the SNCP’s accounting and
internal-control systems by providing the external
auditor, KPMG (Klynveld Peat Marwick Goerdeler),
with the necessary documentation to enable it to certify
the oil receipts and to guarantee that the revenues due
to the state by the SNPC, by its customers and by its
private-sector partners were in fact transferred to the
public treasury; ii) to review how the SNPC markets
oil products, with the aim of matching best international
practices and ensuring a profitable price for the country;
and iii) to eliminate any conflict of interests through
the enactment of legislation, to be certified by the
national anticorruption commission, that requires that,
while they exercise their position, SNPC management
executives withdraw from any form of participation or
investment in subsidiaries of the company or in
companies doing business with it. Finally, an internal
auditing committee was recently set up to monitor the
implementation of the accounting, auditing and internal
control procedures and to supervise the application of
the SNPC auditing recommendations. The state has
also recently decided to impose the systematic recourse
to competitive calls for tenders for all contracts for the
execution of works and for purchases of goods-andservices when these exceed 20 million CFA francs.
Basic economic infrastructures (which directly affect
the living conditions of the population) and collective
infrastructures are very poorly developed and, moreover,
in a state of great disrepair. For example, the road
network, totalling 17 300 kilometres, only about
1 235 kilometres of which are asphalt, has deteriorated
and suffers from lack of maintenance. The rural earth
roads, which are needed for distributing rural products,
are for the most part impassable, and hence contribute
to the sharp decline in the population’s purchasing
power and to the amplification of poverty. The
© AfDB/OECD 2007
Congolese railway network (795 kilometres) has
experienced a considerable decline in traffic due in
part to the very run-down state of its equipment and
to insecurity on its lines. This state of disrepair applies
equally to the port, maritime and river facilities. Air
transport, which is very little developed and is centred
on the two main international airports, Brazzaville and
Pointe-Noire, remains to be developed in order to face
sub-regional competition efficiently. Most of the
secondary airports, which could have offered possibilities
for servicing populations situated in remote areas, are
in disrepair and pose problems of flight security.
The development of the private sector is
encountering enormous difficulties, and the regulations
that govern its operations are considered obsolete insofar
as the needs of a modern, competitive economy are
concerned. According to the World Bank’s Doing
Business 2006 report, Congo’s business climate possesses
significant deficiencies, particularly in what the report
refers to as the “Ease of ”: paying taxes, where Congo
is ranked 170 out of 171 worldwide; trading across
borders, for which procedures are particularly laborious
(rank 166); registering property (rank 163); and
enforcing contracts (rank 155).
The banking and financial system is ineffective and
incapable of satisfying the demand for credit, because
of its low human and financial resource capacities, or
else the unsuitability of the products offered to
customers. Nonetheless, in order to inject dynamism
into this sector (especially the almost embryonic financial
market), some significant restructuring and privatisation
efforts have been made during the past few years, with
the privatisation of the COFIPA investment bank and
the planned creation in 2006 of a bank for the housing
sector, the Banque de l’Habitat, with majority Tunisian
capital. Investment on the whole remains limited, and
business credit is low and practically inexistent for poor
populations, who are forced to resort to (recent and littledeveloped) microfinance structures.
In the domain of agriculture and natural-resource
and environmental management, efforts have been
made to energise forestry and preserve forest potential
through better management of the sector. Forest law
203
Congo Republic
is aiming at a more efficient rotation system for log
cutting and processing, in order to improve the
exploitation and rational regeneration of this resource.
In the mining sector, the controls necessary for putting
the country back into the Kimberley Process for
diamonds have been set up.
Congo is rich in water resources, its rainfall is
abundant and the drainage network consists of the
Congo and Kouilou-Niari River basins. However, some
regions, especially the table-land region and the northern
suburban area of Brazzaville, depend on scarce
underground resources for their water supply. Surface
and underground water, although easily collected,
remains very vulnerable, because it is exposed to the
natural hazards inherent to heavy rainfall (floods, serious
erosion, etc.) and to anthropogenic pollution, due
mostly to the fact that surface water is used for the
evacuation of various kinds of waste.
204
The SNDE is in charge of drinking-water
distribution, but it serves no more than 18 urban watersupply centres, 3 of which are no longer operational.
Moreover, this utility company sells only 54 per cent
of the volume of water produced (39 million m3) and
its technical and commercial situation has continued
to deteriorate since 2004. In Brazzaville for example,
it appears that only half of the subscribers are invoiced
regularly, on a flat-fee basis, because the water meters
have disappeared; also, only 68 per cent of water samples
meet the quality standards.
An act voted in February 2003 aims to transfer
jurisdiction to local authorities; which will then have
important responsibilities in the field of water, but the
overall paucity of their human, material and financial
resources is a major obstacle to this transfer. The private
sector is a stakeholder in water-resource management,
but it is still in an embryonic stage (research offices,
construction and service enterprises).
According to the Congolese household survey for
the evaluation of poverty (ECOM) of 2005, the coverage
rates for drinking water and sanitation as defined by
the MDGs indicate that 68 per cent of households
have access to drinking water on the national level,
52 per cent of these being in semi-urban areas and
(depending on sources) 15 to 28 per cent in rural areas.
Only 19 per cent of households – none of which are
in rural or semi-urban areas – have access to sanitation,
and only 6 per cent have modern latrines (Pointe-Noire
has the best level of equipment, at 13.5 per cent). In
Brazzaville, a conurbation of more than one million
inhabitants, it is estimated that only 30 per cent of
households have direct access to a water-supply point.
The rest of the population obtains its supply through
informal means (neighbours, water carriers or traditional
sources). This situation is likely to deteriorate: the
SNDE is finding it hard to ensure the maintenance of
the network because 50 per cent of users with
operational connections do not pay their water bills.
Contrary to the findings of the 2005 ECOM survey,
which argued that “access to drinking water is far from
being problematic” in Congo, it is important to
underline the disparities in conditions of access to basic
services, especially as the lack of data on these conditions
of access makes it impossible to establish an exhaustive
inventory. The supply level in rural areas hence remains
very low, and high geographical disparities persist. For
example, 48 per cent of villages are equipped with
water points in the Lékoumou region, whereas the rate
in the departments of Kouilou and Likouala is under
5 per cent. In urban areas, estimation of the servicing
rate is imprecise because it relies on the number of
connections and not on the number of active subscribers.
Besides, no distinction has been made between
household consumption and the consumption of public
subscribers, large estates, industries and businesses.
Analysis of the supply conditions in urban areas shows
that the real servicing rate, in terms of individual
connections, is deteriorating and probably only amounts
to 15 per cent at the present time.
Concerning cleansing and sanitation, only the
capital city has a household-refuse disposal service, but
this benefits only 41 per cent of the households –when
refuse is removed regularly, which is far from being
the case. Since there is no sewerage network, most
industries, hotels, health centres and shopping centres
© AfDB/OECD 2007
Congo Republic
use their own facilities. Sludge and waste-water flow
into the river and its affluents, and there is no quality
control of the waste. Various studies which have been
conducted on faeces-management practices, particularly
in Brazzaville, reveal that the population is exposed to
major faecal danger. The sanitation blueprint for
Brazzaville needs to be updated to take into account
the evolution of the city’s urbanisation. Resources need
to be mobilised to finance gutter-cleaning at least once
every five years.
sector; it also provides for the delegation of drinkingwater supply in the form of concession, contracting or
local authority, to one or several legal bodies under
private law. On the other hand, the institutional
framework for sanitation is lacking in clarity, with
responsibilities scattered amongst the ministries
responsible for the environment, for hydraulics, for
health and for public works. Since budget classification
does not explicitly mention sanitation, national efforts
in this domain are difficult to evaluate.
Moreover, as the insufficiency of transfer sites and
landfills induces the population to use rainwater drainage
channels, it will be necessary to install two transfer
sites per precinct and three final-disposal landfills (at
the north, west and east of the city). The underequipment of the agents involved, especially in terms
of vehicles and loaders for disposing waste in finaldisposal landfills, also constitutes a problem. It will
also be necessary to establish sanitation blueprints for
all municipalities and to reinforce the application of
waste-management regulations. Furthermore, in order
to draw up local waste-management plans, it will be
necessary to make an inventory in each municipality
of the quantities of waste, waste-water and faeces
produced.
The institutional framework for the development
of the sanitation sector has yet to be defined and no
investment is planned in this domain. The authorities
should, therefore, either set up a single authority in
charge of sanitation (waste-water, faeces, rainwater,
solid waste), or else redistribute government tasks more
effectively. Analysis of the strategic memo for the water
and sanitation sector prepared in the framework of the
PRSP reveals the absence of an appropriate strategy for
the development of the sector and for improved access
to these services by the most underprivileged
populations.
The objectives announced in December 2005 by
the Minister of Energy and Hydraulics (MEH) for
drinking-water supply aim at servicing the country’s
10 department capitals, at increasing the coverage rate
in rural areas to 75 per cent by 2015, and at servicing
the 86 district capitals and all urban centres of more
than 5 000 inhabitants; however, the implementation
strategy for attaining these objectives has yet to be
defined.
In December 2005, a roadmap for the promotion
of an integrated management of water resources was
adopted. This act includes the water law adopted in April
2003, but for which there have been no application
decrees as of yet; it provides specifically for the
establishment of new management bodies for the sector,
such as a consultative water council, a national agency
for rural hydraulics, a regulatory agency for the water
sector and a development fund for the water and energy
© AfDB/OECD 2007
Civil society is also organising its participation in
the development of the water, sanitation and hygiene
sectors; its actions specifically include: the regional
centre for low-cost drinking water and sanitation
(CREPA); the citizens’ dialogue programme
(mobilisation of more than 100 local organisations to
draw up an “advocacy for access to drinking water”
document); and the mobilisation of local organisations
by the Research and Technological Exchange Group
(GRET) for the implementation of alternative drinkingwater services in suburban areas. The citizens’ dialogue
programme was launched in September 2004 in the
framework of a partnership between the Forum des
jeunes entreprises (“young enterprises forum”, one of
the largest NGOs in Congo) and a French NGO, the
French Committee for International Solidarity. This fiveyear programme benefits from financial support from
the French Ministry of Foreign Affairs. Also, the Global
Water Partnership (GWP) aims to set up national water
partnerships whose role will be to support the
government in preparing and implementing an action
plan for the integrated management of water resources.
205
Congo Republic
The roadmap accepted in December 2005 proposes that
the consultative water council planned under the water
law should constitute GWP’s national dialogue
platform. The French Ministry of Foreign Affairs is
providing financial support to the GWP regional coordination initiative for Central Africa.
206
The state’s investment budget in the water sector
planned for 2006 amounts to 9 billion CFA francs,
which is less than 15 per cent of the total investment
budget of the Ministry of Energy and Hydraulics;
moreover, experience has shown that this budget is
often executed at no more than 30 per cent of initial
projections. The strategic memo for the water and
sanitation sector drafted for finalising the PRSP sets out
the list of priority investments proposed in the
framework of the poverty-reduction strategy without
any mention of the expected impact. The investments
necessary for achieving the MDGs relating to drinking
water and sanitation (faeces and waste-water
management) would amount to an average of
22 billion CFA francs per year over the next ten years.
Many multilateral and bilateral co-operation
programmes have been cancelled following the country’s
turmoil since 1997. The World Bank froze its
commitment in the financing of the PRIEE, while the
AFD, without co-ordinating with the World Bank, is
considering gearing its support exclusively towards
developing the supply of water in peri-urban districts
from boreholes. The UNDP is highly involved in the
sanitation sector, and the AfDB, through the African
Water Facility, is preparing to provide institutional
support to the country by drawing up a national
document on water-policy and by making an inventory
of resources and needs.
The current organisation of the water sector and
its place in government priorities make the ambitions
announced in December 2005 by the MEH unrealistic.
To improve the state’s vision of the sector and make it
a higher priority, the authorities require drawing up a
more realistic short-term action plan that would benefit
poor populations more quickly. An action plan of this
kind would no doubt lead to better mobilisation of the
international partners and, above all, provide a clearer
definition of the roles of the different players at national
level, as well as of the assets they possess and the actions
they can undertake.
In 2006, the political context was marked by an
appeasement approach on the part of the authorities,
who allowed an important opposition leader to return
from exile; they also plan to organise parliamentary
elections open to all political tendencies in 2007.
Unemployment is higher amongst women (20.6 per
cent) than men (18.1 per cent) in all economic strata.
The adult literacy rate is 80.4 per cent, which is a good
performance for a country of sub-Saharan Africa, where
the average is below 50 per cent, but there is a big
gender gap in this figure, amongst both the poor and
the non-poor: amongst the poor, the rates are 86.3
and 68.2 per cent for men and women, respectively,
and amongst the non-poor, 91.7 and 76.6 per cent,
respectively.
The net school enrolment rate is 86.8 per cent,
which is considerable compared with the sub-Saharan
average, but the figure is a flimsy mask pulled over the
mediocre quality of the system with regard to the
age/level standard. These results are partly the
consequence of the social and political instability the
country has experienced since the 1990s, since there
are now catch-up effects. In secondary schooling, the
gross enrolment rate is estimated at 65.3 per cent and
the net rate at 44.4 per cent. In higher learning, the
gross and net enrolment rates are 10.1 and 2.3 per
cent, respectively. The drop-out rate is relatively low
for both primary and secondary schools, but is about
three times higher in the upper secondary school (7.5 per
cent). For both primary and secondary schools, the
non-poor benefit from better access in every region of
the country. From the point of view of residence, the
rate of access to schools is higher in urban areas than
in rural areas, irrespective of the schooling level or the
poverty level of the households. The cost of access to
school is, however, high for all social strata.
© AfDB/OECD 2007
Congo Republic
According to data from the Demographic and
Health Survey which was conducted in 2005 (DHS
2005) with the support of the IDA and the United
Nations Children’s Fund (UNICEF) and used in
finalising the PRSP, the infant mortality rate was
estimated at 75 deaths per thousand live births, while
the child mortality rate was 44 per thousand. Overall,
the infant-child mortality rate is 117 per thousand,
which means that one child out of ten in Congo dies
before the age of five. The mortality rate is distinctly
higher in the countryside (136 per thousand, as against
108 in cities). In a per region analysis, the rate varies
from 102 per thousand in Pointe-Noire to 142 per
thousand in the north. For the same period, the maternal
mortality rate is 781 deaths per 100 000 births.
The average coverage rate for children aged from
12 to 23 months for complete vaccination against the
target diseases of the Extended Vaccination Programme
is 52 per cent, but this rate is distinctly lower in rural
areas (41 per cent) than in urban areas (64 per cent).
This disparity is even greater between the regions of
the north (33 per cent) and the Brazzaville/PointeNoire zone (64 per cent). The survey found that the
vaccination rate increases in proportion to the mother’s
education level and also in proportion to household
income and standard of living (29 per cent of children
in the poorest quintile vaccinated, as against 73 per cent
in the richest quintile).
HIV/AIDS prevalence was estimated by the Joint
United Nations Programme on HIV/AIDS at 5.3 per
cent in 2006. As early as 1985, the setting-up of a
scientific committee for the diagnosis and fight against
HIV infection constituted the first stage of an overall
countering strategy. In 1987, a national programme for
fighting the disease reinforced this first stage and made
it possible to implement a short-term emergency plan,
followed by two medium-term plans (1989-91 and
1996-98) financed by the World Health Organization.
With respect to the poverty profile, the PRSP
preparation process necessitated the completion of the
ECOM survey on the living conditions of households
(the first survey of its kind to be conducted on a national
scale in Congo), which was jointly funded by the
© AfDB/OECD 2007
government, the World Bank and the UNDP. This
survey showed that the social situation is marked by
an incidence of poverty reaching almost 50.1 per cent
and is characterised by the insufficiency of health
services, sanitation and basic education (with falling
enrolment school success rates), and by a high prevalence
of HIV/AIDS. The various results revealed that poverty
in Congo is characterised by monetary poverty, affecting
42.3 per cent of households, or 1 779 300 persons in
all. Poor households are found most often in periurban and rural areas, as well as in Brazzaville. The
average age of poor household heads is 48 (47 for men
and 50 for women).
Households headed by women comprise relatively
more poor persons than those headed by men, and
large-sized households are the most affected. The poor
can be distinguished from the non-poor by level of
education, with the poverty rate declining as the level
of education rises; this shows that the poor usually
drop out of the education system earlier and only rarely
go beyond the primary-education level because of the
relatively high cost of school. Hence, a greater proportion
of illiterate individuals of 15 years and over is found
amongst the poor. The survey also revealed that the nonworking population is the population category most
exposed to poverty. In the working-population group,
household heads working in the agriculture,
construction, mining and manufacturing sectors are the
ones most frequently facing difficult living conditions.
This situation is aggravated when they work in the
informal sector.
The survey showed that, bearing in mind the causes
of poverty identified by the households themselves,
the priorities of government action should be mainly
directed towards structural investments (employment,
school and health infrastructures, roads, water points,
etc.). In fact, the survey revealed that 97 per cent of
the poor attribute their poverty to their lack of work,
47 per cent to the absence of transport and travel
infrastructures, and 41 per cent to the lack of care and
medicine. Hopes were also expressed that the state
would: increase the number of primary-school classes
and/or primary schools in urban areas in order to solve
the problem of extremely over-crowded classrooms;
207
Congo Republic
encourage poor parents to keep their children longer
at school by offering better education; reduce the cost
of education services; and improve teachers’ working
conditions and training. In the area of health, households
hoped that the state would: reinforce prevention against
the principal endemic diseases, especially in poorer
social categories; raise public awareness about the
dangers of self-medication, which is a very widespread
household practice, especially in non-poor households;
reinforce awareness campaigns in the area of family
planning, especially in rural areas; expand public health
infrastructures and bring them closer to residential
areas, especially in rural areas; and re-examine,
harmonise and reduce the cost of health services. The
survey also highlighted the need to promote and develop
activities and employment in the agricultural sector
and in sectors where natural resources are abundant and
under-exploited, such as fishery, hydraulics, and mining.
Special interest should also be given to the situation of
women in urban and rural areas so as to guarantee
them sustainable means of existence.
The labour market in Congo is characterised by a
national unemployment rate of nearly 19.4 per cent.
This is higher in Brazzaville and in Pointe-Noire, where
it is estimated at 32.6 per cent and 31.5 per cent,
respectively, while it is distinctly lower in the rural
areas (5.8 per cent). The activity rate of persons of
15 years and over was estimated at 69.4 per cent in 2005.
The rate is higher in rural areas that in urban areas
(93.8 per cent, as against 81.4 per cent) because
employment there is less formal and therefore more
flexible. More than half (56 per cent) of the working
population aged 15 years and over have a job, and the
majority live on agriculture (35.6 per cent) or trade
(20.7 per cent). The proportion of persons employed
in industry is relatively low (16.3 per cent). For men,
57.7 per cent are in employment, as against 54.5 per
cent for women. The employment situation is
preoccupying, because most of the occupied working
population (70 per cent) is self-employed and 75 per
cent are considered poor.
208
© AfDB/OECD 2007
Democratic Republic
of Congo
Kinshasa
key figures
•
•
•
•
•
2 345
59 320
856
44.4
32.8
Democratic Republic
of Congo
Lake Édouard
Lake
Maï-Ndombe
Lake
Tanganyika
Lake Moero
T
HE FIRST FREE ELECTIONS IN 40 YEARS (presidential,
parliamentary and local) made 2006 a very important
year, which also saw the adoption of the national
constitution for the Third Republic. The elections
mostly went well, but the Democratic Republic of
Congo (DRC) struggled to maintain macroeconomic
stability and suffered major conjunctural upsets. Public
finances went off track in 2006, aggravating the nominal
budget deficit, stepping up inflation and leading to a
depreciating currency. The budget excesses, which were
directly linked to the implementation of the various
elections, to maintaining security in the country and
to restoring civil servants’ wages, reflected the
vulnerability of the economy to external contingencies.
The still very large external debt is a brake on the
economy. The most optimistic forecasts indicate that
the completion point for the Highly Indebted Poor
Countries (HIPC) Initiative will be reached at the end
of 2007, after application of a poverty reduction and
growth strategy paper
The elections went well,
(DSCRP) and its assessment
but the authorities are having
during 2007.
difficulty maintaining
macroeconomic stability
Generally speaking, the
and there is a risk of spiralling
DRC’s new leaders face very
inflation and public spending.
great challenges in all
economic, social and political spheres. The country is
one of the world’s poorest and years of war have
destroyed most infrastructure and productive activity.
Its inhabitants live in deplorable economic and sanitary
211
Source: IMF and local authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/266155225581
© AfDB/OECD 2007
D.R. Congo
conditions, especially in the east, where bands of rebels
are still striking. Social indicators are so low that it will
be virtually impossible for the country to reach even
one of the Millennium Development Goals (MDGs).
Only 22 per cent of the population have access to
drinking water and only 9 per cent to sanitation, with
wide regional and urban-rural disparities.
However, potential for growth and economic
development is immense. The country is literally
brimming over with water, mineral, forest and oil
resources. The domestic market serves more than
60 million people. The international community as a
whole, with both foreign-aid donors and private
investors, is watching the post-election period closely,
as it will be decisive for reviving projects and
programmes. If political stability and democracy manage
to take root, with restoration of state authority, good
governance and a fight against corruption, the DRC
could well be posting excellent economic results in a
few years time.
212
With the end of the fighting and with massive
foreign aid, real GDP growth speeded up, from 3.5 per
cent in 2002 to 6.5 per cent in 2005 and 2006. This
excellent performance should continue, with growth
expected to be 6.2 per cent in 2007 and 6 per cent in
2008. Growth in 2006 was boosted by copper, cement,
wood, beverages (alcoholic and soft drinks) and
electricity. However, more than 80 per cent of the
economy is in the informal sector.
The agricultural sector grew at about the same rate
as the population did in 2006 – around 3 per cent –
because of the lack of major roads and agricultural
service roads. Agriculture employed more than 70 per
cent of the population and provided 46.7 per cent of
GDP in 2005. Food crops (manioc, maize, rice and
plantain) dominate the sector. The potential is huge
because only 10 per cent of arable land is cultivated or
used for livestock. Agricultural exports are mostly
coffee, cocoa, wood and rubber, but yields of these
items have collapsed in recent years and export revenues
from them have slumped. The agricultural sector is a
cornerstone of the DSCRP and of the multi-sector
emergency programme for repair and reconstruction
(Programme multisectoriel d’urgence pour la réhabilitation
et la reconstruction – PMURR) due to its importance
in boosting food security and reducing poverty.
The DRC has enormous mineral potential, but
mining only accounted for 8.8 per cent of GDP in 2005
and its performance was far from that expected. The
country has 34 per cent of the world’s known reserves
of coltan and 10 per cent of its copper, as well as
uranium, cobalt, zinc, silver, diamonds, gold and oil.
Growth of mining is hampered by overall bad
management of resources, fraud and slow structural
reform, and the country has not been able to benefit
fully from the opportunities provided by rising world
metal prices. The copper sector grew by 33.7 per cent
in volume in 2005 due to higher production but only
4.4 per cent in 2006 because of a drop in output and
problems in the state-owned mining enterprise
Gécamines. Prospects for copper are quite good however.
A mixed-capital enterprise, Kamoto Copper Company
(KCC), revived copper and cobalt production in
Katanga’s mining centre of Kolwezi in mid-2006. After
a five-year warm-up period, annual production should
exceed 150 000 tonnes of copper and 5 000 tonnes of
cobalt.
Oil output is declining and shrank 1.5 per cent in
real terms in 2006 after a drop of 8.9 per cent in 2005
(9.2 million barrels in 2005, down from 10.1 million
in 2004) because of delays in renovating wells. Also,
only the coastal area is being tapped, though test-wells
in the past have shown presence of oil in the centre and
east of the country. Industrial output of diamonds has
also been disappointing and fell 26.7 per cent in 2005,
while artisanal production rose 33.1 per cent, though
this rise seems to have peaked, with negative growth
of 13.6 per cent in the first nine months of 2006. This
fall in production was due to the depletion of mines,
lack of capital to purchase spare parts and fierce rivalry
between the state-owned mining enterprise Minière
de Bakwanga (Miba) and about 10 000 illegal workers.
Some $10 million worth of diamond-mining equipment
could not be used in 2006 because of lawlessness at the
© AfDB/OECD 2007
D.R. Congo
(percentage)
Source: Authors’ estimates based on central-bank data.
http://dx.doi.org/10.1787/785001361156
Miba mines. The resulting drop in production caused
cash-flow problems, failure to pay Miba’s
6 500 employees and increased unpaid debts to
suppliers. Official figures show an 80 per cent fall in
the volume of diamond exports in 2006.
The industrial sector supplied 13.7 per cent of
GDP in 2005 and grew 9.3 per cent in volume, with
construction and beverages taking the lead. Alcoholic
beverages, especially beer, showed a 16.7 per cent
growth rate in September 2006 (down from 18.9 per
cent year-on-year). Cement production in volume was
good in 2005 (up 26.2 per cent) and 2006 (up 9.7 per
cent), mainly due to the country’s reconstruction and
huge needs. Log production increased substantially,
by 16.8 per cent in 2005 and by 54 per cent in the first
five months of 2006.
The tertiary sector was 27.9 per cent of GDP in
2005 and grew 7.8 per cent in real terms, largely thanks
to transport, telecommunications and financial services.
The DRC also has untapped potential for tourism.
Household demand in 2005 was in step with these
sector increases, as was public consumption, helped
by external funding. Public consumption grew strongly,
by 22.5 per cent in volume, in 2006, an election year.
Final consumption should grow more slowly in 2007
and 2008 (less than 4 per cent in volume) and its
share of GDP is expected to fall, from 97.7 per cent
in 2006 to 93.5 per cent in 2007 and then 88.7 per
cent in 2008, while private savings should increase.
Domestic savings rates, however, will probably not be
enough to fund domestic investment and recourse to
foreign savings seems inevitable in the next few years.
1998
2005
(percentage of GDP)
2006(e)
2007(p)
2008(p)
Percentage of GDP
(current prices)
Public
Private
17.8
0.1
17.7
14.2
3.7
10.5
8.2
9.0
7.9
29.2
28.0
30.0
26.3
30.0
25.0
Consumption
Public
Private
83.3
8.2
75.1
93.5
8.3
85.3
9.2
22.5
7.9
3.8
6.8
3.4
3.4
6.9
2.9
-1.2
27.3
-28.5
-7.7
31.6
-39.3
13.8
25.1
7.5
4.0
7.8
4.3
External sector
Exports
Imports
http://dx.doi.org/10.1787/623432437015
© AfDB/OECD 2007
213
D.R. Congo
Fixed capital formation will have steadily risen during
2000-08, from 3.4 per cent of GDP in 2000 to an
estimated 19.1 per cent in 2008. The investment rate
fell slightly, from 14.2 per cent in 2005 to 13.6 per
cent in 2006, because of low public investment. Money
that should have gone to government capital
expenditure was used in current expenditure during
the election period. Both private and public investment
in volume is expected to increase substantially, by
29.2 per cent in 2007 and 26.3 per cent in 2008, and
suggest speedier economic growth.
214
The aim of the government’s three-year economic
programme (Programme économique de gouvernement
– PEG), is macroeconomic stability and renewal of
growth. It was originally meant to last until the end of
2006 but results were unsatisfactory because of excessive
government expenditure and the slow progress of
structural reform. The sixth review by the International
Monetary Fund (IMF) in late March 2006 resulted in
a freeze on budgetary support and the country adopted
a bridge consolidation programme (Programme relais
de consolidation – PRC) in April that year, losing
$40 million of IMF funding. A new three-year Poverty
Reduction and Growth Facility (PRGF) is expected to
be signed with the IMF for 2007-09.
Fiscal Policy
The 2005 budget deficit was 2.7 per cent of GDP
(down from 4.1 per cent in 2004) and is estimated at
1.2 per cent in 2006. It should increase in 2007 to
1.4 per cent and in 2008 to 1.9 per cent. The deficit
was reduced in 2005 and 2006 by a substantial increase
in revenue, but especially by the international
community’s grants and budgetary support for the
elections, peace-keeping and reconstruction. Grants
were about one-third of government revenue in 2005
(5.2 per cent of GDP). External aid in 2006 was a
huge 57 per cent of the government’s budget
($2.2 billion, or 9.5 per cent of GDP) and should fall
only slightly in 2007 (to 9.0 per cent) and 2008 (to
8.5 per cent). Tax revenue is expected to remain high
(8.9 per cent of GDP in 2007 and 8.4 per cent in
2008) due to increased growth and resumption of
productive activity. Oil revenue has also risen
significantly thanks to higher world oil prices, which
were raised five times in 2005 and three times in 2006,
when they rose more than 11 per cent.
Along with all this, government expenditure was
much greater than expected in the second half of 2005
and several times in 2006, especially in April, when it
was more than CDF 13 billion ($29 million) in excess,
in July (CDF 9 billion – $20 million) and in September
(CDF 12 billion – $27 million). One reason was the
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
8.0
5.4
1.2
2.0
7.7
4.9
0.8
2.0
11.5
7.5
2.0
2.0
16.8
8.6
2.9
5.2
22.0
9.3
3.2
9.5
21.1
8.9
3.2
9.0
20.8
8.4
3.4
8.5
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
10.9
10.6
10.3
5.3
0.3
0.1
13.6
10.9
7.5
2.5
3.4
2.7
15.6
12.8
9.2
3.6
3.6
2.8
19.5
16.1
12.7
4.4
3.4
3.4
23.2
20.1
16.9
4.7
3.2
3.1
22.5
18.8
16.4
4.4
2.4
3.7
22.8
18.3
16.3
4.2
2.1
4.5
Primary balance
Overall balance
-2.6
-2.8
-2.5
-5.9
-0.5
-4.1
0.7
-2.7
2.0
-1.2
1.0
-1.4
0.1
-1.9
Tax revenue
Other revenue
Grants
http://dx.doi.org/10.1787/022083357032
© AfDB/OECD 2007
D.R. Congo
lawlessness in the eastern part of the country, as well
as bonuses for police to ensure security during elections
and extra expenditure connected with the voting.
Another was the civil-servants census, which ended
payments to non-existent officers but also led to
payment of wage arrears to public servants who had
not been paid for months. A third reason was that
decentralisation led to a higher rate of surrender of the
budget to provincial services and decentralised bodies.
The large domestic debt also meant quite heavy debt
service payments, aggravated by higher fees by the
central bank (BCC). Debt servicing was 3.4 per cent
of GDP in 2005 and is estimated to have been 3.2 per
cent in 2006. It should be less in 2007 and 2008, as
steps to relieve the debt are taken. Finally, the
government’s much higher operating expenditure was
partly caused by a lot of travel and missions by ministry
officials. All these expenditure excesses meant the budget
execution rate was very uneven. In 2005, when the
execution rate of operating expenditure was 243.9 per
cent, capital expenditure, essential for reducing poverty,
had an execution rate of only 12.1 per cent. Total
government spending is expected to be a high 22.5 per
cent of GDP in 2007 and 22.8 per cent in 2008.
Capital expenditure should rise from 3.7 per cent of
GDP in 2007 to 4.5 per cent in 2008 if the money freed
up by debt relief is indeed reallocated to infrastructure
and poverty reduction.
Monetary Policy
Monetary policy has been hit by this budget
performance and to fund the extra expenditure in the
absence of an effective financial system, the government
has resorted to printing more money. The substantial
issue of insufficiently secured currency by the BCC
speeded up inflation and increased exchange rates, thus
devaluating the local currency, the Congolese franc. To
curb the inflation, the BCC tried to limit the money
supply as much as it could. Bank refinancing rates rose
several times in 2006 and from 28.5 to 45 per cent over
the year. Reserve-requirement rates went up from 2 to
3 per cent, then to 4 per cent, doubling the amount
of money immobilised. Inflation was kept to an annual
22 per cent in 2006 (against 21.4 per cent in 2005),
far from the 8 per cent annual target of the PRC, which
© AfDB/OECD 2007
was revised to 9.5 and then 15 per cent. The goal is to
bring inflation below 10 per cent in the next two years
(7.4 per cent in 2007 and 7.1 per cent in 2008). The
BCC also found it increasingly harder in 2006 to
immediately honour in cash cheques it issued.
The Congolese franc is a floating currency and
depreciated more than 18 per cent in 2006 in relation
to the benchmark US dollar. The PRC had projected
a rate of CDF 526 to the dollar at the end of 2006 but
it had risen to more than 530 by November. The
economy is highly dollarised as a result of successive
devaluations and inflationary pressure and 99.5 per
cent of quasi-money (the sum of time deposits and
savings deposits) is in foreign currency.
The programme for monetary cooperation in Africa,
PCMA, aims to set up a single monetary zone with a
single African currency by 2021, which means countries
will have to meet convergence criteria. The DRC had
met only one of four primary convergence criteria by
2006 (public deficit as percentage of GDP, excluding
grants) and only two of seven secondary ones (non
accumulation of new domestic and foreign debt arrears
and maintaining positive real interest rates).
Otherwise, commercial banks seem to be doing
better, with increased deposits and liquidity in 2006
as well as 15.5 per cent more loans granted to the
private sector. Banks have greatly relaxed their rules and
expanded their range of products in a bid to attract more
savings. For instance, the $10 000 minimum required
to open a bank account has been abolished in a context
of competition amongst the new banks. The Banque
internationale pour l’Afrique au Congo (BIAC)
introduced an “Ekonzo” savings account in 2005,
without charges for opening and holding an account
and with annual interest on the average balance. The
BCC also received more requests to open new banks.
Microfinance is flourishing and enables many Congolese
to start small businesses.
External Position
The DRC belongs to four regional groupings: the
Southern African Development Community (SADC),
215
D.R. Congo
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Exports of good (f.o.b.)
Services
Factor income
Current transfers
6.6
19.2
12.6
-7.5
-6.6
0.5
-2.7
23.6
26.4
-4.5
-3.0
8.8
-3.7
27.6
31.3
-5.1
-4.5
7.6
-2.8
28.9
31.7
-4.9
-4.8
7.7
-5.6
28.1
33.7
-6.3
-4.8
11.9
-4.2
28.2
32.4
-5.5
-4.1
10.2
-2.4
29.2
31.5
-5.3
-3.3
8.1
-6.9
-1.5
-5.7
-4.9
-4.8
-3.6
-2.9
http://dx.doi.org/10.1787/333143703213
the Common Market for Eastern and Southern Africa
(COMESA), the Economic Community of Central
African States (ECCAS) and the Economic Community
of the Great Lakes Countries (ECGLC). It benefits
very little from these agreements, however, because its
exports are not very diversified. About 56 per cent of
the country’s $2.07 billion export earnings in 2005
were from diamonds and 22 per cent from oil. In
addition, the DRC depends very heavily on developed
countries for its imports.
produced a positive balance ($529.5 million), thanks
to public transfers, the magnitude of which (11.9 per
cent of GDP in 2006, up from 7.7 per cent in 2005)
was able to bring about a slight improvement of the
current-account deficit (from 4.9 to 4.8 per cent of
GDP) despite the greater trade deficit. The trade
balance is expected to improve in 2007 and 2008 and
correspondingly reduce the current-account deficit
from 4.8 per cent of GDP in 2006 to 3.6 per cent in
2007 and 2.9 per cent in 2008.
Exports were 28.1 per cent of GDP in 2006
(28.9 per cent in 2005). Despite higher world oil and
metal prices, the volume of exports slumped badly,
especially of oil and diamonds, due to smaller
production. About 26 million carats of diamonds
(worth $624.7 million) were exported to Israel and
Belgium in 2006, most of them industrially mined
alluvial stones from the central region of Kasai. Apart
from export duties, the government collects a 2 per cent
tax on the value of all exports. The total value of exports
was slightly down in 2006 and is expected to stagnate
in 2007 at 28.2 per cent of GDP before improving to
29.2 per cent in 2008 as raw material production picks
up and exports diversify. Copper and cobalt should
boost export earnings in the next few years.
Foreign direct investment (FDI) in the DRC
amounted to $500 million in 2006, up from
$405 million in 2005 and from an average of only
$5 million between 1990 and 2000. Foreign investors,
especially from China and South Africa, diversified
their capital spending into the mining sector, as well
as into the energy and banking sectors. The return of
peace and the successful elections should attract even
more FDI. A South Korean enterprise, Bleu Tech
Business Group, has announced that it will shortly
build motorways and high-class hotels in the DRC.
216
Economic growth and reconstruction increased
the share of imports in GDP from 31.7 to 33.7 per
cent in 2006. The trade deficit worsened, from 2.8
percent of GDP in 2005 to 5.6 per cent in 2006,
when it was in the red by more than $468 million and
the invisibles balance stood at more than $355 million
in deficit. The revenues balance also showed a loss
amounting to $293.7 million. Only current transfers
The country is eligible for debt relief under the
HIPC Initiative and the Multilateral Debt Relief
Initiative (MDRI) and can expect its more than
$14 billion of debt to the World Bank, the IMF and
the African Development Bank (AfDB) to be entirely
cancelled. Nonetheless, 2007 will be difficult for the
external debt, as the adoption of the DSCRP in
September 2006 ran into funding problems. It will be
a year after its introduction and assessment before the
HIPC completion point can be reached, so the DRC
is unlikely to get any debt relief until 2008, when debt
cancellation should amount to more than $7 billion.
© AfDB/OECD 2007
D.R. Congo
Source: IMF.
217
http://dx.doi.org/10.1787/360646183580
The country’s debt amounted to $12 billion at the
end of 2005, more than 150 per cent of gross domestic
product. Servicing it absorbs about 7 per cent of goodsand-services exports. The DRC also uses the SYGADE
debt-management system to produce reports on the
public debt. The European Union announced at the
end of 2006 that it would double its aid to the DRC.
Structural Issues
The elections period was not the time for
introducing major structural reforms and the IMF
noted that only minor and inadequate progress had been
made in this domain. Only key sectors such as mining
and energy were involved in major projects matching
the country’s huge resources. Corruption and
mismanagement of natural resources is still a big
problem, however, and Transparency International’s
2006 report ranked the DRC as the sixth most corrupt
of 163 countries. New investment and tax codes in
the mining and forestry sectors should soon be approved
© AfDB/OECD 2007
by parliament in a bid to attract foreign capital and
encourage projects and public-private partnerships.
Recent Developments
The revival of copper and cobalt production by
the enterprise KCC is the country’s biggest private
investment since its independence. The state mining
company Gécamines has a 25 per cent share in the
enterprise, which is otherwise controlled by the private
Belgian-Canadian company Kinross Forrest Ltd.
Nonetheless, the establishment of KCC required
Gécamines to yield its mining rights, whereas Kinross
Forrest committed to investing $426 million to boost
mining, as well as $257 million more to keep operations
going for about 20 years. The government should get
about $2.2 billion in royalties and income tax from the
project, which is expected to generate 2 500 jobs (or
12 000 if sub-contractors are included) and support
240 000 people in the whole region. The contract does
involve handing over a key part of the country to the
private sector, and in June 2005 a parliamentary report
D.R. Congo
called for the renegotiation or cancellation of mining
contracts as about 30 joint ventures, drawn by big tax
breaks, took over Gécamines’ richest concessions. The
IMF asked the transitional government in August 2006
to stop granting new mining licences pending
installation of a new government. A report by the
international NGO Global Witness in 2006 criticised
the illegal export of minerals across the Zambian border
as well as endemic corruption in Katanga’s copper and
cobalt mines.
218
Many electricity projects are under way, including
a $262.3 million two-year rescue and recovery
programme launched by the national power company
(Snel) in 2005. The country has an enormous
hydroelectric potential of about 100 000 megawatts,
44 000 of them at the Inga site alone, which has two
power-stations of total installed capacity of
1 774 megawatts, although Inga’s output was only
700 megawatts in 2006. Several projects are being
considered to supply other (especially SADC) countries
from the Inga dam. The cost of building a third plant
at Inga (of 3 500-megawatt installed capacity) by 2010
has been put at $3.5 billion. The Great Inga project
(13 500 megawatts) would cost $5.66 billion. If
electricity is sold below the average rate of $0.035
kilowatt/hour for the region, the great Inga power
station could generate largely sufficient profits to write
off the investment.
The DRC is one of the few countries in Africa
with no desertification or water-scarcity problems. Its
extensive water resources include 30 or so rivers,
20 000 kilometres of river-banks and the 4 670kilometre long Congo river (which has the world’s
second biggest estuary outflow – 40 000 m 3 per
second). The country has the continent’s largest water
supply, with internal renewable water resources
averaging 900 km3 a year, nearly one-quarter of all
Africa’s fresh water. The potential is huge and almost
entirely untapped. The DRC has been asked in recent
years by its neighbours and by international
organisations to channel fresh water from the Congo
basin to other countries.
The DRC shares the Congo river basin with eight
countries (Angola, Burundi, Cameroon, the Central
African Republic, Congo, Rwanda, Tanzania and
Zambia), and the Nile basin with nine (Burundi, Egypt,
Eritrea, Ethiopia, Kenya, Rwanda, Sudan, Tanzania
and Uganda). It belongs to the Nile Basin Initiative,
launched in 1999, and to a regional management
project called Pollution Control and Other Measures
to Protect Biodiversity in Lake Tanganyika, along with
Burundi, Tanzania and Zambia, which aims to institute
regional management for the lake that is ecologically
rational and sustainable.
Access to drinking water and sanitation is difficult,
and badly organised and coordinated. Decision making
and responsibility is hard to pin down because it is
spread between a dozen ministries and public bodies.
Urban water operations and distribution are the job of
the state-owned water company Regideso, which is
facing technical-management, commercial and financial
problems. In the countryside, the national rural water
service, SNHR, has very few resources and its
institutional framework is inappropriate. As for the
national sanitation programme, PNA, which handles
domestic and industrial waste and produces drinking
water under Regideso and the ministry of environment,
it is practically non-existent. Water-borne sewage systems
are only available in the centre of the biggest towns, and
their networks are in very bad condition (cracked,
destroyed or partly clogged). Wastewater flows untreated
straight into the Congo river and its tributaries. The
government recognises the need to rebuild and
decentralise the sector covering access to drinking water
and sanitation and to focus on the neediest people.
The fighting in recent years and the dilapidated state
of the existing infrastructure have reduced access to
drinking water from 37 per cent in 1990 to 22 per cent
in 2004 and to sanitation from 10 to 9 per cent for the
same period. The figures for sanitation need to be
qualified, as only 46 per cent of the Congolese have
“hygienic” toilets, while the rest use uncovered latrines
or open pits, which are counted as sanitation. In view
of such extensive needs, the MDGs have been reduced
to 49 per cent coverage for drinking water (36 per cent
in the countryside and 65 per cent in towns and cities)
© AfDB/OECD 2007
D.R. Congo
and to 45 per cent for sanitation. The total cost of
reaching these targets is put at $217 million, but success
is extremely unlikely because of the very small current
investment and the vastness of the country, especially
as aid donors would be the only source of money for
this sector, at least for the next five years.
People in rural areas seem to have been abandoned
many years ago and physical infrastructure there is
crumbling, with 60 per cent of water facilities no longer
working because of lack of maintenance, an inefficient
participatory approach and the difficulty of getting
spare parts. Drinking-water access problems feed
epidemics and water-borne diseases such as cholera,
typhoid and dysentery. Women, as traditional watercarriers, have a particularly heavy burden, as only 12 per
cent of rural households had direct access to drinking
water in 2004. Regional disparities are also very wide
(only 3 per cent of people had access to drinking water
in the Banalia area of the Orientale province). Water
is not always drinkable because wells and other supply
sources are not covered or protected. It is mostly NGOs
and religious orders that share the responsibility for
supplying drinking water in the countryside. The
population has not managed to take charge of operating
and maintaining the facilities. Despite the great need,
only four drilling enterprises are active in the DRC.
The average cost of a hand pump is about $14 000 and
$50 000 for an industrial one.
In urban areas, 37 per cent of the population had
access to drinking water in 2004. Only 65 per cent of
the inhabitants of the capital, Kinshasa, were connected
to the network, while more than 2 million people
depended on springs or wells, often polluted and drilled
less than a metre deep near latrines. The situation is
much worse in other towns and cities. Regideso’s
laboratories are supposed to treat the water but the
result is far from satisfactory due to frequent shortages
of purifying chemicals, seepages of contaminated water
into the distribution network and the collection of
water close to pollution sources. When Regideso’s taps
run dry, water vendors take to the streets on bicycles
offering 25-litre tins for CDF 100 ($0.25) each. In
contrast, Regideso’s price of around $0.65 per m3 is not
enough to cover production costs. The water metres
© AfDB/OECD 2007
are obsolete and only 30 per cent of sales points have
any at all, which means most customers simply pay flat
fees. At the height of the crisis in 2003, Regideso owed
the government and other public bodies 85 months of
arrears totalling more than $200 million. There is no
mechanism for recovering costs for sanitation.
The various elections held in 2006 involved an
astronishing 282 registered political parties,
50 000 polling stations opened up and 33 million
ballots printed for a total cost estimated at more than
$500 million, virtually all of it paid by the international
community. Eleven elections were held, including
presidential, local and a one-round poll amongst
9 707 candidates for 500 seats in parliament. President
Joseph Kabila won 58 per cent of the votes cast by
25.6 million people, but his party and its allies only
control 44.8 per cent of the seats in the national assembly.
The delicate transition period is now over. The
new national constitution has instituted a Third
Republic and a strongly decentralised unitary state,
and laid the foundations for a democratic regime by
balancing executive and legislative authority. The
president, elected by direct universal suffrage for five
years (with a right to one extra term), appoints a prime
minister who reflects the parliamentary majority. The
national assembly can censure the government and the
president can dissolve the assembly. The judiciary is
independent and gender equality is written into the
public institutions. Only 42 women, however, were
elected to parliament (8 per cent of its members). The
country’s provinces, which will be increased from 11
to 26 by 2009, have wide autonomy and levy directly
40 per cent of the tax revenue allocated to them in the
national budget. This point is one of the main concerns
of international observers, as it supposes that local
officials should be responsible and a vigorous fight
against corruption.
Another political challenge will be to make progress
with economic and legal issues now that they are
219
D.R. Congo
subject to parliamentary approval and will require
political alliances to win majority approval. Central
government authority will also have to be re-established
nationwide. The eastern provinces of Ituri, Nord-Kivu
and Sud-Kivu, which have twice been the seat of
rebellions that have plunged the DRC into war, are
still the scene of ethnic tension and daily violence
against civilians despite a July 2006 amnesty for all
rebels laying down their weapons. The United Nations
(UN) World Food Programme has announced
resumption of its airlifts to help more than 8 800 people
in these areas. The UN put the country’s humanitarian
needs in 2007 at $686.5 million, and at the end of
2006, there were still 1.6 million displaced persons.
220
Despite its immense natural resources, the DRC is
still one of Africa’s poorest countries, with more than
three-quarters of its population living on less than one
dollar a day in 2005 and fewer than 20 per cent with
regular access to water and electricity. The UN
Development Programme’s 2006 worldwide Human
Development Report ranked the country 167 out of
177, with annual per capita income (at purchasing
power parity) of $705, far behind neighbouring Congo
(ranked 140) even though it, too, recently suffered
from war. About 1 200 people, half of them children,
die every day in the DRC from violence, disease or
malnutrition. The DRC is also thought to have more
child soldiers than any other country in the world –
about 30 000 fighting or living with armed groups, some
12 500 of them girls.
On the gender front, Congolese women are
increasingly heads of large families as their men either
die of HIV/AIDS or in wars. According to surveys, as
many as 90 per cent of them have informal or
unstructured jobs, or a subsistence activity such as
prostitution. Women’s rights are generally ignored on
a daily basis and gender disparity in access to education,
health care and resources is large. In the eastern
provinces they are subjected to violence, abuse and rape
by armed men.
The health situation remains dramatic. The health
ministry’s reform and reconstruction strategy, backed
by international aid donors, planned to spend $3
annually per inhabitant in 2005, far below the $15 to
$26 recommended by the World Bank. About
20 million Congolese were under-nourished in 2005,
and 4 million died between 1998 and 2004 of common
curable diseases for lack of public services, infrastructure,
equipment and access to health care, especially in the
countryside, where there was only one doctor for every
56 000 people in 2005. Infant mortality was 205 per
thousand live births in 2005 and more than 1 million
children had lost one or both parents to HIV/AIDS.
According to the UN, the steadily rising prevalence of
the disease was 4.5 per cent in 2005. At least 2.6 million
people are thought to be infected, including
120 000 children. Only about 5 000 people have access
to retroviral treatment out of the more than
400 000 who need it. The DRC is also one of the
countries in the world most affected by cholera, with
65 000 cases declared to the World Health Organisation
between 2002 and 2004, including 3 200 deaths.
In the field of education, the primary-school
enrolment rate fell from 54 per cent in 1990/91 to
33 per cent in 2000/01 and was only 12 per cent at
secondary level in 2000/01. According to Amnesty
International, only 29 per cent of children complete
primary school and 4.7 million (including 2.5 million
girls) do not go to school at all. The Catholic Church
runs 80 per cent of primary and 60 per cent of secondary
schools, mainly because of the collapse of the state
education system. Teachers are still waiting for a pay
rise granted after February 2004 talks between civilservice unions and the government that set the
minimum monthly salary at $208 (a Congolese teacher
currently gets an average $67 a month). Higher
education is provided by four national universities
– two in Kinshasa, one in Lubumbashi and one in
Kisangani – and by many colleges.
© AfDB/OECD 2007
Côte d’Ivoire
Yamoussoukro
key figures
•
•
•
•
•
322
18 454
46.2
51.3
Côte d’Ivoire
D
ESPITE THE POLITICAL CRISIS THAT HAS been ongoing
since 2002, Côte d’Ivoire’s economy nonetheless
registered growth estimated at 1.2 per cent in 2006,
following a 1.8 per cent increase in 2005. In 2005
growth was stimulated by the start of construction of
new oil wells and the arrival of new telecommunication
operators on the market. The slowdown observed in
2006 resulted from delays in the start of reconstruction
works, themselves incurred by delays in the peace
process and an ongoing climate of insecurity.
At the political level, 2006 was marked by the
collapse of UN resolution 1633, which meant that
elections could not take place; it was also marked by
the voting of a new
Growth has been positive
resolution 1721 prolonging the
since 2005, thanks to new
mandate of the president of the
oil wells and the arrival
republic for one year and
of new telecommunications
maintaining the prime minister
operators.
in power. The year was equally
marked by the toxic waste scandal, which led to the
resignation of the government for the first time in the
history of the country.
223
Source: National Statistics Office data.
http://dx.doi.org/10.1787/125480464137
© AfDB/OECD 2007
Côte d'Ivoire
224
In 2006, preliminary results for the first nine
months of the year indicated a 2.4 per cent growth in
food production over the 2006/07 agricultural
campaign against 2.8 per cent in 2005/06, owing to
favourable climactic conditions. With regard to
production of principal export crops, the cotton harvest
increased by 11.3 per cent year on year, reaching
256 000 tonnes. Since the 2002 crisis, cotton
production, which is mostly based in the north of the
country, has encountered considerable difficulties in
terms of supply (phytosanitary products and fuel),
financing and transport. Nevertheless, the corrective
measures taken by producers to remedy the input
supply difficulties seem to have borne fruit. Coffee
production increased by 2.7 per cent to reach
115 000 tonnes, while cocoa production is estimated
at 1 350 000 tonnes, 3.6 per cent more than in
2005/06. The coffee-cocoa sector is comprised of
around 600 000 farms and provides a living, directly
or indirectly, for nearly 6 million people. Thanks to
its geographical location (in the southern and southeastern part of the country) production suffered
comparatively less from the effects of the crisis.
Cocoa production also benefited from the securing
of the transport corridors between production zones
and the ports, notably that of San Pedro. All the same,
the sector has been weakened by the crisis, in particular
because of cocoa smuggling to Ghana and Burkina Faso,
and is suffering from the significant impact of
institutional factors. Effectively, high taxes on cocoa
exports tend to unbalance the distribution of profits,
to the detriment of producers. The export tax (Droit
Unique de Sortie - DUS) and various other taxes are
estimated at more than 300 CFA francs per kilogramme
for a factory purchase price of around 350 to 380 CFA
francs per kilogramme. This level of taxation weighs
equally on the price competitiveness of the sector.
Against this background the national association of
coffee and cocoa producers (Association Nationale des
Producteurs de Café-cacao de Côte d’Ivoire ANAPROCI) that unites the majority of the
600 000 planters in the country, has denounced the
new purchase price for beans set by the coffee and
cocoa exchange (target/indicative purchase price margin
Bourse du Café et du Cacao - BCC) which was fixed at
400 CFA francs per kilogramme. The planters had
called for 600 CFA francs per kilogramme, deeming
the price of 400 CFA francs low given the high taxes,
and furthermore called for a reduction of 100 CFA
francs per kilogramme of the DUS, which is currently
220 CFA francs per kilogramme.
It would appear that productivity in the coffeecocoa sector has registered a general decrease, probably
linked both to ageing of the production fields and to
fewer phytosanitary treatments. Indeed, without a
guaranteed minimum price and with producer prices
so low, the latter are finding it difficult to apply effective
treatments, which also have an impact on the quality
of the beans produced. To this end, since
December 2006 the European Union has financed a
coffee-cocoa quality improvement programme worth
1.2 million CFA francs, to be executed by the Ministry
of Agriculture, with the help of the United Nations
Industrial Development Organization (UNIDO). The
programme’s aim is to prevent the contamination of
coffee and cocoa beans with Ochratoxin A, a toxin
produced by micro fungi.
In the mining sector, activity was highly dynamic
in 2005, due to the combined effect of a net expansion
in oil extraction and an increase of gold and gas
production. Following the activation of the Baobab
oilfield in August 2005, oil production has registered
strong growth (more than 83.2 per cent) for the fourth
consecutive year since 2002, with record production
of 14.5 million barrels (almost 2 million tonnes). Gold
production reached 1 637.7 kilogrammes, which
represents growth of 28.7 per cent over 2004, coinciding
with the implementation of security measures and the
relative calm observed in production zones. After having
increased by 10 per cent in 2005 to reach
1 742.3 million m3, gas production fell in 2006 as a
result of the silting up of wells. Because of its location
in the northern zone, no statistics regarding diamond
production exist.
Activity in the secondary sector, which had suffered
more than the primary sector from the intensification
© AfDB/OECD 2007
Côte d'Ivoire
(percentage)
Source: Authors’ estimates based on Ministry of Economy and Finance data.
http://dx.doi.org/10.1787/844744475874
of political troubles at the end of 2004, recorded an
upturn in 2005, with the industrial production index
growing by 3.7 per cent compared to 3.2 per cent in
2004. The textile-shoes and wood sectors also suffered
the effects of the political crisis, production again
showing a strong decrease compared with 2004. Over
the first seven months of 2006, industrial production
grew by 10.6 per cent, an evolution essentially due to
the strong increase in the index of the extraction
industries, with oil and gas production practically
doubling. On the other hand, manufacturing industries
declined by 0.9 per cent as a result of the 4.5 per cent
decrease in agro alimentary production and the 22 per
cent decrease in textile industry production, their subindicators decreasing by 4.5 per cent and 22 per cent
respectively. The electricity, gas and water sectors for
their part have fallen by 1.7 per cent.
The tertiary sector has suffered most from the
economic impact of the political troubles. In 2005,
almost all branches of the sector recorded a slowdown.
Overall maritime traffic (18.6 million tonnes) only
increased by 5 per cent in 2005 compared with 17.7 per
cent in 2004. Air transport posted mediocre results, with
the overall number of passengers decreasing in 2005.
Retail sales, measured by the sales index, remained
stable (up 0.6 per cent) in 2005. Over the first nine
months of 2006, the retail sales index declined by
0.9 per cent due to the effect of the downturn in sales
of oil products, cars, motorcycles and parts. The
distribution sector fell victim to the negative effects of
the toxic waste scandal.
On the demand side, growth was fed by the
resumption of external demand and a light recovery in
1998
2005
Percentage of GDP
(current prices)
(percentage of GDP)
2006(e)
2007(p)
2008(p)
Public
Private
16.0
6.0
10.0
9.3
2.7
6.6
-4.3
-10.0
-2.0
2.1
5.0
1.0
6.4
10.0
5.0
Consumption
Public
Private
76.2
10.0
66.2
84.2
13.9
70.3
2.4
4.0
2.1
2.7
3.5
2.5
2.7
4.1
2.5
7.8
36.9
-29.1
6.5
50.6
-44.1
2.1
3.3
1.8
2.5
2.2
3.5
External sector
Exports
Imports
Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/686577802785
© AfDB/OECD 2007
225
Côte d'Ivoire
domestic consumption. It is estimated that final
consumption increased by 2.4 per cent in 2006. However,
investments decreased by 4.3 per cent, mainly due to the
fall in public investment (down 10.2 per cent) and, less
obviously, a slump in private investment (down 2.0 per
cent). A light recovery is forecast for 2007 and 2008.
Fiscal Policy
226
In 2005, the ongoing crisis continued to weaken
the fiscal policy implemented by the Côte d’Ivoire
government. Revenues were 1 251.2 billion CFA francs,
an increase of only 0.7 per cent compared to 2004,
which can be explained by the closure of numerous small
and medium-sized enterprises (SME), which reduced
the tax base and intensified the dependence of the
budget on coffee and cocoa taxes. Unfortunately, the
coffee and cocoa sector has also experienced a number
of difficulties, including smuggling of part of production
to neighbouring countries, and malfunctions in the
customs services, which have weighed on revenues.
The revenue losses recorded on the DUS export tax have
been offset by better performance by the Direction
Générale des Impôts (Inland Revenue), notably in taxcollection on profits. Public spending, valued at
1 704.6 billion CFA francs in 2005, increased by 2.3 per
cent over 2004, due to a more than 7.7 per cent rise
in current expenditure, which accounted for 80 per cent
of total public spending in 2005. Interest payments on
public debt have decreased consistently since 2001.
The fiscal deficit (commitment basis, including grants)
was valued at 138.8 billion CFA francs, or 1.7 per cent
of GDP for 2005. In 2006, the situation was reversed;
the Direction Générale des Douanes (Customs) posted
higher revenue than expected, while the Direction
Générale des Impôts (Inland Revenue) posted less.
Adopted over a year late by the Council of Ministers
on 14 June 2006, the 2006 budget rests on the
assumption of an emergence from the crisis, with a
prudent but positive macroeconomic forecast. It is
balanced at 1 965.3 billion CFA francs, an increase of
13.3 per cent compared with 2005, and is aimed at
financing government priority actions related to a
return to peace (demobilisation, disarmament and
reinsertion, identification, organisation of elections).
State resources for 2006 are calculated at 1 965.3 billion
CFA francs, of which 1 535.9 billion CFA francs are
from domestic resources, or 78 per cent of the total,
external resources representing the more modest amount
of 429.4 billion CFA francs. The main multilateral
and bilateral stakeholders financing programmes to
emerge from the crisis through scheduled donations,
calculated at 93.6 billion CFA francs, are the World
Bank, the International Monetary Fund (IMF), the
UN Development Programme, the European Union,
France, Belgium and Denmark. State expenditure for
Côte d’Ivoire reached 1 965.3 billion CFA francs in
2006, which represents an increase of 13 per cent,
principally due to efforts devoted to building peace.
Recurrent expenditure represents 1 091.5 billion CFA
francs, or 55.5 per cent of the total, and is allocated as
follows: personnel (586.3 billion CFA francs),
subscriptions/supplies (35 billion CFA francs) and
operations (470.2 billion CFA francs). Debt servicing
is assessed at 576.4 billion CFA francs, or more than
29 per cent of the total budget (84 per cent of the
amount executed in 2005) covering all current
instalments.
Under the fiscal annex of the 2006 Finance Act, the
reforms undertaken by the state since 2001 have been
continued. This authorises a certain number of measures,
of which the most important is the lowering of the
commercial tax rate, from 35 per cent to 27 per cent
on industrial and commercial profits (bénéfices industriels
et commerciaux - BIC) and on commercial agricultural
profits. The 25 per cent tax rate applicable to new
information technologies and to small and medium-sized
industries (SMI) has been extended to all SMEs. This
measure is the result of negotiation between the private
sector, notably the Côte d’Ivoire employers, and the
Minister of Economy and Finance. The following
measures should also be noted: i) cancellation of some
tax arrears that were due on 31 December 2004;
ii) improvement of procedures and reimbursement of
VAT tax credits; and, iii) implementation of state
control. The intended aim is to simplify the VAT
reimbursement procedure for corporations.
© AfDB/OECD 2007
Côte d'Ivoire
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Total revenue and grants
Tax revenue
Grants
19.1
15.1
0.7
17.6
15.0
0.5
18.5
15.2
0.9
18.2
14.5
1.1
17.9
15.0
0.3
17.7
14.6
0.5
17.6
14.5
0.5
Consolidated expenditure
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
20.7
14.7
10.9
5.5
3.8
6.0
20.2
17.4
14.7
6.8
2.7
2.7
20.4
17.1
14.8
6.7
2.3
3.2
19.9
16.9
14.9
6.5
2.1
2.7
19.9
17.3
15.7
6.8
1.6
2.5
19.8
17.2
15.6
6.9
1.6
2.5
20.0
17.3
15.7
6.9
1.5
2.6
Primary balance
Overall balance
2.1
-1.6
0.1
-2.6
0.4
-1.8
0.3
-1.7
-0.4
-2.0
-0.5
-2.1
-0.8
-2.3
Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/073771368836
The overall balance (commitment basis, excluding
grants) is still changing, but is coming out positive at
94.9 billion CFA francs at the end of June 2006 against
70 billion CFA francs during the same period in 2005.
This improvement is due to an increase in total revenue
greater than that of spending and net loans. The rise
in current expenditure was limited to 4 per cent. Capital
expenditure remained relatively weak because of
financial constraints experienced by the country due
to lack of external financial support. According to the
Central Bank of West African States (BCEAO), public
finances deteriorated in 2006. The financial operations
of the state resulted in an overall deficit (commitment
basis, excluding grants) of 0.4 per cent of GDP, linked
to the rise in public administration expenditure on
stipends and salaries. Thus, in terms of macroeconomic
convergence and of the first order criteria, the negative
budgetary balance (-0.4 per cent of GDP), fails to fulfil
the community norm.
Financial Policy
Financial and credit policy are implemented at
regional level by the BCEAO, whose main mission is
to preserve parity between the franc CFA and the euro
and to control inflation. Monetary policy in the zone
is thus rigorous, following the example of the European
Central Bank (ECB), with a tailored level of foreign
exchange reserves. The only difference is that in its
monetary policy, the BCEAO takes into account the
economic situation of its member countries. Effectively,
© AfDB/OECD 2007
it remains attentive to the evolution of their economic
and financial situations, in particular the impact of oil
prices on domestic prices, the conduct of agricultural
campaigns, trends in credits to the economy and
liquidity. In 2005, the monetary authorities adopted
a prudent monetary policy while creating favourable
conditions for financing to the economy. Net external
credit progressed from 9.8 per cent compared with
2004 to reach 704.5 billion CFA francs. Private sector
credits reached 1 189.3 billion CFA francs, an increase
of 1.3 per cent. Money supply increased by 7.4 per cent
to reach 2 081.2 billion CFA francs. On an annual basis,
credits to the economy contracted by 3.7 billion CFA
francs or 0.3 per cent. Money supply, up by 0.6 billion
CFA francs, stabilised at 2 047.9 billion CFA francs at
the end of June 2006. Compared with June 2005,
aggregate liquidity rose by 8.2 per cent.
As regards inflation, responses for the first five months
of 2006 attest to a 2.4 per cent grow in the consumption
price index as against 4.1 per cent over the same period
in 2005, and over the entire year, inflation reached
2.5 per cent under the effect of a rise in the price of fish
products, oil products and transport services.
External Position
The recovery of external trade was confirmed in
2005, even if still marked by the effects of the crisis.
Generally, external trade increased by 3.3 per cent in
volume, owing to the simultaneous growth of imports
227
Côte d'Ivoire
(2.5 per cent) and exports (3.9 per cent). In value,
imports rose by 18.5 per cent and exports by 8 per cent.
The deterioration of the trade balance observed since
2002 was confirmed in 2005, when it reached 14.5 per
cent of GDP. This downturn apparently continued
with a trade balance of 12.9 per cent of GDP in 2006
because of a drop in cocoa exports and a rise in imports
of equipment goods. The weakness of the international
cocoa markets and the rise in imports could not be
totally offset by the increase in the oil surplus resulting
from the strong rise in the international price of energy.
The current account balance was for the first time in
deficit by 6.6 billion CFA francs (approximately 0.3 per
cent of GDP), an evolution that can mainly be attributed
to the deterioration of the trade balance. Raw cocoa
exports have been decreasing regularly since 2002 (a
cumulative decrease of 30 per cent in four years): they
accounted for 27 per cent of exports in 2005 as against
40 per cent in 2002. At the end of November 2006,
200 000 tonnes of cocoa were ready for export, as
against 300 000 tonnes for the same period in 2005,
which constitutes a significant loss to recoup, as much
for exporters as for the state, which loses substantial tax
revenue in this way, notably on the DUS export tax.
228
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
13.1
34.6
21.6
-7.1
-5.5
-3.1
18.5
40.9
22.4
-8.1
-4.8
-3.5
16.6
43.3
26.7
-8.2
-4.2
-3.0
14.5
44.3
29.9
-7.9
-4.0
-2.8
12.9
45.1
32.1
-8.3
-3.9
-2.8
13.5
43.7
30.2
-8.1
-6.0
-1.0
12.9
42.9
29.9
-8.2
-5.8
-1.0
-2.7
2.0
1.2
-0.3
-2.1
-1.6
-2.0
Source: Source: National Statistics Office data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/385820705017
Although the country has exported oil since 2002,
the increase in imports was primarily the result of the
rise in oil prices. Imports went from 576.5 billion CFA
francs in 2004 to 867.8 billion CFA francs in 2005.
Imports of equipment goods (spare parts or new
equipment such as machines, engines and utility
vehicles) reached 1 077.4 billion CFA francs in 2005,
as against 838.9 billion CFA francs in 2004, owing to
the positive development of most industrial branches.
Furthermore, imports of consumables grew overall.
Purchases of medicines, which are third in rank in
imports after oil and rice, grew by 14 per cent. In 2006
exports showed a stronger performance linked to the
rise in exports of oil products but imports increased as
well. Thus the current account balance, excluding
transfers, showed a surplus equivalent to 0.7 per cent
of GDP, as against 2.5 per cent in 2005.
In terms of international agreements, Côte d’Ivoire
is a member of the Conseil de l’Entente between Benin,
Burkina Faso and Niger, of the West African Economic
and Monetary Union (WAEMU) and of the Economic
Community of West African States (ECOWAS). The
resumption of financial assistance from the Bretton
Woods Institutions and the restarting of the debt
reduction process within the framework of the Heavily
Indebted Poor Countries (HIPC) Initiative, from which
Côte d’Ivoire began benefiting in 1998, are urgent
priorities. They are still nonetheless secondary to the
normalisation of the political situation. In 2005 and
2006, the government instigated discussions with the IMF
for a post-conflict aid programme, which became active
on signature of a letter of intent by the prime minister.
In tandem with the World Bank, $100 million of support
for the National Disarmament, Demobilisation and
Reintegration Plan (PNDDR) was negotiated in June
2006. These programmes nonetheless remain linked to
the discharge of arrears owed to the World Bank, which
reached a total of 200 billion CFA francs.
The last reduction of its public debt from which
Côte d’Ivoire was able to benefit was agreed in April
© AfDB/OECD 2007
Côte d'Ivoire
Source: IMF.
229
http://dx.doi.org/10.1787/406813772163
2002. This relief, which corresponded with a preliminary
agreement to the strengthened HIPC Initiative, marked
the resumption of financial co-operation between Côte
d’Ivoire and its foreign partners. It translated into debt
cancellation of $911 million and the reduction of debt
servicing from $2.26 billion to $750 million between
1 April 2002 (the date of the agreement with the Paris
Club creditors) and 31 December 2004. The relief
granted by foreign creditors assumed that Côte d’Ivoire
would respect the terms of the three-year agreement
concluded with the IMF under the Poverty Reduction
and Growth Facility (PRGF), and it would have allowed
further relief once the HIPC Initiative decision point
had been reached. This process was interrupted however
by the crisis. The overall public debt of Côte d’Ivoire
was estimated at 5 524.7 billion CFA francs at end 2005,
which is 64.1 per cent of GDP and 128.8 per cent of
goods and services exports. This amount includes
4 746.3 billion CFA francs of foreign debt (55.1 per
cent of GDP and 109.9 per cent of goods and services
exports) and 778.4 billion CFA francs of domestic
debt (9 per cent of GDP). Compared with 2004, there
has been a 2 per cent reduction of 97.4 billion CFA
© AfDB/OECD 2007
francs. Outstanding external debt is broken down
primarily between multilateral creditors (1 593.8 billion
CFA francs), members of the Paris Club (1 991.5 billion
CFA francs), and the London Club (1 123.5 billion
CFA francs).
Structural Issues
Recent Developments
The unfavourable situation created by the sociopolitical crisis does not prevent the government from
continuing to take measures to lighten the negative
effects of the crisis. Notable advances took place in
2005.
At public administration level, the national steering
committee for the reorganisation of the administration
(Comité National de Pilotage du Redéploiement de
l’Administration - CNPRA) implemented a pilot project
to return state agents to the western region (3 756 civil
servants in total) and to rehabilitate public buildings,
Côte d'Ivoire
roads and water services, with the aim of facilitating
the return of populations to the occupied zones. After
execution of this pilot phase in the west, the CNPRA
then carried out a census of displaced civil servants.
Around 15 000 agents were waiting to reclaim their
posts. The crisis strongly deteriorated transport and
administrative infrastructures.
230
In the agricultural sector, measures were taken in
the coffee-cocoa sector in order to reduce indirect taxes,
brought from 54.26 CFA francs per kilogramme to
53.15 CFA francs per kilogramme. These measures
followed the rationale of decree n° 420 of 21 October
2005 fixing of the level of taxes and dues for 2005/06
agricultural campaign. In addition, the authorities
strengthened the monitoring and control of financial
movements by putting in place a reliable information
system for levies and allocations. In the medium term,
the steering committee report must be published so that
the reforms can be strengthened and the second phase
of the financial audit of the sector must be finalised.
The first phase of audit took place in July 2003.
In the energy sector, the leasing contract with the
electricity company, Compagnie Ivoirienne d’Electricité
(CIE) was extended in September 2005. This extension
was accompanied however by major provisions
including, notably: (i) regular monitoring of contract
execution; (ii) setting up a fund equipped with a
management committee; and, (iii) the possibility or
revising the contract every five years. These provisions,
which enable the institutional framework to be
improved, will contribute to stabilising the financial
situation of the sector (given the implementation of
recommendations from the tariff study of the sector).
It should however be noted that the electricity sector
is widely stricken and there are not inconsiderable risks
of disturbance in the medium term, despite the increase
in the level of rural electrification.
In 2005, the banking system was comprised of
19 credit establishments, of which 17 were banks (16
in 2004) and 2 were financial establishments. These
developments were due to authorisations granted to the
Banque Régionale de Solidarité Côte d’Ivoire (BRS-Côte
d’Ivoire) and to Citibank Côte d’Ivoire, and to the
withdrawal of the authorisation of the Citibank NAAbidjan branch. The financial institutions are
characterised by activity mainly oriented towards leasepurchasing of property and goods. The Caisse Nationale
des Caisses d’Epargne (CNCE), formerly the Caisse
d’Epargne et des Chèques Postaux (CECP), was set up
as a banking establishment by decree n° 2004-565 of
14 October 2004, bringing an increase in capital and
transforming the CNCE into a bank. This new structure
has delayed implementing the reforms recommended
under the framework of the restructuring, which has
brought about a new accumulation of arrears with the
state. With the perspective of absorbing these, through
decree n°2005-306 of 29 September 2005 for the
financial restructuring of CNCE, the government
accepted the discharge of the cumulative losses covering
the 1999-2003 period and the capital conversion of a
part owed to the Treasury. The lifting of these constraints
enabled the transformation of CNCE into a bank.
Following devaluation of the CFA franc in 1994,
a labour consultation commission was put in place in
Côte d’Ivoire in order to consider a new standard
salary grill for the different sectors of the economy. The
work of this commission resulted in the signing of
agreements between the state, the three central unions
and Côte d’Ivoire employers, and in an official salaries
scale for Côte d’Ivoire. This document establishes a
minimum professional wage (SMIG) and a minimum
agricultural wage (SMAG) set at: 211 CFA francs per
hour, or 36 607 CFA francs per month for industry;
at 333 CFA francs per day for the agricultural sector;
and, at 581 CFA francs per day for the forestry sector.
Executive salaries are fixed by negotiation between
employer and employee.
The telecommunications sector has developed
appreciably despite the crisis. Introduced in Côte
d’Ivoire in 1996, GSM (global system for mobile)
cellular mobile telephony is today operated by three
licensed enterprises: Orange Côte d’Ivoire, MTN-Côte
d’Ivoire and Atlantique Télécom, which launched its
activities in June 2006 under the brand name of
“Moov”. The US enterprise, Comstar Cellular, which
also held an operating license, ceased activity three
years previously. The mobile telephony market is
© AfDB/OECD 2007
Côte d'Ivoire
constantly moving, with operators competing in
ingenuity to offer the best solutions to their clients at
the most competitive prices. However, Orange Côte
d’Ivoire, a subsidiary of the France Télécom group, is
predominant in the market by number of subscribers.
Where geographical coverage is concerned, the most
recent arrival (Moov) is the least well represented
nationally, while Orange Côte d’Ivoire and MTN Côte
d’Ivoire cover more than half the country. Around
seven companies provide Internet access in Côte d’Ivoire.
This relatively young market is rapidly developing
thanks to the lowering of connection charges. Clients
are mostly from the professional sector, as access costs
are still high for the average individual. These latter prefer
Internet cafés that offer cheaper rates, with one hour
of connection often costing just 250 CFA francs.
According to the figures published by the Côte d’Ivoire
telecommunications agency, in terms of subscriber
numbers the market is dominated by Aviso, a subsidiary
of Côte d’Ivoire Télécom, followed by Africa Online
and Afnet. Internet service suppliers offer solutions
graded according to client category and their needs. In
2003, Côte d’Ivoire Télécom launched an ADSL
product, which enables the high-speed transmission of
multimedia data via the telephone network.
Access to Potable Water and Sanitation
In Côte d’Ivoire, the population is supplied with
potable water in three ways: urban water systems, village
water systems and improved village water systems.
In urban areas, the institutional arrangement for
managing potable water services centres on a private
operator, SODECI, (Société de Distribution d’Eau de
Côte d’Ivoire), which operates the national potable
water supply system under a 20-year leasing contract
(1987-2007). With the support of the World Bank, in
1987 the government of Côte d’Ivoire introduced a
reform formalised through several decrees, notably
decree n°87-1471 of 17 December 1987, which
approved the concession agreement signed between
the state and SODECI for the public water distribution
service. SODECI is a subsidiary of the French urban
and rural planning enterprise, Saur (Société
d’Aménagement Urbain et Rural). Within this
© AfDB/OECD 2007
framework, SODECI is responsible for routine
operation of the service in terms of treatment,
distribution and billing of potable water in the country’s
towns and cities. The state of Côte d’Ivoire however,
which owns the installations, decides on which
investments to make to extend the network. To this end,
the water management department, the Direction de
l’Eau, which became the Direction de l’Hydraulique
Humaine (DHH) (Department for Potable Water),
represents the government in the management and
operation of the conceded service. The DHH, which
reports to the Ministry of Economic Infrastructure, is
in charge of monitoring the exploitation of state
holdings, that is to say, the creation of national policy
for water resource programmes and implementing
research, assessment, protection and mobilisation
programmes for potable water consumption. It is also
charged with organising and monitoring construction
and maintenance of facilities related to the production
and public distribution of potable water.
The 1987 institutional reform also structured village
water resources. This made the DHH the main actor in
village water resources and thus gave it control of the
national policy for both urban and village potable water.
However, in rural areas, follow-up of execution of projects
is undertaken by the Direction Nationale de l’Hydraulique
Villageoise (DNHV) (national department of rural water
systems). Provision of potable water to rural communities
was realised through the Programme National
d’Hydraulique Villageoise (PNHV) (national programme
for rural water systems) that was set up in 1973 in order
to exploit underground water resources via wells and
boreholes to supply potable water to the rural population.
However, difficulties appeared in the strategy to supply
rural groups, notably, the high cost of operations and
the lack of adequate equipment in semi-modernised
villages, as well as the virtual absence of technical assistance
related to the completion of works. To remedy these
problems, an improved village water system (système
d’hydraulique villageoise améliorée - HVA) was introduced
in 1990. In rural areas, the population is responsible for
its exploitation and maintenance within the framework
of the DHH. To benefit from the allocation and
realisation of an HVA system, the locality must fulfil
certain criteria, notably: i) have a population of between
231
Côte d'Ivoire
1 000 and 4 000 inhabitants; ii) agree to contribute
10 per cent to financing; iii) be divided into plots and
have undergone electrification; iv) have a borehole
capacity of more than 3 m3/hour; and, v) establish a
management committee.
232
To finance the requirements of this sector and
contribute to new investments, the state has put in
place a water rates system divided in five consumption
categories: social (0-18 m3/quarter), domestic (1990 m3/quarter), normal (91-300 m3/quarter), industrial
(more than 300 m3/quarter) and administrative (special
rate). The water rate comprises three elements: i) the
farmer’s part (remuneration of the concession holder)
allowing operation costs to be met; ii) a surcharge for
the water development fund (Fonds de Développement
de l’Eau - FDE) to finance the extension and renewal
works authorised by the DHH; and finally, iii) a special
water tax (taxe spéciale de l’eau - TSE) given to the
national water fund (Fonds National de l’Eau - FNE)
to service state debt from the sector. The price scale,
which is identical throughout Côte d’Ivoire, varies
according to consumption level. The social, domestic
and normal consumption bands are respectively billed
at 184 CFA francs, 286 CFA francs and 464 CFA
francs per m3. For the industrial band, the cost per m3
of water is fixed at 532 CFA francs and a single rate of
360 CFA francs is applied for the administration.
Subsidised connections accounted for more than
3 billion CFA francs before 2001. In 2002, the
government decided to restrict the criteria for attribution
of subsidised connections in order to limit the envelope
to 1 billion CFA francs. Over the 1997-2002 period,
subsidised connections accounted for nearly 15 billion
CFA francs financed by the FDE.
With regard to urban water resources, more than
half of the urban population is connected to the potable
water system, either via individual connections, or via
standpipes. This system allows the production of
110 million m3 of potable water per year and ensures
a coverage rate of 75 per cent. The rest of the population
consumes water from private wells, illegal water-sellers,
rivers or other non-hygienic sources of water. The
coverage rate of potable water for Abidjan is 82 per cent
and 75 per cent nationally.
At village water resource level, efforts to improve
water supply to rural areas have encountered two major
problems. Effectively, 37 per cent of infrastructure
requirements have yet to be met, which represents a
need for almost 8 000 further water supply points. As
regards maintenance, many population centres lack
potable water because of a high breakdown rate. This
stands at 60 per cent over the whole country and is
caused by the socio-political crisis in Côte d’Ivoire.
In terms of the improved village water system
(HVA), groups are provided with potable water via
standpipes. Since 1990, when they were established,
118 localities have been equipped with a total of
1 470 standpipes. The cost of extending coverage to
all these localities is estimated at around 110 billion
CFA francs.
The political crisis has had an effect on the entire
Côte d’Ivoire water sector. The European Union has
remained one of the chief supporters for resolving
water issues during the crisis period. It had already
agreed to an emergency programme, named PUR 1,
which has been fully carried out. A second emergency
programme (PUR 2) is currently being carried out.
PUR 1 consisted, among other things, of buying
treatment products to sterilise water and of creating
boreholes in the north. PUR 2 is concerned with the
sinking of boreholes in Korhogo, cleaning reservoirs,
replacing water channels in this city and, carrying out
works in Man and Bouake, etc. The chaotic shantytowns
that have sprung up in Abidjan, due to population
displacement following the crisis, are threatening the
water table that supplies the capital with potable water.
This is also the case for the lagoon that serves as a
reservoir. Frequent dredging of the banks is reducing
the thickness of the protective layer against
contamination by saltwater.
After the initial large works to improve sanitation
and drainage in Abidjan in 1975, the economic capital
was equipped with at least 1 040 kilometres of water
drainage network. This allowed the construction of
infrastructure necessary for equipping constructible
land and the curbing of flooding problems. Since then
however, nothing further has been done. Consequently,
© AfDB/OECD 2007
Côte d’Ivoire
less than 49 per cent of households have access to
appropriate sanitary installations. This is even more
serious throughout the country. Only seven cities
(Bouake, Yamoussoukro, Daoukro, Daloa, Gagnoa
and San Pedro) have a real sanitation plan. That said,
they are collapsing under the weight of problems with
waste- and rainwater disposal.
The national sanitation policy was revised in 1973
to focus on several major guidelines. From 1983 to
1995, taking these guidelines into account the
government prepared and executed a programme to
improve environmental protection and to manage
investments in the sanitation sector rationally. Further
to this, in August 1999 SODECI obtained a 12-year
concession contract (1999-2011) to manage covered
waste- and rainwater channels, theoretically disposed
of in a sea outfall passing through the Vridi canal. This
service is billed to the client in the form of a fee payment,
the amount charged depending on potable water
consumption. To these institutions must be added the
national technical research and development department
(Bureau National d’Etudes Techniques et de Développement
- BNETD), a state company under the president of the
republic, which ensures the conception, monitoring and
management of outfitting and construction projects.
Two of its departments are linked to the water sector,
natural resources and the environment, and agriculture.
It is this company that issues authorisations to the
research departments.
Human water resource needs are estimated at almost
700 billion CFA francs for the 2002-25 period. Despite
investments already agreed by the state, the requirements
to ensure the supply of potable water to around 95 per
cent of the population by 2025 (Millennium
Development Goal) remain significant.
The government has taken measures to avoid the
pollution of fresh water resources in the region of the
capital of Abidjan by outlining a protective border of
the water table and by subjecting every borehole to
authorisation. To ensure efficient management of water
resources, an institutional reform must be put in place
through the creation of reservoir agencies that will
manage water resources by catchment area. This
© AfDB/OECD 2007
regrouping will be carried out around three delegations
of water regions taking on the three main geographic
water reservoirs (Comoé-Agneby, Bandama-Boubo,
Cavally-Sassandra).
The programme for the treatment and disposal of
wastewater remains crucial and must be implemented
rapidly, at least in the industrial sector, which dumps
effluent in the lagoon and sea all too often. For village
water systems, the fund for development and the
promotion of coffee-cocoa activity (Fonds de
Développement et de Promotion des Activités du CaféCacao - FDPCC) and the drilling company Forexi
signed an agreement at the beginning of 2004 to
construct 2 000 wells in 48 country regions. Valued
at EUR 15 million, the follow-up of work on this
project is carried out in concert with the DNHV and
the FDPCC.
Many projects are financed by international
funding agencies, notably the African Development
Bank (ADB), the Agence Française de Développement
(AFD), the West African Development Bank and
KFW (Kreditanstalt für Wiederaufbau). The political
situation of the last few years has prevented the state
from carrying out water sector programmes. The
sponsors of these programmes have suspended all
disbursements and the resumption of financing is
strongly dependent on the normalisation of sociopolitical life in the country.
As regards sanitation, a rigorous awareness-raising
and financing programme that is monitored by the
authorities must be put in place. Financial resources,
notably the specific surcharges on water consumption
and the sanitation tax, that were initially allocated to
the financing of sanitation and drainage, are not
available, since they are not transferred to the FNE
(the organism created to monitor works) when they are
collected (for example the drainage tax included in
land tax). The leasing contract with SODECI will no
longer be sufficient to meet demand. The state is seeking
funding of 200 billion CFA francs (of which 30 billion
CFA francs alone will be for the city of Abidjan) to
finance the sanitation and drainage of the main cities
of the country.
233
Côte d’Ivoire
234
After a plethora of summits, meetings and
mediation at national and international level to find
a solution to the crisis in Côte d’Ivoire, the country
has still not managed to re-establish peace. The “neither
war nor peace” situation experienced by the population
of Côte d’Ivoire remains frozen and the country is
still divided in two, with the north remaining under
the control of rebel forces, as well as a strong presence
of neutral forces, of which 3 500 are French soldiers
and 7 000 are UN troops. The UN Security Council
has extended, beyond the initial one-year period, the
mandate for President Laurent Gbagbo, and Prime
Minister Charles Konan Banny. The resolution 1721
which frames this new transition in Côte d’Ivoire
reprises the decision of the Peace and Security Council
of the African Union on its principal points, one of
which is the allocation of expanded powers to the
prime minister. Among other things it involves
decision-making by decree or decree-acts in the council
of ministers or government, and authority over defence
and security forces. The prime minister must
implement all the elements of the roadmap established
by the International Working Group working towards
the organisation of free and transparent elections,
which must take place by 31 October 2007 at the
latest. However, the effectiveness of this new resolution
on the ground remains doubtful, and other questions
also remain, arising from many unresolved points
between the constitution and this last resolution.
This last United Nations resolution was much
criticised, above all by the president of the republic
who proposed a direct dialogue with the rebels, given
that according to him, UN resolutions had not resolved
the problems of Côte d’Ivoire and could not resolve
them. Recent diplomatic developments (African Union
Summit in Addis Ababa in January 2007) have
demonstrated that the international community is
ready to support this direct dialogue even if its outline
is not very clear. On 4 March 2007, under the mediation
of the President of Burkina Faso, Blaise Compaoré,
this willingness of both parties to engage in a dialogue
resulted in the signature of the Ouagadougou Agreement
between President Gbagbo and the rebel chief,
Guillaume Soro. This agreement sets out a detailed set
of measures that should lead to political stability and,
as a result, appears to represent a concrete first step
towards the resolution of the crisis.
The activities of the independent electoral
commission have begun and new ones from the
PNDDR and the CNPRA are in operation. The IMF,
following a mission conducted between 2-16 May
2006, gave its agreement in principle to support the
efforts of Côte d’Ivoire to re-establish stable economic
growth and improve the quality of life of the population.
However, there still exist many disturbances that disrupt
social life and that further destabilise the economy.
At the end of 2005, the prevalence of HIV/AIDS
among adults (15-49 years) was 7.1 per cent, and
750 000 people of all ages were living with HIV in 2005.
According to a report produced by the ministry of the
fight against AIDS, the national infection rate went from
7 per cent in 1991 to 4.7 per cent in 2006. Despite
the current crisis, the US has scheduled to provide an
additional 10 billion CFA francs for the 2006/07
budget for the fight against HIV/AIDS in Côte d’Ivoire.
A US emergency plan of 12 billion CFA francs in 2004
and 22 billion CFA francs in 2005 has already been
deployed to prevent new infections. This new plan will
contribute to the prevention of 200 000 infections by
treating 77 000 Côte d’Ivoire inhabitants already
infected with the illness. Infection rates in the scholastic
population are estimated at 4 per cent according to this
same report. The Côte d’Ivoire government has made
AIDS in the scholastic population a new priority. Faced
with the risks of a proliferation of infections and
numerous cases of unwanted pregnancies in the school
population, the government has decided to strengthen
its teaching programme for combating AIDS in schools
throughout the country. Thus, a new programme
comprised of preventative education modules based
on strengthening knowledge and psychosocial skills
about AIDS has been adopted and will be implemented
during the 2006/07school year.
The budget allocated to health has remained
relatively weak. On domestic financing, health
© AfDB/OECD 2007
Côte d’Ivoire
expenditure represented 6.2 per cent of the total budget
in 2004, 6.1 per cent in 2005 and 9.2 per cent at the
end of September 2006. That said, health represented
0.9 per cent of GDP in 2004, 0.8 per cent in 2005 and
0.4 per cent at the end of September 2006. However,
the part of the budget dedicated to education is growing.
On domestic financing, education spending as a
proportion of the total budget grew from 29 per cent
in 2004 to 32 per cent in 2005, to reach 51.6 per cent
in September 2006.
235
© AfDB/OECD 2007
.
Egypt
Cairo
key figures
•
•
•
•
•
1 001
75 437
70.9
28.6
Egypt
E
reforms to
open up and liberalise its economy in recent years and
has quickly become a dynamic market economy, led
by the private sector and well integrated into the global
economy. It has chalked up excellent real GDP growth
rates – 6.8 per cent in 2005/061 – with over 6.6 per
cent predicted for the next few years. This performance
has been accompanied by record foreign direct
investment (FDI) – more than $6 billion – and
improvement in most economic and social indicators.
GYPT HAS GREATLY BENEFITED FROM
The only macroeconomic indicators that need to
be substantially improved concern the budget deficit,
which was 9.3 per cent of GDP in 2005/06, and the
level of public debt, which is more than 100 per cent
of GDP. However, the country’s leaders do not want
to break the current virtuous circle of growth by
drastically cutting government spending, especially
basic food and energy subsidies for consumers. This
might increase poverty at a time
Foreign and domestic
when more than 10 per cent of
investment rates exploded
the workforce is unemployed and
in 2006 and the economy
pockets of great poverty exist all
performed very well in
over the country, especially in
spite of rising public debt,
Upper Egypt. Moreover, inequality
a high fiscal deficit and
and poverty offer fertile ground
political uncertainty.
for Islamic fundamentalists.
Although commerce and finance have been greatly
liberalised, the political situation has hardened as the
authorities have rejected demands to allow new political
239
■ Egypt - GDP Per Capita (PPP in US $)
■ North Africa - GDP Per Capita (PPP in US $)
——— Egypt - Real GDP Growth (%)
6000
8
7
5000
6
4000
5
3000
4
3
2000
2
1000
1
0
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
http://dx.doi.org/10.1787/756538863046
1. Egypt’s fiscal year runs from 1 July to 30 June the following year.
© AfDB/OECD 2007
Egypt
parties and arrested many members of the
fundamentalist Muslim Brotherhood.
The private sector’s share in the domestic economy
is growing steadily as the business climate improves and
the privatisation programme resumes. Banking has
been transformed over the past three years, with new
laws, state withdrawal from the sector, restructuring and
recent privatisations. Financial intermediaries can now
support the private sector and economic growth. At the
international level, Egypt has embarked on major
economic and trade partnerships with China, Russia
and Turkey and strengthened those with its older
partners. If the country can meet the key challenges of
reducing poverty, unemployment and the budget deficit,
it should be able to take full advantage of its potential.
240
Real GDP grew a robust 6.8 per cent in 2005/06
(4.9 per cent in 2004/05), mostly due to good
performances by natural gas, construction, the Suez
Canal and communications, and to major structural
reforms and soaring domestic and foreign investment.
Growth is forecast as 6.6 per cent in 2006/07 and
6.7 per cent in 2007/08 – steady progress that, if it lasts,
promises to reduce poverty.
Agriculture grew 3.2 per cent by volume in 2005/06
(3.3 per cent in 2004/05), and its share of GDP was steady
at about 15 per cent. Irrigated farming did well and is
increasingly focusing on high-value products such as
horticulture, whose fruit and flowers are delivered fresh
daily to the nearby European market. Domestic
consumers bought 95 per cent of agricultural output in
2005/06. The country is still a major importer, mainly
of cereals (about 7 million tonnes a year). It is also trying
to modernise its cotton mills to maintain its share of the
world market and has set up a committee to deal with
manufacturing and marketing problems. Despite these
efforts, cotton production fell 5.4 per cent by volume
in 2005/06, continuing a decline of several years.
Mining expanded 20.8 per cent in 2005/06, but
there were great disparities within the sector. While oil
output shrank 2.1 per cent, natural gas production is
booming (+50.2 per cent real growth), and further gas
discoveries were made in early 2007. Oil reserves at the
end of 2005 were 3.7 billion barrels and production
579 000 barrels a day (compared with 922 000 in
1996). About two-thirds of output is refined in Egypt’s
nine refineries, which have a total daily capacity of
726 250 barrels. Natural gas resources are huge, with
proven reserves estimated at 66 700 billion cubic feet
at the end of 2005, plus potential reserves of 40 000
to 60 000 billion. The country has exported gas in
liquefied form since 2003 and continues to expand its
markets with the building of a gas pipeline to Jordan
and Syria, and also to Russia, Turkey, Israel and Europe.
To reduce pollution, the government is encouraging
local use of natural gas not only for motor vehicles but
also for electricity generation, by converting power
plants to use gas turbines.
Manufacturing grew 5.8 per cent in real terms in
2005/06 (4.4 per cent in 2004/05) and largely comprises
small units of fewer than 15 employees. In industry, a
broader sector, the share of the private sector increased
to 86 per cent in 2005/06 with the privatisation of large
(percentage)
Agriculture
Government Services and other services
14.9%
16.7%
Electricity and Water
1.9%
Trade, Finance and Insurance
21.9%
30.4%
10.3%
Industry, Petroleum and Mining
4%
Transportation, Communication and Suez Canal
Construction
http://dx.doi.org/10.1787/507334376630
© AfDB/OECD 2007
Egypt
public firms. Egyptian industry turns out a wide range
of items: pharmaceutical, ceramic and metal products
all increased their share in GDP, but the best performances
in 2005/06 were by textiles and agro-food. The textiles
sector made up for market losses caused by the end of
the Multifibre Arrangement by producing textiles and
ready-to-wear items in the country’s seven Qualifying
Industrial Zones (QIZ). Construction did very well,
growing 14 per cent in real terms, with its GDP share
rising to 5 per cent (up from 3.8 per cent in 2004/05).
More than 84 per cent of the 2005/06 cement production
of 35.8 million tonnes was sold domestically.
The services sector accounted for about 48 per
cent of GDP in 2005/06. As a result of the growing
dependence of the West on Middle Eastern oil, the
expansion of China’s and India’s trade, and military
operations in the Middle East, more than 7 per cent
of the world’s maritime traffic passed through
the Suez Canal in 2005/06, earning Egypt
$3.56 billion – $274 million more than in 2004/05.
Its value added at constant prices grew 16 per cent
in 2004/05 and 9.4 per cent in 2005/06. Canal
revenues have nearly doubled since 2001 and should
continue rising in 2006/07, notably because of the
March 2006 increase of 3 per cent in charges for all
ships passing through.
Telecommunications is also booming, with 10.3 per
cent growth in 2005/06 (9.4 per cent the previous
fiscal year). After growing 21.1 per cent by volume in
2004/05, tourism was up only 4.3 per cent in 2005/06,
mainly because of an attack – the third in 18
months – on a Red Sea tourist site in April 2006.
1997/98
(percentage of GDP)
2004/05
2005/06(e)
Percentage of GDP
(current prices)
2006/07(p)
2007/08(p)
241
Public
Private
21.5
5.4
16.1
18.0
4.5
13.4
15.8
-26.1
30.0
17.0
12.0
18.0
14.2
10.0
15.0
Consumption
Public
Private
88.0
11.3
76.7
84.3
12.7
71.6
9.3
5.7
10.0
5.8
4.7
6.0
7.2
5.0
7.6
-9.5
16.2
-25.7
-2.3
30.3
-32.6
13.1
17.2
5.0
11.0
2.5
11.8
External sector
Exports
Imports
Source: Central Bank data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/611681120765
Domestic investment is expected to grow a record
15.8 per cent in 2005/06 (followed by 17 and 14.2 per
cent in the two subsequent years) and is increasingly
provided by the private sector, which promises strong
economic growth. Private investment accounted for
58 per cent of total investment on average between 2000
and 2005 and topped 66 per cent in 2005/06. The GDP
share of investment was 18.7 per cent in 2005/06 and
that of consumption 83.7 per cent. The tertiary sector
(transport and communications) was the main target
of domestic investment (with 18 per cent of the total),
followed by the social sector, manufacturing, and oil
and gas (each 15 per cent). Domestic demand (both
© AfDB/OECD 2007
investment and consumption) should pull growth
upwards in 2006/07 and 2007/08. Exports should
grow more slowly than imports, which are expected to
rise sharply to meet strong domestic demand.
Fiscal Policy
The 2005/06 budget was the first one complying
with the new Government Finance Statistics (GFS)
budget classification system of the International
Egypt
Monetary Fund (IMF), which treats subsidies explicitly
since they are a very big part of government spending.
This makes it hard to see budget trends, as the budget
was recalculated from 2002/03 under the new system.
The GFS system increases the deficit: for example, the
2002/03 deficit was 6.1 per cent of GDP under the old
system and 9.1 per cent under the new. In 2005/06,
the deficit amounted to 9.3 per cent of GDP (6.2 per
cent under the old system), compared with 9.4 per
cent (6 per cent) the previous year. It is now expected
to fall steadily, to 8.6 per cent in 2006/07, 7.7 per cent
in 2007/08 and eventually to 4 per cent – still a high
figure – in 2010/11.
The challenge facing the government is to cut
spending to reduce the budget deficit and public debt
without slowing economic growth. Over the 2002-06
period, public expenditure accounted for a very big share
of GDP (over 30 per cent). Soaring oil prices have
pushed up spending on subsidies and social benefits
from 29.3 billion Egyptian pounds (EGP) in 2004/05
to 50 billion in 2005/06 and an expected 58 billion in
2006/07 (more than 20 per cent of all government
spending). Energy subsidies were 40 billion EGP in
2005/06 ($6.7 billion). One solution being considered
is to make subsidies more effective by better targeting
the poorest people, notably by issuing a smartcard to
the poorest families. The reform would be introduced
gradually, over four to five years. The price of petrol
was put up recently from 1 EGP to 1.30 EGP per litre
to reduce the cost of these subsidies to the national
budget, but government spending will still be strained
by the burden of servicing the national debt, given the
country’s high level of domestic debt (102 per cent of
GDP at the end of the 2005/06 fiscal year). Pay rises
promised to civil servants during the presidential and
parliamentary election campaigns will also weigh on
the budget.
242
(percentage of GDP)
1997/98
2002/03
2003/04
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue
Oil revenue
Grants
23.6
12.9
2.4
2.8
21.4
10.4
2.9
0.8
21.0
10.8
3.0
1.0
20.6
10.8
3.3
0.5
21.1
12.8
0.4
0.5
21.2
13.0
0.4
0.4
21.6
13.4
0.4
0.4
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
24.7
19.2
14.0
5.9
5.2
5.4
30.5
25.2
19.0
8.1
6.2
4.9
30.1
25.0
18.7
7.7
6.3
4.7
30.0
25.3
19.2
7.7
6.1
4.3
30.4
26.8
19.9
7.4
6.9
3.2
29.8
26.0
19.6
7.2
6.4
3.4
29.3
25.3
19.3
6.8
6.0
3.6
Primary balance
Overall balance
4.2
-1.0
-2.9
-9.1
-2.7
-9.1
-3.3
-9.4
-2.4
-9.3
-2.2
-8.6
-1.7
-7.7
On the revenue side, customs duties and tax rates
have been significantly reduced. The average customs
tariff was cut from 14.6 to 9.1 per cent in 2004, and
the highest income tax rate was cut by half to 20 per
cent in the 2005/06 budget. In the same year, company
tax was sharply reduced and harmonised at 20 per cent
(except for oil companies). Despite the lower rates, tax
exemptions were abolished and the tax base broadened.
Tax revenue rose 17 per cent in 2005/06, whereas the
government was expecting a drop of 12 per cent. Better
http://dx.doi.org/10.1787/447428415487
tax and customs collection and the vigour of the private
sector also contributed to this performance. Total revenue
increased to 21.1 per cent of GDP in 2005/06 (20.6 per
cent in 2004/05) and should continue to rise in 2006/07
and 2007/08, helping to ease the budget deficit.
Monetary Policy
Under flexible exchange rates, the main job of the
Central Bank of Egypt (CBE) is to maintain price
© AfDB/OECD 2007
Egypt
stability. It has become more independent and active
since 2005, setting up a new framework for intervention
using the interbank interest rate and taking many steps
to liberalise the various markets. It issues its own bonds,
with maturities ranging from one day to two years,
which it trades on the interbank market twice a week.
In June 2005, it established a corridor within which
the interest rate can fluctuate. The ceiling and floor rates
are set by the monetary policy committee. The interest
rate, after being cut to encourage investment, was raised
again in December 2006, from 8.75 per cent to
10.75 per cent, to curb inflationary pressure.
Banking supervision has been improved and a
wholesale reorganisation of commercial banks
undertaken to make the sector more efficient. Financial
intermediaries seem to have better performed their
role of supplying funds to businesses. Loans to the
private sector rose 8.5 per cent in 2005/06 (+3.6 per
cent in 2004/05).
Inflation expectations are mixed. Restoration of
confidence in the economy plus higher foreign exchange
reserves ($26 billion at the end of 2006) may even
increase the value of the Egyptian pound. Consumer
price index inflation eased sharply to 4.1 per cent in
2005/06 (from 11.4 per cent in 2004/05), and real
interest rates turned positive for the first time in many
years. Some inflationary pressures were observed,
however, and the inflation rate is expected to climb back
to about 6.5 per cent in 2006/07 and 6.1 per cent in
2007/08. The renewed rise in inflation is largely due
to the effects of bird flu on prices for farm products,
which make up a sizeable share of the basket of items
used to calculate prices, and to cuts in subsidies, which
pushed up prices for energy (petrol rose 30 per cent)
and other items such as water.
has signed preferential trade agreements with many
Arab states (Sudan, Lebanon, Morocco, Tunisia, Libya,
Jordan, Iraq and Syria) as part of the Greater Arab Free
Trade Area (GAFTA). A trade and investment
framework agreement (TIFA) was signed with the
United States in 1999 and an economic partnership
agreement (EPA) with the European Union (EU) in
2001. QIZs were set up in 2004 under an agreement
with Israel that in certain conditions allows items
produced inside these areas to have duty-free access to
the US market.
Egypt is also looking for new bilateral trade partners,
such as Russia and Turkey, as well as strengthening ties
with longstanding partners such as Libya. Its priorities
are trade diversification and opening up markets to
foreign trade. As the first African country to establish
diplomatic relations with China in 1956, it has stepped
up co-operation and partnerships with Beijing. While
the TIFA accord with the United States is conditional
on political reforms, the business possibilities with
China are huge, and in five or six years’ time China could
replace the United States as Egypt’s main trading partner
by volume. Egypt is currently negotiating with China
and Italy to allow virtually all China’s exports to Europe
to pass through the Suez Canal (only 60 per cent do
so at present) at a cut price.
Egypt’s main trade partners in 2005/06 were the
European Union ($11.9 billion – 24.4 per cent of
Egypt’s total trade) and the United States
($11.4 billion – 23.3 per cent), but trade with China
was growing fast and reached $1.39 billion (from less
than $1 billion in 2004/05). The balance was heavily
skewed in favour of China, whose exports to Egypt were
$1.34 billion (48.6 per cent more than in 2004/05),
while trade the other way amounted to only
$45.4 million.
External Position
Egypt is busily signing trade agreements in all
directions. This strategy, helped by the country’s geostrategic position at the crossroads of Africa, Europe
and Asia, has boosted trade in goods and increased
foreign investment. Egypt belongs to the Common
Market for Eastern and Southern Africa (Comesa) and
© AfDB/OECD 2007
Egypt and China signed 11 bilateral economic and
technological co-operation agreements and
memorandums in June 2006, especially involving oil
and gas. China wants, among other things, to ensure
that it has enough natural resources for its booming
economy, and Egypt, whose main source of revenue is
tourism, would like to attract some of the 100 million
243
Egypt
Chinese who travel each year. Chinese investors have
also invested in Egyptian firms to the tune of
$2.7 billion, and Beijing is considering reducing tariffs
on imports from Egypt. The two countries have agreed
to build factories to make electric cables, cement, glass,
aluminium and chemical products, and plan to focus
next on energy, textiles, ready-to-wear clothing,
electronics and construction materials. The Chinese
vehicle firm Cherry, for example, is building an assembly
plant in Egypt, scheduled to come on stream in 2007.
A $500 million Chinese industrial zone in Egypt is also
in the works.
Trade with Russia amounted to $813.5 million in
2005/06, but in the first eight months of 2006 it
increased 52 per cent year-on-year and reached
$953.3 million. Egypt began producing Russian Lada
vehicles in December 2005 and will soon turn out
Russian Gasel and Sobol minibuses.
244
The trade deficit fell in 2005/06 from 11.5 to
11.2 per cent of GDP as a result of strong GDP growth
and higher world oil prices. Oil revenue almost doubled
(93 per cent) in 2005/06 to $10.2 billion, up from
$5.3 billion in 2004/05, but oil imports rose 35 per
cent as well. Volume exports in 2005/06 were up 27 per
cent for non-oil items and 44 per cent for oil products.
Egypt is a net exporter of oil products and textiles and
a net importer of food (mainly cereals) and chemical,
electrical and metal goods. It also has comparative
advantages in exporting cotton, fruit and vegetables,
medicinal and aromatic plants, and cut flowers. The
share of raw materials in exports has fallen sharply
while that of high-tech manufactures has risen, which
makes Egypt less vulnerable to raw material price
fluctuations on world markets.
The trade deficit is expected to rise in the next two
years because of the sharp projected rise in imports
(29.5 per cent of GDP in 2006/07 and 30.2 per cent
in 2007/08) and the fall in exports (16.5 per cent and
14.8 per cent of GDP for the same two years). Imports
of intermediate and capital goods will be needed to
sustain increased domestic investment and productive
activity. The current account surplus is expected to
shrink in 2006/07 and then go into deficit in 2007/08
as the higher trade deficit cancels out the invisibles
surplus (mainly due to tourism). The Suez Canal was
the country’s third-largest revenue source ($3.6 billion)
in 2005/06, after tourism ($7.2 billion) and remittances
by foreign workers abroad (more than $5 billion).
About 2 million Egyptians live outside the country.
FDI has risen spectacularly in recent years and
switched from oil to other sectors, such as construction,
communications and natural gas. It rose from
$435 million in 2003/04 to $4.13 billion in 2004/05
and $9.1 billion in 2005/06. This surge was led by US
investments, which more than doubled, from
$2.04 billion in 2004/05 to $4.55 billion in 2005/06,
and accounted for half of total FDI. European
investment (in second position) increased by 360 per
cent in 2005/06 to reach $2.94 billion. Chinese
investment was only $0.8 million in the 2005/06
figures, but is expected to be very much greater in the
coming years. Egypt’s direct investments abroad, or
capital outflow, also soared, from $232.7 million in
2004/05 to $2.99 billion in 2005/06.
1997/98
(percentage of GDP)
2002/03 2003/04
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance
Services
Factor income
Current transfers
-13.9
6.0
-19.9
4.1
1.4
5.4
-8.2
10.2
-18.4
6.2
0.1
4.5
-9.7
13.0
-22.7
9.3
-0.3
4.9
-11.5
15.4
-26.9
9.0
-0.3
6.0
-11.2
17.2
-28.4
7.1
0.5
5.7
-13.0
16.5
-29.5
8.4
0.4
5.0
-15.4
14.8
-30.2
7.8
-0.1
4.7
-2.9
2.6
4.2
3.2
2.1
0.9
-2.9
http://dx.doi.org/10.1787/306287660158
© AfDB/OECD 2007
Egypt
Investor confidence is also reflected by the amount
of net portfolio investment in Egypt, which more than
tripled to $2.8 billion in 2005/06 (from $831 million
in 2004/05). Egyptian securities raised $2.69 billion
in 2005/06, a more than 103-fold increase over 2004/05
($25.9 million).
The external debt was $29.7 billion in September
2006. The main creditors were the United States, Japan,
France and Germany, and only 17.1 per cent of total
debt was multilateral. The low cost of servicing domestic
and external debt (the latter consists mostly of longterm and soft loans) is a big advantage for the economy.
Debt indicators are also healthy. The external debt
amounted to 27.6 per cent of GDP in 2005/06 (down
from 31.1 per cent in 2004/05), while debt service fell
from 9.4 per cent of goods and services exports to
8.5 per cent.
■ Debt/GDP
——— Service/X
40
35
30
25
245
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/341277703630
Structural Issues
Recent Developments
Current and future structural reforms mostly aim
to sustain healthy economic growth and boost the
private sector’s capacity to create jobs. Major progress
was made in 2006 in reform of the tax and customs
departments, management of public finances,
monetary policy, privatisation and financial sector
reorganisation. The private sector is still hampered
by red tape and poor management of services such
as port facilities.
© AfDB/OECD 2007
A total of 170 of the 314 state firms earmarked
under the 1991 privatisation law are still to be divested,
but the programme has begun to speed up: in 2005/06,
46 firms were transferred to the private sector, up from
28 in 2004/05. The proceeds of these 74 divestments
(13.8 billion EGP in 2005/06 and 5.64 billion in
2004/05) were the highest since the privatisation
programme began in 1991, and comprised more than
52 per cent of the proceeds between 1991 and 2006
and a quarter of all the firms up for sale.
President Hosni Mubarak has said the country will
develop nuclear energy for peaceful purposes and build
Egypt
four nuclear power plants. He has asked China and
Russia to help and has tried to reassure the international
community by saying Egypt will import the enriched
uranium required rather than produce it itself. Egypt
began a nuclear development programme in the 1950s
and has a research centre north of Cairo with two
reactors, one Russian and the other Argentine. The
Palestinians are expected to start buying electricity
from Egypt in 2007 with completion of a 200 KW, 50mile long high-tension line to the Gaza strip.
In transport infrastructure, a 33-kilometre third
line is being added to Cairo’s metro network; on
completion of the new line, scheduled for 2020, the
metro system will have 100 kilometres of track and carry
5 million passengers a day (a third of the city’s
population). The government is also spending 8.5 billion
EGP ($1.48 billion) on modernising the railways, as
a quarter of the locomotives are more than 30 years old
and half of them need to be upgraded to carry the
1.5 million passengers the network serves each day.
246
In telecommunications, a consortium led by the
United Arab Emirates firm Etisalat was awarded Egypt’s
third mobile phone licence in July 2006 for a reported
sum of 16.7 billion EGP ($2.9 billion), with the
government getting 6 per cent of its future revenue.
The banking sector has been the main target of
reforms and restructuring. The chief aim of the
50 billion EGP ($8.7 billion) Financial Sector Reform
Programme (FSRP) due to end in 2008 is to set up an
efficient and competitive financial system, with more
effective intermediation and risk management, and to
boost the security and solidity of both bank and nonbank financial institutions, with closer monitoring by
the CBE.
Under the FSRP, a wide-ranging consolidation of
the banking sector was undertaken, with capital
reorganisation, reduction in the number of banks and
privatisation of the large state-owned Bank of
Alexandria. The latter, which attracted bids from 12
European and Arab banks and was awarded to the
Italian bank Sanpaolo, is now the country’s biggest
privately-owned bank, ahead of the National Société
Générale Bank (NSGB) and the Commercial
International Bank (CIB), with 188 branches, 6 per cent
of all deposits ($5.4 billion) and $6.9 billion in assets.
The $1.6 billion sale of the bank was the biggest
privatisation of 2006. To facilitate its sale, $1.2 billion
worth of non-performing loans to the public sector was
repaid in January 2006. The bank was the smallest of
the four state-owned banks. Of the three others, the
huge National Bank of Egypt is not being privatised
and the Misr Bank and the Bank of Cairo are due to
merge at some point.
In 2006, the government also sold the shares it
held in 13 commercial banks, and several Egyptian
banks came under foreign control, such as the MIBank
(bought by a subsidiary of the French Société Générale)
and the Egyptian American Bank (EAB), which was
taken over by Crédit Agricole-Indosuez. In September,
France’s biggest bank, Crédit Agricole, launched an
Egyptian subsidiary, Crédit Agricole Égypte (CA-E),
which has about 2 per cent of the market; the parent
company aims to double its market share in three to
five years, making it one of the biggest privately-owned
banks.
The government also wants to reduce the number
of banks by increasing their required minimum capital.
Seven voluntarily merged in 2006, six were forced to
merge, six were wound up and one new bank opened.
The sector, which has been called overcrowded, shrank
from 57 to 39 banks, and the goal for 2007 is 22.
The last problem concerns non-performing loans.
For state-owned banks, the investment ministry is
supposed to use income from privatisation to reimburse
some of these loans. For privately-owned banks, it is
vital to set up a department to manage non-performing
loans, and this unit should report directly to the CBE.
About half of all non-performing loans are thought to
have been eliminated by the banks in the past two
years.
The water resources and irrigation ministry has
drawn up a national plan to improve management of
© AfDB/OECD 2007
Egypt
water from the Nile and tackle many other problems.
First, the rapid growth of the population and of industry
requires ever-increasing amounts of water from a limited
supply. Egypt depends largely on the Nile to meet these
needs, and despite the huge reservoir formed by Lake
Nasser, the supply of water does not increase. Under
1959 agreements with Sudan, Egypt gets 55.5 cubic
kilometres of water a year. This works out to an annual
800 m3 per person in 2005 and only about 600 m3 in
2015, less than the annual 1 000 m3 considered as the
water poverty line and the regional average of 1 200 m3.
Second, the country has to protect the river against
pollution and waste. The Nile is often below minimum
quality standards. Third, the population is highly
concentrated around the river valley and delta, and
97 per cent of Egyptians live on 4 per cent of the
country’s land. To ease pressure on the river, the
government is to set up industrial zones and major
agricultural projects in the desert (such as the Toshka
project), but the ambitious programme needs a lot of
water. The national 2003-17 water plan is an integrated
approach involving suppliers, users and other
stakeholders, needing investment of 145 billion EGP
and incurring costs of 41 billion EGP.
Infrastructure and connection work for the water
and sanitation network is handled by the Cairo and
Alexandria Potable Water and Wastewater Organisation
(CAPWO) in the Cairo and Alexandria areas and by
the National Organisation for Potable Water and
Sanitary Drainage (NOPWASD) in the rest of the
country. Most of the infrastructure is in bad condition,
either broken or antiquated. Meters no longer work,
and this hampers collection of customer charges. The
network needs huge investment.
The water and sanitation sector performs quite
well compared with those of other African states. In
2004, 86.1 per cent of the population (97.5 per cent
in towns and cities and 82.1 per cent in the countryside)
was connected to the drinking water network. Some
governorates (provinces) are much worse off, such as
Bani Suwayf (72.1 per cent) and Minufiyah (75.4 per
cent), but country has already reached the Millennium
Development Goal (MDG) of halving the number of
people without access to water and sanitation between
© AfDB/OECD 2007
1990 and 2015. Where sanitation is concerned, the
access rate is 93.6 per cent of the population (99.6 per
cent urban and 78.2 per cent rural), though only
53.6 per cent of households were connected to mains
sewage in 2004 (96.6 per cent in urban areas). Less than
half the wastewater collected is treated, and pollution
and poor water quality are very serious problems. The
government’s main priority is to increase sanitation
access in the countryside, since the high rate of access
to water without sanitation is costly and damages water
quality and the environment. The estimated cost of
providing all Egyptians with sanitation is about
60 billion EGP ($10 billion). The government has just
released 20 billion EGP for rural sanitation work over
six years, with 1 billion of it coming from the proceeds
of privatisation.
The government is very active in water and
sanitation, heavily subsidises both and continues to
set prices to the consumer. It plans to reduce this heavy
burden on the budget, though such a measure would
be highly unpopular. A cubic metre of water costs an
average 0.23 EGP ($0.04) for consumption of up to
10 m3 a month, a rate that is among the lowest in the
world and does not cover operating or maintenance
costs. As a result, the many bodies responsible for water
and sanitation had accumulated a deficit of 7.6 million
EGP by the end of 2002/03, which led to the
introduction of a major reform. The sector also suffers
from fragmented management, as authority is divided
between a dozen ministries and state bodies, hampering
decision-making. There used to be no policy at all for
the sector. In April 2004, the Holding Company for
Water and Wastewater (HCWW) was set up with 14
regional subsidiaries to centralise management of water
distribution and sewage treatment. An advisory body
to examine requests for consumer rate changes was
also set up. By the end of 2006, only Cairo’s rates had
been increased.
The HCWW has nonetheless improved water
management, issuing quarterly reports on technical
and commercial indicators, computerising customer
billing, providing a help desk and website to allow
centralised handling of customer complaints and gather
statistics. An awareness-raising campaign has been
247
Egypt
launched to induce the public to prevent waste and
pollution, and especially to make people understand
that water has a price. The HCWW also plans a
programme to detect leakages and to train middle
managers in new methods of water management.
248
President Mubarak has promised to amend the
national constitution to make it still easier for political
parties to nominate presidential election candidates. The
amendment is due to be put to a referendum in 2007.
The last constitutional amendment was in May 2005,
after a referendum endorsed allowing more than one
candidate to stand in presidential elections and approved
a switch to direct universal suffrage. However, a party
must hold 5 per cent of the seats in parliament before
it can nominate a presidential candidate, and
independent candidates must be backed by 250
members of the country’s representative organisations.
Thus the ruling party’s domination of parliament and
local councils makes it impossible for any independent
candidate to stand, including candidates from the
powerful fundamentalist Muslim Brotherhood. The
Brotherhood, which won 20 per cent (88) of the seats
in the last elections for the People’s Assembly (the lower
house), is the main opposition group but is only
tolerated by the authorities, not recognised as a political
party. President Mubarak, in power since 1981, has been
re-elected until 2011.
Mubarak has promised that 2007 will see new
constitutional reforms to speed up democratisation,
yet the political climate is hardening. Thirteen requests
for recognition by political parties, including one
Islamist grouping, were rejected in early 2007, and
many members of the Muslim Brotherhood were
arrested in 2006. The government is worried about
the rise of Islamist groups, especially at the last
parliamentary elections, and unrest among Arab Muslim
Egyptians as expressed through demonstrations and
increasingly active support for Islamist leaders. To cope
with this movement, the government needs to improve
social services and reduce inequality to limit the
possibilities for these leaders, while at the same time
keeping to serious budget constraints.
Parliament voted in June 2006 to limit the powers
of the justice minister and give the judiciary more
independence. The measure allows the prosecutorgeneral to act independently of the ministry, gives the
Supreme Judicial Council the right to monitor
appointment of judges, provides the judiciary with an
independent budget and gives judges the right to appeal
against decisions of the judiciary’s disciplinary
committee.
An estimated 20.2 per cent of Egyptians live below
the national poverty line of 1 450 EGP a year ($242).
In 2004, 23 per cent of the poor (4.7 per cent of the
population) were under-nourished. Social indicators and
progress varied greatly in 2004 between the governorates
of Upper Egypt (34 per cent of whose inhabitants were
poor) and those of Lower Egypt (where only 13.9 per
cent were poor). Pockets of poverty are highly localised
and thus are masked in the calculation of average
indicators.
Although the growing population adds 700 000 to
800 000 people to the labour market each year, the
official unemployment rate fell in 2005/06. New jobs
in the private sector reportedly reduced joblessness
there to 10 per cent, from 11.2 per cent the previous
year. The unemployment rate is much higher among
young people (37.3 per cent of those between 20 and
25), people having finished secondary education
(65.9 per cent) and those having university education
(25.3 per cent). Part-time and short-term jobs accounted
for between a third and a half of all salaried employment.
The government’s strategy is to encourage growth of
the private sector and small businesses, the main jobcreators, especially in the services sector.
Egypt has a very good chance of reaching several
of the MDGs, such as those on poverty and education,
and has already achieved some of them (access to
drinking water and sanitation). The least progress has
been made in gender equality. Women, hit by civil
service job cuts, are now down to 25 per cent of the
national workforce and are concentrated in a few
© AfDB/OECD 2007
Egypt
segments of the labour market, mostly healthcare
(46 per cent of the national female workforce) and
education (40 per cent). The number of women wearing
the Islamic veil increases each year; in 2006, 80 per cent
of all women did so. The latest demographic and health
survey (DHS), in 2005, showed that 95.8 per cent of
adult woman in 2004 had undergone female
circumcision, at an average age of 10. This ancient
tradition of the pharaohs is followed throughout the
country and among all social classes.
Health and education indicators improved
significantly overall. Life expectancy rose from 55 years
in 1976 to 70.6 years in 2004. Infant mortality fell from
108 per thousand in 1961 to 22.4 in 2004. Access to
healthcare was around 100 per cent in both urban and
rural areas, as was vaccination of children against the
main childhood illnesses. A very low proportion of the
population is infected with HIV (0.03 per cent), but
the 2005 DHS showed that only 18.3 per cent of adults
(between 15 and 49) knew about tests to detect it.
Egypt is among the bottom nine countries in the
world for literacy, with only 40.8 per cent of the
population able to read and write in 2005. The literacy
rate for urban women in 2004 was 63.6 per cent, and
that in the countryside 29.6 per cent. Only 13.5 per
cent of rural women had access to secondary or higher
education. The illiteracy rate should fall in the next few
years with increased school enrolment. In 2003/04,
90.9 per cent of children were in primary or secondary
education, compared with only 42 per cent in 1960.
Seven per cent of children between five and 14 were
working in 2004. The pupil/teacher ratio in primary
education was a quite high 40.9, and as a result, twothirds of pupils take private lessons to keep up. More
than 85 per cent of children were being educated in
state schools, 6.1 per cent in private ones and 8.1 per
cent at Al-Azhar Koranic schools. Leaving aside those
who go on to higher education at Al-Azhar University,
the number of university students increased from
1.6 million in 2001 to 2 million in 2006.
249
© AfDB/OECD 2007
.
Ethiopia
Addis Ababa
key figures
•
•
•
•
•
1 104
79 289
GDP per capita, $ PPP valuation (2005/06)
794
48.3
53.7
Ethiopia
T
ETHIOPIAN ECONOMY has performed strongly
in recent years. Growth has averaged an impressive
8.9 per cent over 2004-06, driven mainly by strong
agricultural growth along with expansion in industry
and services. The economy also benefited from donorfunded investments in infrastructure, ongoing policy
reforms, and strong coffee prices. The current growth
rate is significantly higher than the average rate of 5 per
cent per year recorded over 2001-04, under the
Sustainable Development and Poverty Reduction
Program (SDPRP). If this growth rate is sustained,
Ethiopia will make considerable progress towards
achieving the Millennium Development Goal (MDG)
of halving income poverty by 2015. This optimistic
scenario is threatened by high world oil prices, which
are partly responsible for the widening budget and
HE
current account deficits, and the continuing political
crisis stemming from the hotlycontested May 2005 election Significant donor-funded
results and its subsequent effect investments in infrastructure,
policy reforms and strong
on donor support.
coffee prices are boosting
The government has economic growth but high
launched the second phase of fiscal imbalances persist.
the SDPRP, known as the Plan for Accelerated and
Sustained Development to End Poverty (PASDEP). The
PASDEP is Ethiopia’s guiding poverty-reduction
strategic framework for the next five years. The objectives
of PASDEP are: i) annual economic growth of 7 per
cent rising to 10 per cent by the end of the programme,
through massive investments in key anti-poverty sectors;
ii) a sustained rise in agricultural productivity and
253
■ Ethiopia - GDP Per Capita (PPP in US $)
■ East Africa - GDP Per Capita (PPP in US $)
——— Ethiopia - Real GDP Growth (%)
3500
14
12
3000
10
2500
8
6
2000
4
1500
2
0
1000
-2
500
-4
-6
0
1999/2000
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06(e)
2006/07(p)
2007/08(p)
Source: IMF and domestic authorities’ data.
http://dx.doi.org/10.1787/750577841568
© AfDB/OECD 2007
Ethiopia
production, with crop output rising from approximately
15 million tonnes per year to 38 million tonnes; iii) an
emphasis on the textile, leather and floriculture
industries, in an effort to boost exports.
Recent economic developments in Ethiopia have
been favourable, despite the ongoing political tensions.
Real GDP growth in the 2006 fiscal year was estimated
at 5.9 per cent and was due largely to robust growth
in agriculture, industry and services. Real GDP growth
is projected at 6.3 per cent in 2007, again reflecting
strong performances in the industry and services sectors.
254
Agriculture accounted for 47 per cent of real GDP
in 2005/06 and employs about 85 per cent of the
population. Agricultural production consists mainly of
export products such as coffee, tea and spices and other
crops such as cereals, pulses, oil seed, fruits and vegetables.
Coffee is the most important export product. Total
coffee production was 301 304 tonnes in 2004/05 and
is estimated to have increased to 305 000 tonnes in
2005/06. Tea is next in importance as an export product.
In 2004/05, tea production amounted to 5 598 tonnes
and is estimated to have increased to 5 900 tonnes. It
is projected at 6 000 tonnes in 2006/07. Among the
food crops, cereal production reached 12.99 million
tonnes in 2004/05 and is estimated to have increased
sharply to 18.07 million tonnes in 2005/06. All the other
crops, namely pulses, oil seed, fruits and vegetables as
well as cotton are estimated to have increased in
production during 2005/06, over the 2004/05 levels.
Production and export of flowers is growing rapidly as
new local and foreign local investors have entered the
sector, while existing growers are expanding. This new
agricultural commodity is generating significant jobs and
export revenue. Export earnings have more than doubled
to $20 million in 2005 and have been estimated at
$40 million in 2006 and are projected to reach
$100 million in 2007. Ethiopia’s main attractions are
its climate, which is highly suitable for floriculture and
horticulture, and an impressive scheme of investor
incentives and lower freight costs, compared with
competitors in Kenya and India.
In spite of the increases in the food components of
the agricultural products, food insecurity remains
pervasive, requiring improved agricultural productivity
through capacity-building, improved input supplies,
technology adoption and the provision of infrastructure.
During the PASDEP period, particular improvements
to rural roads, irrigation systems, and better provision
of extension and research services are to be emphasized.
Selected small-scale government support for
commercialisation will also be provided where there are
gaps in private provision.
The meher (main) harvest which occurs during the
October to December period provides more than 90 per
cent of annual agricultural production in Ethiopia.
The 2007 harvest is anticipated to be bountiful again
due to abundant rainfall in most regions of Ethiopia,
as has been the case in the previous three years.
Despite the good harvests, food insecurity continues
to be a serious problem in Ethiopia. According to the
preliminary results of the Food and Agriculture
Organization (FAO), World Food Programme (WFP),
Crop and Food Supply Assessment Mission (CFSAM)
and the Disaster Preparedness and Prevention Agency
(DPPA), the number of people needing emergency
food assistance in 2007 is expected to be substantial,
although less than the peak of 3.1 million in 2006. The
government and humanitarian community are expected
to continue providing assistance in 2007 to the
7.3 million or more Ethiopians who are chronically
food-insecure through the Productive Safety Net
Programme (PSNP).
Achievements under SDPRP in the agricultural
sector have included: i) an increase in the amount of
irrigated land, affecting 200 000 additional farmers;
ii) the development of livestock through the use of
new breeds and types of forage; iii) improved grain
marketing and the introduction of an inventory and
warehouse system; iv) promotion of agricultural exports,
and v) the launch of the National Food Security
Programme intended to attain food security for
five million chronically food-insecure people and
another 10 million are affected by food shortages in
drought years.
© AfDB/OECD 2007
Ethiopia
Funded by the World Bank, the PSN programme
is aimed at combating poverty by providing 5 million
people in need of help with cash rather than food
donations. It is hoped that the programme will boost
agricultural productivity and help farmers become more
self-sufficient. The second stage of the PSN (PSN-II)
has received funding of $759 million, including
$150 million from the World Bank, and was set to
begin in the first quarter of 2007. The aims of this
phase include continued improvement of governance
and reduced financial vulnerability to shocks,
particularly droughts.
(percentage)
Other services
14.4%
Government services
5.6%
6%
47%
Agriculture
13.9%
6.1% 2%
5.1%
Other industry
Manufacturing
Electricity, Gas and Water
http://dx.doi.org/10.1787/230081167604
Industry only accounts for about 12 per cent of
GDP but this sector grew strongly in 2005/06, with
mining and quarrying, manufacturing, electricity and
gas all contributing to growth. Within manufacturing,
small-scale and cottage industries grew at a robust
10.8 per cent in 2005/06, compared with 4.8 per
cent in 2003/04. Electricity, gas and water also grew
by 10.8 per cent in 2005/06, reflecting the
development of the Caleb and Shalala gasfields by
Petronas (a Malaysian oil firm), which received the
concession in 2006. A gas-to-liquid plant and a
pipeline to the Djibouti coastline are planned. Petronas
is expected to invest $1.9 billion. In addition,
electricity-generating capacity is expected to triple by
2009/10, with access to electric power rising to 50 per
cent of the population from the current 17 per cent.
To accomplish this, the Ethiopia Electricity Power
Corporation (EEPCo) has undertaken the construction
of the largest-ever hydroelectric dam in the country
on the Omo-Gibe River.
Ethiopia’s mineral deposits, including gold,
tantalum, iron and nickel, have been under-exploited.
Gold nevertheless accounts for a significant part of
exports, amounting to more than $40.7 million in
2003/04. The government also earned more than
© AfDB/OECD 2007
$172 million in the privatisation of the Lege Dembi
Gold Mine. Although 24 foreign and local companies
have invested $1.75 billion, exploration activities
have been lagging. The PASDEP aims to increase
mining exports through higher investment,
formalising 85 per cent of unregistered precious
metals production, and increasing regional and
hydrogeological mapping to enable mineral
exploration and infrastructure development.
Telecommunications have expanded greatly over the
last few years. Ethiopia has approximately 5 fixed lines
per 1 000 persons, one of the lowest in the world. The
government has invested heavily in basic infrastructure
such as fibre-optic cables, radios and satellites over the
last three years. The PASDEP aims to raise the
percentage of the population within a 5 kilometre
radius access to telecommunications from the current
87 per cent to 100 per cent by 2010. Furthermore, the
Ethiopian Telecommunications Corporation has
contracted with an association of Chinese firms to
expand telephone coverage. The $1.5 billion plan will
run from 2006 to 2010 with the goal of raising the
number of mobile phone lines from 1.5 million to
7 million and the number of fixed lines from 1 million
to 4 million.
255
Ethiopia
The tourism sector has also experienced robust
growth in recent years. Earnings from the tourism
industry were $134.5 million in 2005, an increase of
18 per cent over the previous year. The Ethiopian
Tourism Commission hopes to transform Ethiopia
into one of the top ten tourist destinations in Africa
by the year 2020 and plans to raise the number of
visitors to 500 000 by 2010. Tourism recently accounted
for about 13.9 per cent of GDP in 2005/06 and is
slated to grow more rapidly in the future. More hotels,
restaurants and other tourist facilities are needed.
Fortunately, Ethiopia is blessed with many tourist
attractions, ranging from unique historical artifacts to
religious monuments, as well as other cultural
attractions. Tourism has grown at an average annual
rate of 13 per cent over the last few years.
1997/98
2004/05
(percentage of GDP)
2005/06(e)
Percentage of GDP
(current prices)
256
2006/07(p)
2007/08(p)
Public
Private
19.6
13.8
5.8
20.5
12.1
8.3
17.5
12.5
24.9
3.0
6.9
-2.0
5.9
5.1
7.0
Consumption
Public
Private
88.3
10.2
78.2
98.0
13.8
84.2
5.5
6.2
5.4
7.2
4.4
7.7
7.3
3.6
7.8
-7.9
13.3
-21.2
-18.4
15.8
-34.3
2.1
10.4
5.0
6.9
5.2
7.3
External sector
Exports
Imports
Source: Domestic authorities data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/575627000138
Domestic demand, especially consumption, has
grown strongly over the period 1998-2005, and has
entailed booming imports and burgeoning trade deficits.
In 2005/06 total gross capital formation recorded a
robust growth of 17.5 per cent, with private investment
growing especially strongly. Private investment is
expected to slump in 2007, however. Although private
investment has been increasing in recent years following
market-oriented reforms, government investment still
accounts for about 60 per cent of total investment.
Much of government investment has been financed
by donors.
Fiscal Policy
The fiscal deficit in Ethiopia has averaged
approximately 5 per cent of GDP in the last few years,
but in 2005/06 it increased to 7.4 per cent of GDP.
Total revenue decreased from 13.3 per cent of GDP
in 2003/04 to an estimated 12.5 per cent of GDP in
2005/06, due mainly to inefficiencies in tax collection.
In addition, grants were also reduced considerably due
to donor concerns about the recent political turmoil.
Government spending, on the other hand, has been
growing rapidly in recent years, although it has slowed
down from the much higher level registered in 2002/03.
Government spending was estimated at 26.3 per cent
of GDP in 2005/06. Going forward, the aim of fiscal
policy is to restrain the deficit while prioritising povertyreduction expenditures in the main sectors of health,
education and agriculture. The government has enacted
a series of tax reforms starting in 2001 to boost tax
revenues through improved tax administration and
compliance. The 2006/07 budget targets a 16 per cent
rise in government spending, to birr 35.4 billion, largely
for infrastructure investment. As in previous years,
higher spending has been allocated to the priority
sectors. As a result, capital spending is forecast to
increase slightly from 12.1 per cent of GDP in 2005/06
© AfDB/OECD 2007
Ethiopia
to 12.2 per cent of GDP in 2006/07, with the largest
share of spending going to the woreda (local or district)
level, followed by regional governments (some of the
allocation will be spent on capital projects) and the
federal government. The new budget also reflects the
redirection of World Bank funding to the woreda level
through the Protection of Basic Services (PBS)
programme. Because of the higher spending envisaged
in 2006/07, and coupled with the insufficient generation
of domestic revenue and reduced donor inflows, the
budget deficit has been projected to be 5.8 per cent of
GDP in 2006/07, down from the burgeoning deficit
of 7.4 per cent of GDP recorded in 2005/06. The
shortfall in 2006/07 will, as usual, be financed through
a mix of domestic and external borrowing. The deficit
is forecast to fall back to the still-high 5 to 6 per cent
range in 2007/08 and 2008/09 as the government
continues with its large-scale capital projects to improve
infrastructure. The government will also continue with
its high levels of anti-poverty spending, and donor
support will be crucial in achieving this objective.
Notwithstanding this need, no major scaling-up of
donor funds in 2007/08 is expected as the political
situation is likely to remain strained, even though
support will slowly increase as relations with donors
continue to improve in the near-term.
(percentage of GDP)
1997/98
2002/03
2003/04
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Tax revenue
Grants
17.6
9.9
2.4
22.8
12.0
6.6
21.9
13.3
4.9
20.5
12.6
4.6
18.9
12.5
3.2
20.8
12.4
5.2
20.5
12.1
5.2
Consolidated expenditurea
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
21.2
13.5
12.0
4.3
1.6
7.8
29.8
19.6
17.9
5.8
1.8
9.2
25.1
17.1
15.7
6.3
1.3
10.1
25.2
14.3
13.3
6.0
1.0
11.5
26.3
14.2
13.3
5.7
0.9
12.1
26.6
14.4
13.1
5.5
1.3
12.2
25.8
13.9
12.5
5.3
1.4
11.9
Primary balance
Overall balance
-2.1
-3.6
-5.2
-7.0
-1.9
-3.2
-3.7
-4.7
-6.4
-7.4
-4.5
-5.8
-3.9
-5.3
Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/342164300568
There is currently no IMF programme in Ethiopia
and key donors such as the World Bank are withholding
direct budget support to the federal government. Funds
will instead be transferred directly to the woreda level.
Each woreda will be allocated funding through a strict
monitoring programme, under the supervision of the
World-Bank-led PBS project.
emerged and entered the business since 1994 with the
issuance of regulations governing the businesses. At
the moment, there are two commercial government
banks and one specialised government bank operating
competitively with six private commercial banks. In the
insurance business, there is one government insurance
corporation and eight private insurance companies.
Monetary Policy
The NBE is the central bank and regulatory
authority of financial institutions. It also provides
certain commercial bank activities such as holding the
accounts of government departments and ministries and
facilitating government import letters of credit and
foreign exchange business. As the central bank of
Ethiopia, the NBE’s primary monetary policy aims are
to attain relative stability of prices to help protect the
The current financial sector of Ethiopia consists of
the National Bank of Ethiopia (NBE, the central bank),
commercial and specialised banks, insurance companies,
the Pension and Social Security Authority (PSSA) and
saving and credit co-operatives. A number of private
commercial banks and insurance companies have
© AfDB/OECD 2007
257
Ethiopia
poor from the impact of inflation and to create a stable
backdrop for encouraging saving and long-term
investment. This involves limiting money growth at a
slightly higher rate than nominal GDP.
258
Inflation stood at 6.8 per cent in 2005 and was
estimated at 10.5 per cent in 2006, reflecting high
food prices due mainly to rising aggregate demand,
despite the good meher harvest and the rising costs of
inputs and market inefficiencies, as well as fuel-price
increases. Inflation is projected to ease to 6 per cent in
2007, due to continued good food harvests and
declining international oil prices. In 2006, monetary
policy was aimed at achieving prudent growth in money
supply as well as maintaining ceilings on domestic
government borrowing of about 1 per cent of GDP.
However, this became difficult to achieve in view of the
government’s rising fiscal deficit. Also, the aim of
limiting “core non-food” inflation to less than 3 per
cent per year could not be achieved due to the lack of
co-ordination between fiscal and monetary policies. The
NBE therefore had to increase credit to the government
to accommodate the large fiscal deficit of 7.4 per cent
of GDP in 2005/06. In spite of this, the private sector
was not crowded out, as credit to the private sector
showed a significant increase in 2004/05 and was
expected to keep the same momentum in 2005/06,
reflecting strong domestic demand and the ongoing
government’s infrastructure development and capacitybuilding programmes.
To make indirect monetary instruments effective
and mop up excess liquidity in the banking system, the
NBE has instituted measures for the next five years,
aimed at encouraging banks to reduce their excess
reserves. For this reason, a study intended to address
excess reserves was completed in 2005. The NBE
intends to continue taking measures to strengthen the
inter-bank foreign exchange market and further enhance
the financing of the inter-bank money market through
elimination of the obstacles that continue to hamper
the market’s smooth operation.
The amount of foreign exchange transacted in the
inter-bank foreign exchange market fell to $134 million
in 2005/06, down from $138.9 million in 2004/05, due
to a decline in the amount of foreign exchange transacted
between commercial banks, because of the financing of
the surge in imports by commercial banks. Ninetytwo per cent of the total foreign exchange transacted in
the inter-bank market during 2006 was made available
by the NBE, underscoring the pivotal role that the
NBE is playing in providing foreign exchange liquidity
to the market, especially for the financing of imports.
In the retail market, commercial banks’ purchase of
foreign exchange from exporters grew 12.8 per cent to
reach $148.8 million, due to improvements in export
earnings. Simultaneously, commercial banks’ sales of
foreign exchange to finance imports increased to almost
$2.8 billion in 2005/06, from $2.5 billion in 2004/05
and $1.6 billion in 2003/04. With regard to the foreign
exchange bureaux, their purchases of foreign exchange
decreased to $43.5 million in 2005/06 from
$76.6 million in 2004/05, on account of slowdowns in
receipts from travel services, and the increasing spread
between the parallel and official rates to 3.97 per cent
in 2005/06, from 0.68 per cent in the previous fiscal
year. In contrast, their sales increased by 96.7 per cent
to reach $31.3 million, which reflects the intention of
travellers to buy foreign exchange at low prices from the
official market.
A major development that has occurred in recent
years in the financial sector is the strengthening of the
NBE. The central bank is currently implementing a fiveyear strategic plan. The main objectives of the bank are
to undertake tasks concerning institutional
transformation, improving service delivery by the bank,
enhancing the soundness of the financial system, making
available timely research and policy advice to the
government, building an efficient payment system,
and enhancing currency management. The NBE has
identified the major challenge that needs to be addressed
as being the lack of skilled manpower and institutional
dynamism. To address this problem, the NBE has
instituted a detailed restructuring plan that included
a revision of the salary scale in 2004/05. Re-engineering
of business processes has also been carried out to improve
the Bank’s supervisory, regulatory and research capacity,
as well as service delivery. In addition, two major
divisions of the NBE, namely Government Accounts
and the Cash and Foreign Exchange Inspection
© AfDB/OECD 2007
Ethiopia
Divisions, completed the study and began its
implementation. The studies pertaining to all other
departments of NBE were nearing completion in 2005
and their implementation is ongoing. In addition to
the capacity-building exercise of the NBE, the
government is also reforming other aspects of the
Ethiopian financial sector. These include strengthening
the financial sector infrastructure, developing new
financial products, enhancing professional skills in the
financial sector and in project implementation and
monitoring. The World Bank is supporting this financial
sector capacity-building project with a loan of
$5 million.
External Position
Exports are projected to reach an all time high of
$1.08 billion by the end of 2006. Coffee is the dominant
cash crop. The volume of coffee exports declined in
2005/06 to 148 000 tonnes from 161 000 tonnes in
2004/05, but rising coffee prices pushed up the value
of exports by 5.7 per cent to $354 million. Earnings
from oil seed exports increased from $82.7 million in
2003/04 to $211 million in 2005/06 thanks to
increasing sales to China. Meat and meat product
exports continued to increase, reaching $18.5 million,
up from $14.6 million in 2004/05. Exports are expected
to remain strong through 2007 and 2008. In 2006, the
main export destinations were Asia (39.31 per cent),
with China accounting for 34.4 per cent, followed by
Europe (37.79 per cent) and then by Africa (16.94 per
cent). Of the total exports destined for Africa, two
neighbouring countries, Djibouti and Somalia, received
the highest proportion (60 per cent). Exports to these
countries were qat, fruits and live animals.
Imports have been growing more rapidly than
exports, resulting in larger trade deficits. Imports are
now more than four times the amount of exports, and
the former increased to $4.4 billion (32.3 per cent of
GDP) in 2005/06, up from $3.6 billion in 2004/05
(31.9 per cent of GDP) and $2.6 billion in 2003/04
(27.3 per cent of GDP) owing to improvements in all
components of imports, with the exception of fuel.
Imports of raw materials increased 57.3 per cent in
2006, mainly due to the worldwide increase in the
prices of steel and iron. Metal prices increased by
45 per cent in 2006 as a result of strong demand and
production disruptions. Capital goods imports grew
21 per cent in 2006 to reach approximately $1.5 billion,
reflecting the continued rise in imports of machinery
and transport equipment, related to ongoing private
investment activities and government capacity-building
programmes in infrastructure facilities. In 2006, capital
goods imports, on average, generally accounted for a
third of total imports. Increases in anti-poverty
programmes also led to rising medical and
pharmaceutical goods imports. With respect to the
origin of imports, more than 50 per cent of Ethiopian
imports were from Asia (55 per cent), followed by
Europe (29 per cent). Of the total imports from Asia,
more than 50 per cent were from China and Saudi
Arabia, with imports from the latter consisting mainly
of petroleum products (90 per cent).
The higher growth of imports over exports led to
a widening in the merchandise trade deficit to 25 per
cent of GDP in 2005/06 from 24.5 per cent of GDP
in 2004/05. The trade deficit is forecast to rise further
to 25.4 per cent of GDP in 2006/07 after which it will
fall slightly to 25 per cent of GDP in 2007/08.
1997/98
(percentage of GDP)
2002/03 2003/04
2004/05 2005/06(e) 2006/07(p) 2007/08(p)
Trade balance
Services
Factor income
Current transfers
-9.7
7.8
17.5
1.4
-0.4
7.0
-17.1
6.0
23.1
2.1
-0.8
13.6
-20.9
6.3
27.3
3.3
-0.7
13.0
-24.5
7.4
31.9
2.4
-0.3
13.7
-25.0
7.3
32.3
2.1
-0.3
11.7
-25.4
7.3
32.7
1.0
-0.3
11.6
-25.0
7.2
32.2
0.2
-0.2
11.5
-1.7
-2.2
-5.3
-8.6
-11.5
-13.1
-13.4
Source: Domestic authorities’ data: estimates (e) and projections (p) based on authors’ estimates.
http://dx.doi.org/10.1787/382783536864
© AfDB/OECD 2007
259
Ethiopia
The surplus in net services declined to 2.1 per
cent of GDP in 2005/06 from 2.4 per cent of GDP
in 2004/05, due in part to slowdowns in net receipts
from travel and transportation services. The slowdown
in net receipts was due primarily to a fall in the
number of international conferences held in Addis
Ababa as well as an increase in the number of residents
travelling abroad for holiday and business purposes.
Net receipts from transportation services declined
from $70.7 million in 2005 to $43 million in 2006,
reflecting an increase in payments by Ethiopian Airlines
and Shipping Lines for fuel and port expenses. In
contrast, net payments to other services increased by
181 per cent to $235.4 million in 2006, up from
$83.7 million in 2005, reflecting a significant increase
in payments for construction, communication and
insurance services.
260
The overall current account deficit is estimated to
have widened to a disquieting 11.5 per cent of GDP in
2005/06, up from 8.6 per cent of GDP in 2004/05,
reflecting the significant deterioration in the trade balance
as well as a decline in transfers and the slowdown in the
surpluses of net services. The current account deficit is
expected to balloon to 13.4 per cent of GDP in 2007/08,
posing further questions about the sustainability of
present macroeconomic and structural policies.
The surplus in the capital account plummeted to
$515.4 million in 2006 from $570 million in 2005,
representing a decline of 9.6 per cent, on account of
low long-term loan disbursements, even though there
was a marked improvement in principal loan
repayments, which were largely due to Heavily Indebted
Poor Countries Initiative (HIPC) debt relief. In spite
of the decline in the surplus of the capital account, net
inflows of foreign direct investment (FDI) increased
to $342.7 million in 2006, compared to $150 million
in 2005. This increase in inflows of FDI contributed
to the positive balance of the capital account.
The deficit in the overall balance of payments
widened to $327 million in 2006, up from
$101.4 million in 2005, due to the increase in the
■ Debt/GDP
——— Service/X
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/376275654538
© AfDB/OECD 2007
Ethiopia
trade deficit that more than wiped out the impact of
the surpluses recorded in transfers, the services account
and the capital account. The deterioration in the overall
balance of payments shows the importance of the trade
deficit in determining the overall balance of payments
position of the country.
The five-year PASDEP seeks to bring down the
wide trade deficit through the diversification of
exports into products such as meat, leather articles
and horticulture, while also bolstering traditional
exports of coffee, tea and spices. The PASDEP aims
to increase the amount of land used for coffee
cultivation from 500 000 hectares in 2005 to over
700 000 hectares in 2006, with a resulting 37 per cent
growth in coffee production. Similarly, 17 per cent
growth is projected for tea and 254 per cent for
spices. Oilseed, cut flowers and pulses are also
promising new exports.
The PASDEP also seeks to stimulate the inflow of
foreign direct investment. For this reason, the
government has revised an investment law that reduces
the minimum threshold for FDI to $100 000 for wholly
foreign-owned businesses and abolishes minimal capital
requirements altogether for foreign investors who export
at least 75 per cent of their production
The deterioration in the current account balance
of payments put downward pressure on the Ethiopian
birr, but exchange-rate movements have been
comparatively slight given the continued tight control
over currency transactions exercised by the
government. In 2006, the weighted average exchange
rate of the birr depreciated by 0.34 per cent in the
inter-bank market and 3.62 per cent in the parallel
market. The spread between the parallel market and
the inter-bank market average rates widened to almost
4 per cent in 2006 from 0.7 per cent last year, reflecting
increasing fears of devaluation. The premium fell
back to 2.4 per cent by the end of June 2006 as the
government clamped down on parallel foreign
exchange dealers.
As a result of the change in the overall balance of
payments from a surplus of $226.7 million in 2004 to
© AfDB/OECD 2007
a deficit of $327.1 million in 2006, the net reserve
holdings of the banking system registered a reserve
draw down of $194.1 million in 2006, compared to a
reserve build-up of $308.2 million in 2004. The reserve
draw down was solely due to NBE’s reserve draw down
of $275.9 million, which amply offset a reserve buildup of $81.8 million by commercial banks. The fall in
NBE’s reserve stock was due to the intervention activity
of the NBE in the inter-bank market in order to give
banks liquidity, and also make payments for imports
of fuel, fertilizer and infrastructure-related equipment.
As a result of these transactions, the gross official reserves
of the central bank at the end of June 2006 were enough
to cover 2.3 months of goods and non-factor services
of 2007.
Ethiopia’s stock of total external debt fell to $6 billion
in 2005/06 from $7.2 billion in 2003/04, reflecting relief
granted under the HIPC initiative. 80.9 per cent of the
total debt was owed to multilateral creditors, followed
by bilateral creditors (13.2 per cent) and commercial
lenders (5.9 per cent). Ethiopia reached the completion
point under the HIPC initiative in April 2004. As a
result, Ethiopia will receive further debt relief of
$2.4 billion from the World Bank in July 2007.
Reductions in debt service are to be used for povertyreduction initiatives.
Structural Issues
Recent Developments
The government recognises the contribution that
the private sector can make to the overall economic
growth and poverty reduction of PASDEP. For this
reason, it continues to take measures that will spur the
growth and development of the private sector. One of
the four main elements of the government’s strategy to
achieve this objective is strengthening the institutional
framework to enable private initiative to thrive.
Progressive withdrawal of state entities from areas where
the private sector has a comparative advantage, through
continued privatisation, fits well into this framework.
In line with this framework, the government started a
privatisation programme in 1998. The process of
261
Ethiopia
262
privatising state-owned firms was slow in the initial years.
A study commissioned to find out the cause of the
slowdown revealed that the two public institutions
then existing that were responsible for the programme,
the Privatization Agency and the Public Enterprises
Supervising Agency, were not co-ordinating well.
Following the implementation of the study’s
recommendations, the two agencies were merged to
form the Privatization and Public Enterprise Supervising
Agency (PPESA) in July 2004, which is now responsible
for the sale of all state-owned enterprises (SOEs). In
order to undertake an effective and efficient privatisation
programme, PPESA set up different procedures, revised
the guidelines for preparing companies for evaluation
in terms of making the bid price flexible. This has
enabled buyers to quote their own bid prices; however,
the agency is the organisation that determines the price
of sale. Following these reforms, the participation rate
of would-be buyers in the privatisation exercise has
increased considerably. During the period 2003-05,
111 state-owned enterprises were offered for sale, most
of which were in the industries of food, beverages,
garments, leather and shoes, hotels and tourism,
printing, construction, textiles and agriculture. In 2006,
there were 135 SOEs for sale registered on the books
of PPESA. As of May, 13 of the firms had been
privatised, 12 of which were bought by local investors
and one by a foreign investor. The process has gained
momentum and more companies are now being
prepared and listed for sale. Among the companies
that have been prepared and listed for sale in 2007 are
three state-owned agriculture enterprises (Awash Agro
Industry Enterprise, Gojeb Agricultural Enterprise and
the Horticulture Development Enterprise) and the
Assela Malt Factory, the only malt-producing factory
in the country.
In order to improve the process, the government
has sought to provide a market-oriented, transparent
and competitive process, and has permitted the winning
bidders to reorganise the labour force of the companies
they acquire.
The government has so far limited privatisation
to smaller firms such as the Bahir Dar Textiles
factories, the Repi Soap factory, and Akaki Textiles.
Utilities and other strategic enterprises such as the
Ethiopia Telecommunications Corporation and the
Ethiopian Electric Power Company are to remain
under state control.
Internal auditors have protested that managers of
state companies subject to privatisation have pressured
them to produce favourable reports. In response, the
government has decided to create a three-member audit
committee for each firm, consisting of one of the
company’s board of directors and two government
representatives.
Ethiopia’s business climate is ranked relatively
favourably in the region, placing it 97th out of 175
countries on the World Bank’s 2007 Doing Business
(DB) index; this is an improvement from its 101st
ranking last year. Ethiopia’s ranking is particularly
good on the DB “paying taxes” sub-indicator, but
poor on the “trading across borders” and “registering
property” measures. These scores are problematic given
Ethiopia’s goals of boosting exports and FDI, and
indicate that Ethiopia still has a long way to go to
improve its business climate.
The government also sees infrastructural
development as an essential element in its strategy for
accelerating overall economic growth and reducing
poverty. For this reason, during the SDPRP period, in
the roads sub-sector, priority was accorded to new road
construction as well as major rehabilitation/
upgrading/maintenance work. Of the targeted
5 637 kilometre road development, 5 561 kilometres
were completed, of which 1 276 kilometres were new
rural roads. As a result, road density rose from
32.3 km/1 000 square kilometres in 2001/02 to
33.6 km/1 000 square kilometres by the end of the
programme. In the power sub-sector, the total electric
power generated from the inter-connected and selfcontained systems in the last three years increased from
473 megawatts (MW) in 2001/02 to 768.5 MW and
791 MW in 2003/04 and 2004/05, respectively. During
the same period, the power generated from self-contained
systems increased from 19.99 MW to 22.78 MW. Total
length of high voltage transmission lines (230 kilo volt,
132 kilo volt, 66 kilo volt and 45 kilo volt) has increased
© AfDB/OECD 2007
Ethiopia
from 6 304.22 kilometres in 2000/01 to
6 534.04 kilometres and 7 927 kilometres in 2003/04
and 2004/05, respectively. The length of distribution
line has increased from 9 512.9 kilometres in 2001/02
to 13 798 kilometres in 2003/04 and 25 000 kilometres
in 2004/05. In the telecommunications infrastructure
sub-sector, before the commencement of SDPRP, services
were poorly-developed and did not cater for the needs
of the rural community.
The situation has started to reverse in recent years,
due to steps taken by the government to emphasise
network expansion, service improvement and expansion
packages. Ethiopia made huge investments amounting
to birr 8 billion ($930 million) in basic multi-media
core infrastructure to extend network expansion for
woreda–net, cable-net and agri-net projects. As a result,
by the end of 2004/05 the number of users had
increased to 620 000 for regular fixed telephone lines,
410 630 for mobile phones and 17 375 for Internet
lines. Despite this progress in the infrastructure sector,
many challenges still remain. The PASDEP programme
for strengthening the infrastructure of the country
includes building more than 20 000 kilometres of
new roads by 2010. In terms of telecommunications,
the PASDEP hopes to extend access to fixed telephone
lines to 3.2 million people. The cellular mobile
telephone network is also to be expanded to 6.8 million
people by the end of the PASDEP in 2010. As noted
earlier, the electrical system in Ethiopia will also be
increased three-fold by the end of the PASDEP, through
the construction of five new dams, including the large
Gilgel-Gibe III project.
The government is undertaking a series of land
reforms in order to encourage individual farmers,
pastoralists and agricultural investors to make better use
of rural land. The first step in this exercise was the
proclamation of land administration law no. 456/2005,
which allows peasant farmers/pastoralists who are
engaged in agriculture for a living, the right to own land
free of charge. The law clarifies land usage rights and
allows for the transfer of rights. The law is already
being tested in one of the regions on a pilot-scheme
basis, whereby 13 million farmers/pastoralists have
been given temporary user rights certificates.
© AfDB/OECD 2007
Ethiopia is favoured with a considerable untapped
water supply from 12 main river basins as well as 12
sizeable lakes. The total annual surface runoff of these
sources of water adds up to about 122 billion m3.
Estimates of underground water resources currently
stand at about 2.6 billion m3. Nevertheless, more effort
needs to be made to develop these water-supply sources
so that they can contribute to the reduction of poverty
and diseases.
Ethiopian water policy allows all stakeholders the
opportunity to participate in improving efficient access
to and utilisation of safe water. A comprehensive
National Water Resources Management Policy
established in 1998 and corresponding strategy
introduced in 2000 provide guidance for investment
in both rural and urban water supply and sanitation.
In 2002, the government prepared a National Water
Sector Development Programme and has incorporated
a Universal Access Plan (UAP) in its Second Plan of
Action for Sustainable Development to End Poverty
(PASDEP). The national sanitation strategy outlines
the need for participatory learning, advocacy, appropriate
technology and reliance on local producers.
A memorandum of understanding has also been
signed between the Ministry of Water Resources
(MoWR), the Ministry of Health (MoH), and the
Ministry of Education (MoE). The memorandum
ensures that while the MoWR and the MoH take
responsibility for access to and safe utilisation of water,
the MoE will promote water and sanitation in schools
through the curriculum, the establishment of clubs, the
promotion of reliable technologies for water and
sanitation, and the education of teachers.
In addition, a National Sanitation and Hygiene
Protocol has been implemented to enhance the synergies
within the programme’s implementation. The sanitation
protocol identifies ways to implement hygiene and
sanitation elements into the planning and finance
strategy. It also deals with co-ordination in the
preparation of guidelines, and defining minimum
standards and information management.
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Ethiopia
The government has also established Water
Sanitation committees (WatSan). Current WatSan
committees have no formal bylaws guiding their
activities. A study commissioned in 2006 indicates
that the scope of community ownership of WatSan
assets is not clearly understood in most of the
community-managed systems in Ethiopia. The
legalisation of these committees is essential since this
will allow them to use formal services such as banking
services (access to deposits and loans), and help them
to address legal issues.
264
The successful implementation of water policies
has also been based on the application of appropriate
low-cost technologies, the manufacturing of low-cost
water-lifting devices, the decline in the unit costs of
construction, and political leadership from the federal,
regional and woreda governments. In addition, the
shift from public to local private sector for the
construction of wells has contributed to a more efficient
system of well production. The cost of hand-dug wells,
for instance, has reportedly declined from
approximately birr 50 000 to birr 15 000 due to a shift
towards involving the local private sector1. The private
sector and civil societies are also involved in rural
water services through the establishment of cooperatives under the provision of the Cooperative
Society Proclamation.
According to survey results carried out in Ethiopia,
36 per cent of households had access to safe drinking
water in 2004, compared to 19 per cent in 1996. Of
these households, 12.9 per cent use water from a
protected well or spring, 18.8 per cent get their water
from a public water tap, while 4.2 per cent have access
to their own private water taps.
While 90 per cent of urban households had access
to clean water in 2004, only 25 per cent of rural
households had access to safe water. Of these rural
areas, 32 per cent of family households obtain their water
from unclean rivers and lakes, 42 per cent receive their
water from unprotected wells, 14 per cent obtain their
water from protected springs, and the remaining 10 per
cent use public taps. However, 64 per cent of households
in the urban areas have a public tap, while 23 per cent
use their own water taps.
It is estimated that 92 per cent of rural households
live less than 5 kilometres away from the closest source
of drinking water, while around 6 per cent still need
to travel an average of 5-9 kilometres in order to obtain
water for daily uses. The corresponding accessibility in
urban areas is much better. More than 82 per cent can
access drinking water within a radius of 1 kilometre.
The availability of sources of drinking water within a
5 kilometre radius has not notably changed in recent
years. In addition, more than 93 per cent of total
households reported no improvement in the sources of
drinking water available to them during the past 12
months. However, 19 per cent reported a change during
the last five years.
With respect to sanitation, the Ethiopian Ministry
of Health (MoH) estimates that Ethiopia has some of
the lowest sanitation coverage in the world, placing it
at 30 per cent. Furthermore, a detailed water-quality
study revealed that fecal matter was present in
approximately 40 per cent of collected and stored
drinking water samples. Nevertheless, only 3 per cent
of these contaminated water supplies were at a level that
would present a risk to human health. In addition,
63.9 per cent of the population lives in one room,
while 23.8 per cent of households live in two rooms.
This issue is all the more detrimental and unsanitary
since 63.9 per cent of households have families with
5 to 10 people all living together; 39.5 per cent of
these families also have animals living with them.
Ethiopian studies on Knowledge, Attitude and
Practice (KAP) reveal that most of the respondents
were uninformed and unaware of the causes of diseases
or the effects of sub-standard living conditions on their
health and well-being. According to the studies, 71.5 per
cent of respondents disclosed that they had never
received education about the health and hygiene issues
pertaining to water and sanitation. 52.7 per cent did
not understand the implications of overcrowding, while
1. MoWR, verbal information July 2006.
© AfDB/OECD 2007
Ethiopia
28.4 per cent could not identify any diseases which were
due to poor living conditions.
MoH estimates that 60 to 80 per cent of
communicable diseases were due to the lack of basic
sanitation services. Personal hygiene has been a critical
factor in most rural areas and small towns, due to the
lack of soap and acute shortages in the quantity and
quality of water. The KAP study revealed that 37.5 per
cent of people took a bath at an interval of between 1
and 5 days, 47.7 per cent at intervals between 3 to 30
days, and 14.1 per cent took a bath after 30 days.
The current programme for the elimination of
poverty, PASDEP, is expected to enhance access to safe
water across the country through capacity-building,
adopting low-cost, affordable and labour-intensive
technologies, and promoting gender equality in the
design and implementation of water projects and
programmes. This programme is expected to increase
water coverage from 44 to 80 per cent in rural areas and
from 80 to 92 per cent in urban areas from 2005/6 to
2009/10. The PASDEP will also target the regions with
the lowest supply of water. To increase the supply of rural
drinking water, 2 133 deep wells will be constructed,
along with 14 908 shallow wells, 101 355 hand-dug
wells, 404 ponds, 505 cisterns, 14 surface water sources,
and 11 065 spring developments. 48 510 rehabilitation
work schemes will also be undertaken. With respect to
urban development, study and design for 738 town
water systems, construction works for 514 towns and
rehabilitation works for 228 towns will be undertaken,
in order to provide the essential water services required
for private sector development. This will provide 85 per
cent of the population with water access, as opposed to
an estimated 42 per cent by the end of the SDPRP
period 2004-05. The Universal Access Plan (UAP) will
also enhance water supply coverage by providing water
supplies within 1.5 kilometres for rural areas and
0.5 kilometres for urban areas.
The PASDEP will also provide a substantial
programme aimed at promoting the use of latrines. This
will increase rural coverage from 17.5 per cent to
79.8 per cent, and urban sanitation coverage from
50 per cent to 89.4 per cent.
© AfDB/OECD 2007
Investments in water and sanitation under the
PASDEP are estimated at birr 15.6 billion. 77 per cent
of this sum will be provided by the government while
the other 23 per cent will be shared amongst the private
sector and NGOs.
Ethiopia is a federal parliamentary republic, with
the prime minister heading the government. The
president holds all executive powers while legislative
power is shared by the president and the two chambers
of parliament. The judiciary is independent from the
other branches. The ruling Ethiopian People’s
Democratic Revolutionary Front (EPDRF) came to
power in 1995. The EPDRF consists of the Tigray
People’s Liberation Front (TPLF), the Amhara
National Democratic Movement (ANDM), the
Southern Ethiopia People’s Democratic Movement
(SEPDM) and the Oromo People’s Democratic
Organization (OPDO). The EPDRF, headed by Prime
Minister Meles Zenawi, has sought to encourage a
system of ethnic federalism dominated by nine semiautonomous regions with the authority to spend or
raise their own revenues.
Ethiopia held general elections in May 2005 in
which more than 90 per cent of eligible voters
participated. The ruling EPDRF won 327 of the 547
seats available in parliament. The Coalition for Unity
and Democracy came second with 109 seats. However,
the elections were marred by allegations of widespread
vote-rigging and intimidation. Nevertheless, the US
Carter Center’s evaluation of the elections judged that
“the majority of the constituency results based on the
May 15 polling and tabulation are credible and reflect
competitive conditions.”
Some opposition supporters carried out street
protests and strikes against the results of the elections.
Thousands of others were arrested and sent to various
detention centres around the country. As of February
2006, hundreds of political prisoners were set to go on
trial for a range of offences. Journalists were being held
265
Ethiopia
in custody on charges of defamation while members
of the opposition parties were being held on the grounds
of treason, genocide and fomenting a coup. These
include leaders of the CUD and other members of
civil society who are still currently in detention. Trials
began in May 2006, but have been proceeding at a very
slow pace. The outcomes of the trials are currently
unknown. There are concerns that key opposition
members may die during trial, inciting new bouts of
protests and unrest.
266
The political climate was relatively stable during
2006, largely because the government was able to
negotiate a working agreement with the majority of the
parliamentary opposition. The EPDRF signed deals on
parliamentary procedure and rules of conduct in June
2006 with the two main opposition blocks, which was
an important step towards reconciliation. In a key
development, the more radical elements of the original
CUD that have refused to join parliament, as a way of
expressing solidarity with the position taken by the
imprisoned leaders, formed a new opposition grouping
in May 2006. This grouping, called the Alliance for
Freedom and Democracy (AFD) was formed with
outlawed opposition groupings including the Oromo
Liberation Front and the Ogaden National Liberation
Front, which continue to wage a low-intensity war
against the government. The AFD is likely to cause
trouble as some of its members may attempt to intensify
the armed conflict, even though they lack effective
capacity to do so.
In December 2006, the Ethiopian government
launched air strikes against fighters loyal to the
government of the United Islamic Courts (UIC) in
Somalia in support of the weak Somali interim
government. Ethiopia has frequently warned that it
would protect the transitional federal government in
Somalia against the UIC which controlled most of
southern Somalia. Ethiopian forces quickly captured
the capital Mogadishu and routed the UIC. Ethiopia’s
involvement in Somalia was justified by fears that a
united anti-Ethiopian regime in Somalia may be
detrimental to Ethiopia’s security. Furthermore, the
UIC has been receiving help from the Eritrean
government, an antagonist of the Ethiopian
government. Fulfilling its promise that Ethiopian
forces would not stay long in Somalia, the government
began the first phase of a planned withdrawal on
23 January. Some Ethiopian troops are likely to remain
in Somalia for some months to come in the expectation
that an African Union (AU) peacekeeping force can
be assembled and put in place before complete troop
withdrawal. Ethiopia may remain longer than expected
in Somalia as an AU force is unlikely to be constituted
as quickly as hoped. This could fuel anti-Ethiopian
sentiment in Somalia.
There has been no progress on the clash between
Ethiopia and Eritrea over the demarcation of the borders.
In April 2002, the Boundary Commission otherwise
known as the Eritrea-Ethiopia Boundary Commission
(EEBC) established by International Court of Justice,
awarded some land to both sides. Badme, a key area
under dispute was awarded to Eritrea but Ethiopia
rejected this decision and both countries have since
remobilised their armies along the border, leading to
fears that war may be imminent. Military commanders
from both armies continue to meet in Kenya under the
guidance of the UN Mission to Ethiopia and Eritrea
(UNMEE). Meanwhile, the EEBC has given both sides
until November 2007 to begin demarcating the border
defined by the Commission in 2002, although changes
would not be recorded on official maps, irrespective of
the official demarcation. However, both sides have
refused to comply with the ultimatum.
Corruption is perceived as widespread in Ethiopia.
The country ranked 137th out of 158 countries on
Transparency International’s Corruption Perception
Index for 2005 (the latest available). According to
expert analysis by the Ethiopian civil service reform
programme, the major causes of corruption in Ethiopia
are poor governance, lack of accountability and
transparency, a low level of democratic culture and
tradition, lack of citizen participation, lack of clear
regulation and authorisation, low institutional control,
extreme poverty and inequality, harmful cultural
practices, a command economy during the Derg
regime, weak financial management, inadequate
accounting and auditing, and a weak legal and judicial
system. To fight corruption, the government established
© AfDB/OECD 2007
Ethiopia
the Federal Ethics and Anti-Corruption Commission
(FEAC) in 2001. Since its inception, the Commission
has launched a three-pronged campaign (prevention,
investigation and prosecution) against corruption.
The Commission has achieved some success in the
last four years. However, it still faces a number of
challenges in pursuing its goal, which includes the
lack of skilled work force in all areas of concern,
particularly in investigation and prosecution. In
addition, the low level of public participation and the
absence of a vibrant media to present a balanced report
on the ongoing anti-corruption campaign in the
country, have also negatively affected FEAC’s
performance. The Commission has made wide-ranging
plans to redouble its efforts in the coming years to
mobilise the public and other resources against
corruption in a more vigorous and dynamic way.
Prevention of corruption will be given top priority as
it is seen as the most cost-effective and sustainable
way of fighting corruption and impropriety.
The Ethiopian government is currently prioritising
improved governance and decentralisation. The National
Capacity Building Strategy Programme promotes civil
service and judicial reforms, improved democracy and
decentralisation. Civil service laws have been
implemented to improve the recruitment, selection
and promotion of government staff. The judicial reforms
include the training of more federal and regional judges
and prosecutors. A human rights commission and
ombudsmen have been appointed and efforts are being
made to strengthen institutions with the establishment
of working systems and procedures. The names and
qualifications of approved judges have been publicly
announced to ensure transparency and judicial
independence. A study is underway of human resource
planning and training needs assessment. Efforts have
been made to increase the participation of the rural
population in development, to build a democratic
system and to improve operating conditions within an
organised administration. A manual has been prepared
and published to attract and obtain adequate
participation of the public in all matters. Efforts have
been made to improve the capacity of officials at the
woreda level and to strengthen the organisational
structure of woreda administration.
© AfDB/OECD 2007
Poverty as measured by food consumption (the
food poverty index) declined only moderately from
42 per cent in 1999/2000 to 38 per cent in 2004/05,
while poverty rates as measured by income (the head
count index) fell sharply in the rural areas from 51 per
cent in 1999/2000 to 39 per cent in 2004/05. Urban
poverty has declined more slowly. Given the strong
performance of the economy and the agricultural sector,
it is projected that the head count index will fall to 29 per
cent by 2009/10. The failure of food poverty to decline
in step with income poverty primarily reflects a
substantial increase in the cost of food.
During the SDPRP period, the government placed
strong emphasis on the participation of women in the
development process since improvements in women’s
circumstances generally have positive effects on poverty
reduction. For this reason, policies and strategies have
been formulated to integrate and mainstream gender
dimensions in economic, social and political decisions.
Progress made in the area of gender so far includes
adopting strong measures in gender-responsive goals
and targets to decrease the workload of women in
order to enable them take part in political and socioeconomic decision-making. Progress has also been
made in the adoption of the Penal Code that has
included strong measures in support of women’s rights.
Progressive legislation has been passed on women’s
access to land, credit facilities, and productive resources.
Furthermore, encouraging results were achieved by
conducting awareness-creation workshops to
incorporate gender dimensions in budgetary processes,
resource allocation and in building women’s capacity
to implement strategies.
In terms of healthcare, the government has focused
on areas such as malaria, tuberculosis and childhood
diseases, as well as HIV/AIDS. The Health Extension
Worker Programme (HEWP) seeks to move healthcare
delivery from hospitals towards household and village
levels. The programme has trained 3 000 women in the
provision of sanitation and immunisation services.
Some of the healthcare-related investments that have
taken place under the SDPRP include i) the training
of 10 500 nurses and other healthcare professionals,
ii) the construction of 1 900 new health centres, iii) the
267
Ethiopia
immunisation of over 3 million children, and iv) greater
provision of anti-retroviral treatment (ART) drugs to
HIV/AIDS sufferers. By 2004, child mortality rates had
declined to 166 per thousand, while infant mortality
rates had decreased to 110 per thousand.
The prevalence rate of HIV/AIDS according to
the Ethiopia Demographic and Health survey (2005),
for the 15-49 age group is estimated at 1.4 per cent, a
huge apparent decrease from the 4.4 per cent rate
recorded in 2003, but with some uncertainty about the
quality of data. UNAIDS estimates that the prevalence
rate is in a range of 0.9 to 3.5 per cent. Forty-two per
cent of HIV-positive pregnant women are currently
receiving ART drugs. Advanced AIDS patients receive
drugs under the Social Mobilization Strategy against
HIV/AIDS; 94 per cent of patients have been provided
with the drugs at no cost.
focuses on providing universal primary school education
by 2015, with interim targets for 2010 of 86.6 per
cent primary enrolment and 63.8 per cent secondary
enrolment. Current net enrolment rates (2004) in
primary and secondary schools stand at 46 per cent and
25 per cent respectively.
According to the Household Income Consumption
Expenditure Survey 2004/05 (HICES), urban
unemployment averaged 26 per cent, and ranged up
to 40 per cent in the larger urban centres such Addis
Ababa. The Urban Development Strategy in the
PASDEP aims to reduce unemployment to less than
20 per cent through vocational and training programmes
and through support to small and microenterprises.
Furthermore, microfinance institutions will be
encouraged to provide funding to the unemployed.
Finally, labour-intensive public work programmes are
to be developed to employ the urban poor.
The National Education and Training Policy was
established in 1994. EDSP III is a programme that
268
© AfDB/OECD 2007
Gabon
Libreville
key figures
•
•
•
•
•
268
1 406
7 668
53.6
…
Gabon
T
2005 PRESIDENTIAL ELECTION WAS a contest
between opposition parties and a “presidential majority”
coalition of about 40 other parties and groups backing
President Omar Bongo Ondimba for another sevenyear term. Bongo was declared by the constitutional
court to have won re-election with about 80 per cent
of the votes cast.
HE
Despite shrinking oil reserves and declining
production, oil was still Gabon’s main natural resource
in 2005, providing more than half its GDP, 80 per
cent of export earnings and 63 per cent of tax revenue.
Without new discoveries, however, the country will
have to prepare for the post-oil era by creating better
economic and institutional conditions to enable
diversification of the economy and generation of new
sources of income. Moreover, despite the government’s
promises that budgetary indiscipline linked to the 2005
presidential election would not be repeated,
parliamentary elections in late 2006 are also expected
to have been accompanied by
Gabon should diversify
excessive spending. Inflation,
its economy and prepare
which fell back in 2005, rose in
for the after-oil era pursuing
2006 to 1.9 per cent, mainly
institutional reforms to
owing to a higher wage bill for
improve the investment
government workers.
climate, governance,
and eradicate poverty.
Many institutional reforms
were introduced in 2005 affecting business conditions,
the civil service and the judiciary, as well as restructuring
and reorganising the state sector and improving
governance – the fourth pillar of the full poverty
271
■ Gabon - GDP Per Capita (PPP in US $)
■ Central Africa - GDP Per Capita (PPP in US $)
——— Gabon - Real GDP Growth (%)
8000
4
7000
3
6000
2
5000
1
4000
0
3000
-1
2000
-2
1000
-3
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
http://dx.doi.org/10.1787/546801745412
© AfDB/OECD 2007
Gabon
reduction and growth strategy paper (PRGSP),
implementation of which began in 2006. A national
commission to combat illegal enrichment was set up,
and top officials and government members have been
asked to declare their personal assets. Like the other
Central African Economic and Monetary Community
(CEMAC) countries, Gabon has joined the Extractive
Industries Transparency Initiative (EITI), requiring it
to use its oil revenue (especially windfall profits due to
higher world prices) to reform public finances and
balance its budget. To this end, some 170 billion CFA
francs in 2005 windfall profits went to investment in
selected sectors, to poverty-reduction programmes,
clearing domestic debt arrears and consolidating the
treasury’s position in relation to the central bank. The
government also began drafting a national good
governance programme in 2004, with support from the
African Development Bank (AfDB) and the United
Nations Development Programme (UNDP), and this
is expected to be ready by late 2006.
272
The economy recorded relatively strong growth in
2005 and inflation fell by 0.2 per cent. Despite a 1.3 per
cent shrinkage of the oil sector, real GDP increased 3 per
cent, well above forecasts and the 2004 figure of 1.4 per
cent, owing to the strong expansion of the non-oil
sector (4.3 per cent of GDP), especially mining, wood
and services. In 2006, however, GDP is expected to
increase only 2.1 per cent, with inflation rising to
1.9 per cent. Higher world oil prices boosted the
balance-of-payments surplus to 16.7 per cent of GDP
in 2005, allowing a further reduction (4.4 per cent) in
external debt that brought the stock of such debt down
to 39 per cent of GDP. The overall commitment-basis
budget surplus amounted to 9.4 per cent of GDP, and
the 2006 budget calls for reduction of the non-oil fiscal
deficit to 7.8 per cent (from 12 per cent in 2005).
The country’s economy depends heavily on
extractive industries. The oil sector alone accounted for
50.7 per cent of GDP in 2005. Recoverable proven
reserves of some 2 billion barrels and daily output of
around 270 000 barrels made Gabon the third-largest
sub-Saharan oil producer after Nigeria and Angola.
Mining provided 2.5 per cent of GDP (up from 1.9 per
cent in 2004). The country is also Africa’s secondlargest wood exporter after Cameroon, though the
wood and forestry products sector accounted for only
2.5 per cent of GDP in 2005.
Oil continues to dominate the country’s growth
structure despite falling crude production and reserves,
but investment in exploration that could stem this
decline barely increased in 2005 (388.3 billion CFA
francs, compared with 387.1 billion in 2004) and was
expected to drop to 360 billion in 2006. Exploration
and production-sharing contracts since 1997 have
included royalties of 10-20 per cent of the oil sold. The
producer gets about half of the remainder, with the rest
going to the government. After rising slightly in 2003
(6.9 per cent) and 2004 (0.3 per cent), production
resumed the decline it began in 2001 and 2002, falling
1.3 per cent in 2005 and 3.1 per cent in 2006 due to
ageing wells and antiquated equipment. The decline
is likely to continue unless more effort is devoted to
exploration and new discoveries made. The average
price of Gabonese crude has risen in the last few years,
from $27.8 per barrel (2003) to $35.75 (2004) to
$50.49 (2005) and an expected $60 in 2006. The
steady increase, due to higher world prices, certainly
boosts government revenue but does not get the country
out of danger. A combination of structural shocks
(falling national production) and a drop in world oil
prices would seriously harm the economy, which is
too dependent on oil for tax and customs revenue.
After deduction of the 750 000 tonnes delivered to the
national oil refinery (Société gabonaise de raffinage –
Sogara), exports are falling in step with production
(down 1.9 per cent in 2005 and 2.7 per cent in 2006).
The government joined EITI to make its handling
of extractive revenue, mainly from oil, more transparent,
to assess the fiscal and economic impact of the windfall
profits of the previous three years and to try to give more
credibility to the process by which oil revenue is collected
and transferred to the national budget. The first EITI
report, covering 2004, done by independent consultants
and published in 2005, was considered incomplete by
stakeholders because it did not include profit oil in
© AfDB/OECD 2007
Gabon
(percentage)
Government services
Forestry
1.3%
Other services
6.6%
27.2%
50.7%
Petroleum
3.6% 1.2% 1.7%
Agriculture, livestock and fishing
5.2% 2.5%
Water and electricity
Mining
Manufacturing
Construction
Source: Authors’ estimates based on local authorities’ data.
http://dx.doi.org/10.1787/884002681682
the 2004 revenues. Profit oil is the crude oil the
government gets under production-sharing agreements,
and it accounts for at least half of all state revenue from
the oil sector. The government promised that profit oil
would be included in the 2006 revenue report. Despite
the budgetary indiscipline in 2005 due to the
presidential election, the government managed to save
about half its 2005 windfall profits, since higher world
oil prices boosted oil revenue about 40 per cent in
2005 even though production stagnated.
Expansion of mining could be an alternative to oil,
especially as non-oil extractive industries showed the
best growth performance (11.9 per cent) in 2005,
though their GDP contribution is still only 2.5 per cent.
The Moanda manganese deposits (in Haut-Ogooué
province), mined since the 1960s by the Compagnie
minière de l’Ogooué (Comilog), a subsidiary of the
French metallurgical group Eramet, could be a motor
of such growth. Moanda produces a steady stream of
good-quality ore, expected to top 3 million tonnes in
2006 (up from 2 million in 2005). In March 2004, the
Brazilian firm Vale de Rio Doce (CVRD) began
prospecting two other Haut-Ogooué deposits, at
Franceville and Okondja, estimated at 175 million
tonnes. Mining these deposits will require improved
infrastructure, however, especially railways. The Chinese
firm Sinostel has been authorised to prospect near
Mbigou, in the south. Two other Chinese firms have
formed the Compagnie industrielle et commerciale
des mines du Gabon to prospect for and extract
manganese at Njole. Gabon, which should produce
around 7 million tonnes of the ore by 2007/08, hopes
to become the world’s top supplier of manganese. The
© AfDB/OECD 2007
country also has niobium, a very high value-added
mineral used in making special steels and heavy-duty
alloys used in aeronautics. Once investments are
complete in manganese, niobium, phosphates and the
huge Belinga iron deposits, the mining licence for
which was granted in 2005 to two Chinese firms that
plan to invest some $3 billion, the mining industry
should generate $300-400 million a year.
With 20 million hectares of mostly-untapped forests
containing about 60 marketable species, the forestry
and wood industries can also contribute to the economy,
as shown by their 2005 growth performance of 5.6 per
cent. Their share of GDP is still small (2.5 per cent in
2005), but forestry and wood employ more than a
fifth of the working population, and the sector could
boost its output if its regulation were changed to make
it more efficient and reduce management costs. The
forestry law needs to be revised to encourage local and
foreign operators to invest more in infrastructure items
such as log carrier ships and other facilities. A technical,
analytical and financial audit of the state timber
company Société nationale du bois du Gabon (which
has a monopoly on the marketing of logs from Ozigo
and Okoumé) and conversion of the company into
the sector’s chamber of commerce could boost sector
growth. As lumber is the country’s second-largest export
after oil, the government has streamlined the sector’s
taxation and imposed a moratorium on new felling
permits so as to encourage investment.
Agriculture, livestock and fisheries came second
from bottom on the list of major sector growth rates
in 2005, at 4 per cent. Though this was double the 2004
273
Gabon
figure (2 per cent), the sector still contributed only
3.6 per cent of GDP in 2005, far below the 16 per cent
it provided in 1964. Gabon has no strong agricultural
or stock breeding tradition and must import more
than half the food it needs. The coffee and cocoa sector
is also neglected compared with that in nearby countries.
Agricultural growth in 2005 was fairly satisfactory as
a result of modernisation and privatisation of state
rubber and palm-oil firms.
The secondary sector grew strongly in 2005 (4.6 per
cent compared with 0.9 in 2004), mainly thanks to
“other industries” (up 6.7 per cent), agro-food (+6 per
cent), wood processing (+10 per cent) and oil refining
(+5.6 per cent). Water and electricity (+2.5 per cent),
construction (+2 per cent) and oil services (+2.5 per
cent) also did well, and the sector contributed 8.1 per
cent of GDP.
274
“Other industries” performed well partly because
of investment linked to “rotating festivals”
(independence celebrations held in a different region
each year), and agro-food advanced due to stronger
demand for its products during the 2005 presidential
election campaign and higher per capita GDP. Wood
industries did well because, at government insistence,
more logs were processed before export; the proportion
of processed logs reached about 40 per cent of
production. Oil refining maintained growth begun in
2004 thanks to the generally buoyant economy and
higher domestic demand for its products. Household
consumption of water and electricity rose due to
expansion of coverage by the utilities firm SEEG (Société
d’énergie et d’eau du Gabon), but the sector underperformed after the loss of several major customers
such as Sogara. Growth in the construction sector
halved to 2 per cent (from 4.2 per cent in 2004) as
building and civil engineering activity slackened.
The tertiary sector (27 per cent of GDP) turned
in one of the year’s best performances, growing by
5 per cent thanks to services (+5.8 per cent), trade
(+5.6 per cent) and telecommunications (+4.5 per
cent). Growth in services was driven by increased
services to business and households, as well as realestate services. Trade benefited from the general
economic upturn and from improvement in the formal
trading sub-sector due to higher demand for industrial
vehicles, pharmaceuticals and oil products. Transport
and telecommunications did very well in 2005 due to
the healthy state of the economy. Passenger and goods
transport by sea and rail was up, but air transport
continued to suffer from the problems of airlines,
mainly Air Gabon. The impending inauguration of
13 recently-created national parks is expected to boost
tourism, especially eco-tourism.
Growth in 2005 was driven more by final domestic
demand, which rose 4.1 per cent in volume and
contributed 3.8 points to overall growth, largely due
1998
2005
(percentage of GDP)
2006(e)
Percentage of GDP
(current prices)
2007(p)
2008(p)
Public
Private
36.5
11.2
25.2
23.2
5.8
17.4
10.2
12.5
9.5
5.0
2.0
6.0
3.8
2.0
4.4
Consumption
Public
Private
64.1
20.4
43.7
42.9
11.5
31.4
-1.5
-1.4
-1.5
2.1
7.1
0.5
1.2
2.6
0.7
-0.6
46.1
-46.7
33.9
66.2
-32.3
2.0
3.2
-2.7
1.2
1.3
0.8
External sector
Exports
Imports
Source: Ministry of Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/107416262314
© AfDB/OECD 2007
Gabon
to a 5.5 per cent increase in final spending by households
and government, while total investment stagnated.
Household consumption rose because of higher wages,
and public consumption because of the government’s
efforts to stimulate the economy. The very small rise
in total investment was due to slack public investment
(down 1.8 per cent), while gross fixed capital formation
in the non-oil sector grew under the stimulus of rising
demand for consumer goods. Exports of non-factor
goods and services were down 9.3 per cent in volume,
while goods exports, especially manganese and wood,
did not make up for declining oil exports. Imports,
spurred by increased spending on the presidential
election, grew 4.7 per cent in volume terms.
Fiscal Policy
Reforming budget policy will be the cornerstone
of Gabon’s future economic policy, and tough decisions
will have to be taken. To ensure the viability of its
policy under conditions of falling oil production and
reserves, the country is in a position to make deliberate,
gradual adjustments to its public finances, thanks to
the substantial resources it still enjoys as a result of
higher oil revenue. If this is not done and oil prices drop,
the country may be forced to undertake these imperative
reforms in more difficult conditions, especially for the
less well-off, and to the detriment of poverty-reduction
efforts in general.
Infrastructure investment and attending to the
social needs of the population place constant pressure
on public resources. Although the improvement in the
balance of payments and the national budget makes it
possible to meet these needs, the government must
keep a sharp eye on public spending and the economy’s
absorption capacity and must redirect budget policy
towards the non-oil sector. This sector is still a better
indicator of the country’s ability to meet growing needs,
despite its falling share of total GDP (from 56.3 per
cent in 2004 to 49.3 per cent in 2005). After the
budgetary indiscipline in 2005, greater rigour is required
in 2006, especially as the December parliamentary
© AfDB/OECD 2007
elections may also eat into government funds. The
authorities predict a non-oil primary deficit of 7.8 per
cent of non-oil GDP (down from 12.1 per cent in
2005) and aim to reduce it to 6.4 per cent in 2008 and
5 per cent thereafter. The 2006 scenario includes
continuing subsidy of Air Gabon until it is reorganised
into Air Gabon International, which will have to survive
alone in the open market, and also includes promises
of public investment in major infrastructure.
The 2006 budget was drawn up without taking
account of additional spending caused by completion
of the PRGSP, so a supplementary budget (Loi de
finances complémentaire) based on a new budgetary
framework including this extra spending was approved
by parliament in June 2006. After receiving a recentlycompleted International Monetary Fund (IMF) report
on the observance of standards and codes in public
finances for 2006, the government is determined to draft
a new action plan to improve management of public
funds and make some capital expenditures more
effective. Implicit subsidies for oil products will be
reduced and more money redirected to the poor.
Taxation laws were thoroughly updated in 2006, and
a department to deal with the biggest taxpayers – i.e.
major public and private firms – was set up during the
year.
The final 2005 budget was increased 14.3 per cent
over the first draft to include the increase in oil revenue
due to rising world prices of crude. The adjusted budget
(Loi de finances rectificative) set total resources and
appropriations at 1 354.1 billion CFA francs. Locallygenerated revenue (oil and non-oil) increased 16.1 per
cent, while loans, including those for investment, were
reduced 42.9 per cent, from 35 billion CFA francs to
20 billion. Non-oil revenue was boosted 2.9 per cent,
from 540.3 billion CFA francs to 555.8 billion, mainly
due to better tax collection (VAT receipts rose
8 billion CFA francs) and higher direct taxes. Customs
receipts fell 10.7 billion CFA francs.
On the expenditure side of the adjusted budget,
the item that saw the biggest increase was investment
spending (28 per cent over the initial budget), followed
by debt service (+14.8 per cent). With respect to 2004,
275
Gabon
recurrent expenditure rose 24 per cent due to transfers
and subsidies, while capital spending fell more than
3 per cent. Public debt was reduced by 6.3 per cent
in 2005 but was still a fairly high 35.8 per cent of
nominal GDP, though well below the 70 per cent
CEMAC limit.
This budget policy gave the country a primary
surplus up 27.5 per cent on 2004, mainly because of
its increased oil revenue. The commitment-basis overall
balance rose 50.6 per cent to 431.5 billion CFA francs,
while the cash-basis overall balance was 341.8 billion
due to repayment of 89.7 billion CFA francs of treasury
debts and interest arrears. Gabon’s budget policy, which
still needs to be tighter, is worrying in the non-oil
sector, which had a high 2005 deficit of 12.1 per cent
of non-oil GDP, much larger than the expected 8.5 per
cent. The government aims to bring the non-oil deficit
down to 7.8 per cent in 2006, but it will still be higher
than the 5 per cent considered viable by the IMF.
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Oil revenue
34.5
15.0
18.8
29.8
12.3
16.2
29.4
12.0
15.8
31.4
10.3
19.8
30.8
9.6
19.8
29.9
10.2
18.4
29.6
10.1
18.1
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
48.4
34.7
27.1
7.7
7.6
13.7
22.4
18.7
14.7
6.5
4.0
3.7
21.8
17.6
13.6
6.0
4.0
4.2
21.9
18.5
15.7
5.0
2.8
3.4
20.9
16.8
14.7
4.6
2.1
4.0
23.2
18.8
16.4
5.1
2.4
4.5
23.2
18.7
16.6
5.1
2.0
4.5
-6.4
-14.0
11.4
7.4
11.5
7.6
12.3
9.4
12.0
9.9
9.1
6.7
8.4
6.4
276
Primary balance
Overall balance
Monetary Policy
Gabon’s monetary policy is in the hands of the
Bank of Central African States (BEAC), which ensures
price stability and the CFA franc exchange rate in
CEMAC. Gabon, like the other member states of
CEMAC, is required to comply with convergence
criteria and multilateral monitoring, just as West African
Economic and Monetary Union (WAEMU) members
do, though the WAEMU process is more advanced.
Inflation remained close to zero in 2005 and was
expected to be 1.9 per cent in 2006 (below CEMAC’s
3 per cent limit). The money supply (M2) grew 26.7 per
cent in 2005, while non-monetary assets increased
only 8.6 per cent.
The money supply was backed by net external assets
that almost doubled, from 286 billion CFA francs in
2004 to more than 536 billion in 2005, and government
http://dx.doi.org/10.1787/651707343724
debt to banks eased due to greater revenue, mainly
from oil. Credits to the economy grew more slowly (only
9.9 per cent in 2005 – 464.7 billion CFA francs, against
422.7 billion in 2004), and 60 per cent were still shortterm loans, reflecting the fact that demand for capital
is mainly driven by the cash needs of firms. This trend,
if confirmed, would be worrying since the economy
needs to diversify into non-oil sectors.
External Position
The overall balance of payments almost doubled
in 2005, to 764.5 billion CFA francs (from 386.8 billion
in 2004), largely due to a 43 per cent increase in the
trade surplus. The robust growth of goods and services
exports (up 32.3 per cent on 2004) was based on a
40.9 per cent rise in the price of Gabonese crude and
healthy exports of manganese and wood. In contrast,
the services balance deteriorated and showed a 2005
© AfDB/OECD 2007
Gabon
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
16.6
42.5
25.9
-17.2
-11.5
-1.2
35.3
52.5
17.2
-10.5
-9.7
-3.0
39.8
56.7
16.9
-13.6
-13.3
-2.7
47.2
63.1
15.8
-14.3
-14.1
-2.2
51.1
66.2
15.1
-12.4
-12.3
-1.9
44.7
60.9
16.2
-13.6
-13.5
-2.1
43.6
59.7
16.1
-13.6
-12.3
-1.0
-13.3
12.0
10.2
16.7
24.5
15.5
16.7
http://dx.doi.org/10.1787/726646716605
■ Debt/GDP
——— Service/X
70
60
50
277
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/777580601364
deficit of 26.7 per cent caused by weak performance
in freight and insurance, travel and tourism, and
transport. The capital balance fell substantially, due to
a 27 per cent increase in the factor income deficit and
a big drop in net foreign direct investment, which
shrank from 115.7 billion CFA francs in 2004 to minus
145.8 billion in 2005.
Analysis of the viability of Gabon’s debt suggests
that if world oil prices stay high and fiscal discipline is
maintained, the external debt can be brought down from
44 per cent of GDP in 2004 to 33.5 per cent in 2006,
© AfDB/OECD 2007
reducing the country’s great vulnerability to external
shocks and accumulating budget reserves that would
provide future protection through more remunerative
long-term financial assets. Gabon’s national oil fund
earns average nominal interest of barely 1.6 per cent,
according to the IMF, compared with Norway’s which
has a real average yield of 4.3 per cent excluding
management costs. As part of efforts to clear much of
its domestic debt, the government has taken fewer
loans from the BEAC, which carry a high rate of interest
(5.75 per cent). Talks with CEMAC are going on to
replace these loans with negotiable treasury bonds that
Gabon
will raise money more cheaply and boost the country’s
financial market. If the government reduced its external
debt (which is more than 90 per cent of the total debt)
by early repayments and the domestic debt by
eliminating treasury bonds on which it has to pay
7.5 per cent interest, it could substantially cut the cost
of debt service (which stood at nearly 44 per cent of
the national budget in 2005), better withstand shocks
and increase its budget capacity to make scheduled
PRGSP investments.
Structural Issues
Recent Developments
278
The presidential election not only led to financial
excesses in 2005 that damaged public finances and
budgetary discipline but also was one of the factors
holding back the introduction of the government’s
promised structural reforms. Owing to pressure from
development partners and government support for
these reforms, however, a serious plan has been drawn
up to implement them as part of the PRGSP, which
started to come into effect in 2006.
Gabon’s regulatory and judicial framework hampers
business activity at a time when falling oil production
requires the country to diversify the economy and
boost the private sector so that it can take over
investment activity from the government. The level of
state investment in Gabon is among the highest in
Africa but is still too focused on the oil sector. To
expand the non-oil sector, total factor productivity has
to be increased through serious efforts to reform capital
markets, business laws and governance to improve the
business climate and restore the confidence of local
and foreign private investors. The government set up
a private investment promotion agency (Agence de
promotion des investissements privés – APIP) in 2004
and joined the Multilateral Investment Guarantee
Agency (MIGA) and the International Centre for
Settlement of Investment Disputes (ICSID), but
thorough reform is needed of the still cumbersome,
costly and drawn-out procedures for setting up
businesses. The World Bank report Doing Business
2006 said the situation did not improve at all in 2006
and even worsened in some respects. Gabon dropped
nine places in the 2006 annual ranking for tax-paying
procedure (to 94th from 85th), eight for foreign trade
procedure (to 112th) and eight for rules about closing
down firms (to 130th). The government set up a public
procurement office in 2005 to improve management
of public funds by examining all contracts exceeding
30 billion CFA francs.
Infrastructure development in 2005 included road
improvement works in Libreville and Owendo, whose
first phase (3.5 billion CFA francs) involved the
expressway and some access roads to the SNI housing
development of Owendo. The biggest infrastructure
investments in 2005 related to preparations for the
franchising of railways and engineering structures. The
mining firm Comilog was awarded a 30-year contract
in 2006 to run the Transgabon Railway and spend
50 billion CFA francs modernising the 650-kilometre
line from the Libreville suburb of Owendo through the
equatorial forest to Franceville. Another major project,
completed in 2005 in northern Gabon, was the 180-metre
tri-border bridge across the river Ntem at Eboro linking
Gabon and Cameroon, with an 18-kilometre slip-road
to Equatorial Guinea. Chinese franchise-holders plan to
build a hydroelectric dam to serve the Belinga iron mines
and a 560-kilometre railway to carry ore to the future
deepwater port at Santa Clara, near Libreville.
Gabon’s private sector enjoys a degree of freedom
rarely found in Africa but confines itself to services and
small industry activity. Under the 01-96 privatisation
law, the government has progressively handed over state
firms to local and foreign private operators and focused
its efforts on regulation and supplying social services to
reduce poverty. The legality and transparency of
privatisation operations are ensured under the
international bidding system. About 30 state firms have
already been divested, notably Gabon Telecom, with
51 per cent of its capital privatised. The state post office,
which has swallowed up substantial government funding
since 2003, is being reorganised. The liquidation of Air
Gabon and creation of a new company, Air Gabon
International, with Royal Air Maroc as the majority
shareholder, is another major government project, but
© AfDB/OECD 2007
Gabon
negotiations seem to have bogged down. The
reorganisation of Société nationale des Bois du Gabon
and the ending of its monopoly have not affected its
viability, as the company showed record profits in 2005.
The state monopoly may turn into a private one,
however, with prices and services to the public suffering
if the government does not regulate it properly.
Since it was reviewed in 2002, the financial sector
seems to have become more stable, though it still has
clear structural weaknesses. It is quite small compared
with those of other countries in the region, and its
banks are reluctant to provide more loans despite the
great excess liquidity resulting from higher world oil
prices and repayment of the government’s domestic
debt. Loans to the private sector fell from a high of
13.2 per cent of GDP in 2002 to less than 9 per cent
in 2005 (from 22.6 to 19 per cent of non-oil GDP),
probably because of fixed interest rate bands and banks’
inability to monitor loan portfolios effectively. The
banks say there are few viable projects around and that
their loans are often non-performing. They deal with
only a few local or mixed-capital firms and are more
used to doing business with foreign firms, notably oil
companies, which often use external funding. They
also tend to play safe, setting minimum deposit and
personal income levels for customers. Lack of financial
instruments other than loans means that small and
medium-sized firms often have no access to banks.
Microfinance is rare, but the government plans to allow
the business promotion fund Fodex (Fonds d’expansion
et de développement de la petite et moyenne entreprise)
to extend its activities to include microfinance. These
shortcomings slow the growth of the private sector,
which the country needs to diversify the economy.
Enlarging the financial sector requires structural reform
to reduce or abolish the minimum-deposit rule and
eliminate obstacles that prevent banks from making
reliable credit risk assessments of local customers. Other
needed steps include strengthening the legal framework,
registering mortgaged or secured assets offered as
guarantees for loans, increasing the legal rights of
creditors and improving business accountancy practices.
Gabon has no tradition of agriculture and imports
most basic food items it needs. Tropical fruit growing
© AfDB/OECD 2007
is still in the hands of small farmers, while coffee and
cocoa are neglected compared with the sector in
neighbouring countries having similar resources. The
agriculture project PADAP (Projet d’appui au
développement de l’agriculture périurbaine), set up in
October 2004 by the national development institute
IGAD (Institut gabonais d’appui au développement)
to encourage horticulture, food-crop production and
pig-rearing by small farmers and agriculture-related
businesses on the outskirts of urban areas, is still a long
way from performing adequately. The government’s
diversification programme has included handing over
the rubber company Hevegab and the palm-oil firm
Agrogabon to the Belgian tropical agriculture company
SIAT, which hopes eventually to meet Gabon’s needs
in edible oils and soap, which are currently imported.
The government also plans to build the sector’s capacity
by reopening the rural development school (Ecole
nationale de développement rural) and redefining the
job of the rural development office (Office national de
développement rural).
279
The new forestry law obliges timber firms to present
a plan of operation including an environmental survey,
a felling rotation schedule and provision for
reforestation. Creation of 13 national parks covering
about 11 per cent of the country will enable better
supervision of the country’s plant and animal life to
preserve its biodiversity and resources.
Gabon is one of the 10 best-endowed countries in
the world where water is concerned, with 90 per cent
of the country supplied by water courses (rivers, lakes,
lagoons and streams) and 72 per cent of its land area
irrigated by the Ogooué river and its tributaries. The
2005 national poverty survey (Enquête gabonaise pour
l’évaluation et le suivi de la pauvreté – EGEP) showed
that although access to drinking water had significantly
improved in the previous five years, the country had
far to go as regards sanitation.
The country’s water resources are managed and
developed by the Ministry of Mines, Energy, Oil and
Water Resources and the Gabonese energy and water
Gabon
company SEEG (a subsidiary of the French group
Véolia Water). SEEG obtained a 20-year nationwide
franchise in 1997 to supply drinking water and
electricity, but serves only major urban areas. The
government continues to supply remote areas, either
with surface water that needs treatment before delivery,
or water from wells that requires simpler treatment.
280
Water is sold at the same price wherever the customer
lives, which is theoretically fair, except that in reality many
households (equal to more than a quarter of the 46 per
cent of directly-connected households) get their water
from a connected neighbour, who re-sells it to them at
a profit. Although a subsidised official supply, including
credits, costs only 81 524 CFA francs a month, which
would seem affordable for most, except the poorest
households (the average monthly income of the bottom
10 per cent is 172 000 CFA francs), this does not reflect
the true situation. The gap between the “fair” official
price and the price actually paid favours wealthier and
often better-supplied households, so the official price
is not an effective “subsidy” because the poor do not fully
benefit from it.
More than 40 per cent of households have running
water, and more than a quarter get water from a
neighbour’s tap. Surface water, which may not be
clean, is only used by 17 per cent of households,
practically none of them in Libreville, Port Gentil and
most other urban areas. It is the main source of supply
in the countryside (for about 60 per cent of households)
but with great disparities by income category. In the
richest quintile of the population, more than half of
households have running water and fewer than one in
10 uses surface water, whereas in the poorest quintile,
only one in six has running water and one in three uses
surface water.
The use of tap water is a good indicator of access
to drinking water, and it shows that rural areas still lag
far behind. Water targets in the Millennium
Development Goals (MDGs) define drinking water
as water found less than 30 minutes from a household
and coming from an individual tap, or from another
tap (either public or belonging to a neighbour or seller)
or from a well. According to this definition, more
than eight out of 10 households in Gabon have
drinking water – ranging from two out of three in the
poorest quintile to nine out of 10 in the richest. Access
varies by geographical region, with the north and
south (the poorest parts of the country) having the least
access. The countryside, where fewer than two
households out of five have access, is much worse off
than urban areas.
Access to drinking water has improved a little over
the past five years. Comparison with Gabon’s last
population and health survey (Enquête démographique
et de santé du Gabon – EDSG) in 2000 showed that
surface water was used for drinking by only 17 per
cent of the population in 2005, down from 23 per
cent in 2000. This overall figure breaks down as 5 per
cent of urban households in 2005 (7 per cent in 2000)
and 59 per cent of rural households (down from 66 per
cent). Although the two surveys did not define access
to drinking water in the same way, this fall in the use
of surface water (the main source of unsafe water) can
improve such access. These good results were obtained
because 80 per cent of the population lives in urban
areas, which are easier to serve, and because some rural
areas have village water systems.
Sanitation offers a much less hopeful picture.
Fewer than two out of five households use hygienic
facilities (flush toilets and improved latrines), and
this is not dependent on social class. Even in the
richest quintile, 47 per cent of households use nonhygienic toilets (simple latrines, septic tanks), and
about half do so in Libreville. Non-hygienic facilities
can cause infectious diseases, especially if they are not
deep enough or far enough away from the house. The
situation is especially worrying for those in the poorest
two quintiles nationally, in rural areas and in the
north and south of the country, where non-hygienic
toilets are virtually the norm.
Under a programme launched as part of the 7th
European Development Fund (EDF) covering
communities of more than 150 people in the north and
west, 165 successful wells have been drilled in five
provinces since 2000, but requirements in rural areas
are still great. Village water projects could reach more
© AfDB/OECD 2007
Gabon
people if older physical structures were better
maintained, making it unnecessary to devote a large
share of available funds to repairing them. Experts say
that to avoid repairs, a minimum maintenance budget
should be set and local people must be involved. In the
long term, the government is planning national drinking
water distribution using solar-powered pumps in the
countryside for all villages of between 100 and 250
people, especially in river and lake areas. A water
database (surface and groundwater) is also being
compiled.
and was marked by accusations and protests over the
electoral roll, especially in rural areas. At the end of the
first week, the 13-party opposition coalition (Partis
politiques de l’opposition – PPO) demanded in vain
that the election be postponed by a month because
the legal deadline for posting the electoral lists had not
been met. The PPO claimed the interior ministry had
given the lists to the independent permanent elections
board (Commission électorale autonome et permanente
– Cénap) only 20 days before the vote instead of the
legally-required 45 days.
With support from the Global Water Partnership
Central Africa, a number of projects and programmes
have been launched in countries of the sub-region,
including Gabon, which share the Congo river basin
and its tributaries. The first joint project is for reports
on each country’s water development situation, to be
followed by national action plans for water. A feasibility
study on channelling water from the Congo river basin
to Lake Chad is also planned as an integrative project
under the New Partnership for Africa’s Development
(NEPAD).
The 2006 PRGSP identified governance as one of
four keys to the country’s growth and poverty-reduction
strategy. To improve management of the proceeds of
its mining (mainly oil) activity, Gabon has joined the
EITI, set up a national commission to fight illegal
enrichment (Commission nationale de lutte contre
l’enrichissement illicite) and introduced a new law on
public procurement to satisfy requirements of
transparency, good governance and the use of resources
for social development and reducing poverty. However,
public investment is still of very poor quality, ineffective
and far from the priorities set out in the PRGSP. The
public investment programme (Programme
d’investissements publics – PIP) will have to be
thoroughly reviewed, since the present system of public
resource allocation prevents the country from achieving
its goals of poverty reduction and growth promotion.
Gabon’s aim is for 70 per cent of the population
to have drinking water by 2015. The government wants
to build small water systems in larger villages if it can
get the funding. In villages that already have water and
electricity, it is planned to introduce improved water
systems by linking village water systems together and
having them run by the local communities. Rural water
supply will be treated according to World Health
Organisation (WHO) standards, and proceeds from its
sale will go to maintain the hydraulic infrastructure and
pay maintenance workers.
Parliamentary elections were held on 17 December
2006, with all registered political parties allowed to
take part. The open and lively two-week campaign
featured sharp clashes between supporters of the majority
Gabonese Democratic Party (Parti démocratique du
Gabon – PDG) and a multitude of smaller parties,
© AfDB/OECD 2007
Despite a high literacy rate (85.4 per cent in 2005)
and net primary school enrolment (92.4 per cent), the
country’s education system is weak, with high repetition
rates at all ages and a high attrition rate. Over the
2000-03 period, the repetition rate was 37 per cent at
the primary level and 30 per cent in secondary school,
and on average only 36 per cent went on to higher
education. This is mostly due to overcrowded classes
in urban areas, especially Libreville, the poor quality
of teaching staff and of the instruction provided, and
the shortage of teachers in rural areas.
The health situation is one of the country’s notable
contradictions. Gabon is classified as poor even though
its per capita GDP is that of a middle-income country.
Life expectancy is 2005 was only 55.2 years for women
281
Gabon
and 53.7 for men, according to the UNDP’s 2005
World Human Development Report (HDR). The
mortality rate for children under five years of age was
87 per thousand inhabitants, according the 2000
EDSG, and 95 according to UN estimates for 200005, while infant mortality (below the age of one) was
58 per thousand for the same period – troubling figures
for a country with such high income. Maternal mortality
remains high at 519 per 100 000 live births. Gabon
had only 29 doctors for every 100 000 inhabitants in
2004, and less than 6 per cent of its health budget
went to primary healthcare.
282
High rates of infant and maternal mortality are
mainly due to diarrhoea, malnutrition, anaemia and
especially malaria. Access to healthcare varies greatly
and is skewed towards wealthier families, who account
for a quarter of all visits to health centres, compared
with only 14 per cent for the poor. The disparity is partly
due to the cost of treatment and the shortage of
medicine. HIV/AIDS affected 8.2 per cent of the
population in 2004, according to sentinel sites, and
recent UNAIDS data showed that 4.2 per cent of
people between 14 and 49 were infected. To address
these glaring deficiencies, the government is finalising
a national health development plan (Plan national de
développement sanitaire – PNDS) for 2006-10 to
improve the health system, develop human resources,
improve the financing of the system, adapt the supply
and quality of care, and tackle the main health problems.
The PNDS will be backed up by national anti-malaria
and anti-TB programmes. The national strategic antiHIV/AIDS programme covered the period from 2000
to 2005.
Poverty in Gabon has been described by the EGEP,
using the unified development indicators questionnaire
(QUID) drafted in 2005 with the help of the World
Bank. The EGEP showed that the poverty line –
429 336 CFA francs ($818) a year – stood at 14 per
cent of average income and that 33 per cent of the
population was poor. The survey revealed that poverty
was mainly urban, with routinely vertical inequalities.
Urban areas (80 per cent of the population) had a
poverty rate of only 30 per cent but were home to
75 per cent of the poor. In the countryside (20 per cent
of the population), the poverty rate was over 45 per cent,
representing 25 per cent of the poor.
Social inequality is very clear, with about 90 per cent
of national income held by the wealthiest households
and the richest quintile alone accounting for half of
national income. Even the government’s social spending
benefits the rich, with 33.5 per cent of these transfers
going to the richest quintile and only 9 per cent to the
poorest. Such inequality cancels out much of the effect
of economic growth on poverty reduction and threatens
the MDG poverty targets, according to the 2005 HDR.
Using income, health and housing criteria, more than
81 per cent of Gabonese feel they are poor. Gabon was
classed high among the middle-income countries in
2004, with a per capita GDP of $5 226 (80th in the
world), but the UNDP Human Development Index
puts it only in 123rd place, in the medium human
development category. This situation is often explained
by an excessive debt-service burden which prevents
more spending on social services and by the
ineffectiveness of public investment. Gabon’s desire to
combat poverty seriously was shown by the drafting of
its first poverty reduction strategy paper (PRSP) in
2003, followed by a PRGSP in 2006, though the
country is subject neither to the conditionalities of the
Heavily Indebted Poor Countries (HIPC) Initiative
nor to those of the poverty reduction and growth facility
(PRGF).
Unemployment was estimated in 2005 at about
25 per cent of the working population, despite a slight
(2.1 per cent) increase in overall employment due
mainly to a 4.2 per cent rise in public sector
employment, which already accounted for 51 per cent
of the workforce. The number of civil servants alone
grew 5.2 per cent year-on-year. Private sector
employment was sluggish, rising only 0.1 per cent on
2004; most of this increase came in the oil sector
(+0.9 per cent), while jobs in the agro-food industry
shrank by 5.1 per cent. The modern sector wage bill
(all employers) increased 7 per cent in 2005 because
of a 13 per cent rise in wages in the “other industries”
and “banks and insurance” sub-sectors, as against an
increase of less than 2 per cent in parapublic firms
© AfDB/OECD 2007
Ghana
Accra
key figures
•
•
•
•
•
239
22 556
57.8
42.1
Ghana
T
HE GHANAIAN ECONOMY is benefiting from one of
the most successful reform programmes in Africa, with
increased growth reflecting strong economic
fundamentals underpinned by anti-inflationary
monetary policy and fiscal consolidation. It is now
apparent that the private sector is responding positively.
Banks are restructuring their portfolios in order to
increase lending to the private sector. With inflation
expectations subdued, business-planning horizons are
broadening, and rising capital inflows suggest increasing
investor confidence in Ghana’s economic prospects.
The economy seems to be on the cusp of becoming an
emerging market.
The improving policy environment has contributed
to a recent upsurge in economic growth, with real
GDP growth reaching an estimated 6.2 per cent in
2006 from the average annual rate of 5.5 per cent
during 2000-05. Growth is
Reforms and political
projected to remain at around
stability are leading to an
6.1 per cent in 2007 and 2008.
emerging market economy
Recent strong performance has
while export diversification
enabled Ghana to accelerate
and public-service delivery
implementation of its poverty
will speed up growth
reduction strategy. Economic
and development
growth is becoming more
broad-based, although the agricultural sector still
dominates economic activity. The track record in
strengthening democracy and a stable political
environment bodes well for continuing economic
expansion. However, the political situation could be
improved further by tackling growing perceptions of
285
■ Ghana - GDP Per Capita (PPP in US $)
■ West Africa - GDP Per Capita (PPP in US $)
——— Ghana - Real GDP Growth (%)
7
3500
6
3000
5
2500
4
2000
3
1500
2
1000
1
500
0
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
Source: Authors’ estimates and predictions based on IMF and Ghana Statistical Office data.
http://dx.doi.org/10.1787/253016408551
© AfDB/OECD 2007
Ghana
corruption in public life. Also, going forward, Ghana
needs to diversify its export base and follow through
on its structural transformation, in order to enhance
private-sector participation in the economy. Economic
growth also needs to accelerate in order to generate
adequate employment growth, further reduce poverty,
and attain middle-income status over the next decade.
Ghana must furthermore upgrade public services,
especially in water and sanitation, to improve the health
of the population.
286
Ghana is implementing the Growth and Poverty
Reduction Strategy II (GPRS) for the medium-term
2006-2009. The country’s growth performance has
continued to be robust, with real GDP growth reaching
6.2 per cent in 2006, up from 5.8 per cent in 2005.
Performance in 2006 represented the first time in
several years that economic growth had reached the
six per cent mark and constituted the sixth consecutive
year that the economy has experienced strong growth.
II, the government expanded the PSI initiatives in
2006 through measures to enhance access to credit
and agricultural inputs, and by increasing the availability
of extension services.
This is highly important because the agricultural
sector remains constrained by structural problems. For
example, it was reported in 2006 that only 5 per cent
of irrigable land in Ghana is actually irrigated, leaving
production largely dependent on the vagaries of the
weather. Extension services are so limited that each
technical officer is responsible for helping nearly 2 000
farmers. Moreover, 40 per cent of all agricultural output
is wasted due to inadequate storage facilities, marketing
chains and infrastructure.
Until recently growth was driven largely by the
agricultural sector. In 2006 it was led by the industrial
and services sectors, although agriculture continued to
perform strongly. The 5.7 per cent growth of agricultural
output was below the 6.6 per cent recorded in the
preceding year. The slowdown led to a slight decline in
agriculture’s share in GDP to 35.8 per cent in 2006
from 36 per cent in 2005. The boom in agriculture in
recent years is mainly due to cocoa production, which
has responded very favorably to incentives put in place
by the government. (See Box 1). In 2006 cocoa output
rose by 8.7 per cent, following an average yearly expansion
of 19.8 per cent over 2003-2005.
Industrial activity accelerated in 2006 with a growth
rate of 7.3 per cent as compared with 5.5 per cent in
2005. Industrial activity in 2006 was led by a 9 per cent
expansion in gold production. Industry growth would
have been even stronger in 2006, had there not been
reduced electricity supplies resulting in part from low
water levels at the Akosombo Dam, the largest source
of electricity in Ghana, as well as a failure to invest in
additional generating capacity, and losses due to illegal
connections. The Volta River Authority (VRA), the
main overseer for electricity, plans to install an
emergency thermal electricity generator at Tema, to
be upgraded by a larger thermal unit in the next few
years. As a share of GDP, the industrial sector improved
from 24.7 per cent in 2005 to 25.4 per cent in 2006.
This share, however, is still some way off the
government’s target figure of 37 per cent by 2010. In
order to achieve this, the industrial sector would need
to expand by at least 12 per cent per annum, which is
significantly above the rate currently being achieved.
Other sub-sectors of agriculture, notably staple
crops like cassava as well as palm oil, continued to
benefit from the Presidential Special Initiatives (PSI)
on agriculture. These initiatives aim to modernise
Ghanaian agriculture through the dissemination of
information about better farming practices, the provision
of irrigation facilities, and the distribution of improved
varieties of seeds and fertilizers. As part of the GPRS
In particular, difficulties in the manufacturing
sector have been hampering efforts to boost industrial
growth. In 2006 manufacturing grew by 4.2 per cent
compared to 5 per cent in 2005. The reasons put
forward for the closure of British American Tobacco
in December 2006 underscored the main problems
facing manufacturing activity in the country. High
taxes and the influx of cheap imports have constantly
© AfDB/OECD 2007
Ghana
The Role of the State has been Crucial in Revamping Cocoa Production in Ghana
Since 2000 the government of Ghana has made a concerted effort to reform Ghana’s cocoa sector, which
in the 1960s and 1970s led the world in production, but now ranks third. Various government measures –
increased producer prices, bonus payments, effective disease and pest control programmes, improved
agronomic practices and the promotion of new and innovative methods of cocoa farming – have succeeded
dramatically, resulting in record output.
In the 2005/06 crop season, cocoa output reached approximately a record 740 000 tonnes. This
represented an increase of 23 per cent over the 600 000 tonnes harvested in the preceding season and
bringing the average for the past three seasons to 692 300 metric tonnes, more than twice the 340 000 tonnes
produced in the 2001/02 season.
The increase in producer prices contributed significantly to the rise in output. In the 2005/06 season,
the producer price paid per tonne of cocoa was ¢9 million or ¢562 500 per bag of 64 kilogrammes. The
producer price represented 72.86 per cent of the net f.o.b. price, 2.86 per cent more than previously agreed.
In fact producer prices have increased nearly threefold since 2001 when farmers were paid only ¢3.475 million
per tonne. The government has also guaranteed the farmers’ minimum net share at 70 per cent of the net
f.o.b. price in any particular year. For the 2006/07 season a new producer price of ¢9.15 million per tonne,
representing 72.19 per cent of the net f.o.b. price, was announced in October 2006. The government has
also used bonus payments to farmers as an additional incentive. In the 2005/06 season a bonus of ¢17 140
per bag was paid. In addition, the government has instituted a Farmers’ Scholarship Trust Fund to finance
scholarship awards for cocoa farmers in secondary educational institutions. A total amount of ¢15 billion
was paid into the Cocoa Farmers Scholarship Trust Fund in the 2005/06 Season to finance 2 500 scholarship
awards for cocoa farmers. Moreover, the government has provided seed funds for the establishment of a
housing scheme for farmers and has already started the construction of some houses under the scheme through
the Department of Rural Housing. Furthermore, the government has launched a Vehicle Loan Scheme for
Cocoa Farmers, aimed at helping the farmers acquire their own means of transport. In 2006, 33 cocoa farmers
benefited from the scheme.
Another major measure instituted by government to boost cocoa production has been disease and pest
control. Since the programme started in 2001, more than 740 000 cocoa farms have been sprayed against
black pod disease. Nearly 520 000 farmers have benefited from the programme. The programme has also
offered employment to over 50 000 youths from local communities. The government intends to expand
the programme in 2007 to reach 775 000 farms, covering 650 000 farmers, with the resulting creation of
more than 51 000 jobs. Also, a number of feeder roads have been rehabilitated in the cocoa-growing regions
of Ashanti, Brong Ahafo, Central and Western Regions.
been cited by manufacturers as militating against the
sector. Also, private-sector organisations and industry
leaders have complained about the neglect of the sector
and the inability of government to implement bold
measures to salvage it from stagnation. The
government’s recent manufacturing growth strategy
© AfDB/OECD 2007
targeted textiles and ICT industries. This strategy,
however, appears to have failed, as the local industry,
relying on antiquated machinery, facing constant
power outages and producing low volumes, has
continued to decline in the face of cheap imports of
textiles and second hand clothing.
287
Ghana
(percentage)
Government services
Agriculture and livestock
10.5%
Other services
23.4%
8.4%
7.8%
8.8%
4.9%
8.7%
10%
3%
Construction
Electricity and water
Cocoa production and marketing
Other agriculture
5%
9.5%
Mining and quarrying
Manufacturing
Source: Authors’ estimates based on Ghana Statistical Office data.
http://dx.doi.org/10.1787/178726760846
288
The services sector grew by an estimated 6.5 per
cent in 2006, slightly higher than the 6.2 per cent
achieved in the preceding year. The expansion in 2006
was driven by increased government expenditure in
the provision of services and increased activity in finance
and insurance services. Also, growth in mobile
telecommunication was strong in 2006, as Ghana
Telecom, Millicom and Scancom – providers of mobile
phone services – all expanded their services. The
combined activities of the telecom providers have
contributed to an increase in tele-density (telephones
per 100 persons) from approximately 5.2 per cent in
2003 to 6.7 per cent in 2006, with the number of
telephone lines more than doubling from approximately
650 000 in 2003 to more than 1.7 million in 2006.
The tourism sector continued to grow with visitor
arrivals and spending increasing by an estimated 47 per
cent and 69 per cent respectively between 2000 and
2006. Tourism receipts are expected to reach $1.5 billion
by 2007 – the third largest foreign exchange earner after
merchandise exports and remittances. In order to
achieve this, the government is pursuing a strategy of
establishing Ghana as the “homeland” for Africans in
the diaspora. This is intended to change the current
situation, where the majority of tourists to the country
are Ghanaian expatriates.
Investment performance continues to improve
significantly. In 2006, there was a sharp increase in
both public and private capital formation. Reductions
in the stock of external debt and domestic public debt
over the last few years have improved the savingsinvestment balance and growth dynamics of the country.
In 2006, debt-reduction enabled the government to
commit more resources to capital expenditure. The
volume of domestic private and public capital formation
1998
(percentage of GDP)
2005
Percentage of GDP
(current prices)
2006(e)
2007(p)
2008(p)
Public
Private
23.1
11.2
12.0
29.0
12.0
17.0
13.4
14.5
12.6
7.7
9.5
6.4
8.7
6.9
10.0
Consumption
Public
Private
89.7
16.1
73.6
96.6
15.3
81.3
7.7
2.2
8.5
4.6
9.2
4.0
6.8
4.9
7.0
-12.9
33.9
-46.7
-25.6
36.2
-61.8
5.9
15.4
4.4
4.5
4.6
9.5
External sector
Exports
Imports
Source: Authors’ estimates and predictions based on Ghana Statistical Office data.
http://dx.doi.org/10.1787/062304780517
© AfDB/OECD 2007
Ghana
is projected to increase again in 2007 and 2008 as
confidence in the economy is maintained. On the other
hand, export growth is expected to slow down, reflecting
the continuing lack of progress in significantly
diversifying exports.
Ghana maintains good relations with the IMF. The
Poverty Reduction and Growth Facility (PRGF) loan
expired in October, and will not be renewed. Instead,
the government may establish a Policy Support
Instrument programme (PSI) with the Fund, under
which the IMF agrees to advise on and monitor policies
but will not provide direct financial support.
Fiscal Policy
With macroeconomic stability now well established,
the challenge is to shift the thrust of macroeconomic
policy towards accelerated growth through targeted
public investments and encouragement of privatesector development.
In 2006 the government sought to ‘crowd-in’ private
investment through a net domestic debt repayment
equivalent to approximately 1 per cent of GDP, while
also enhancing resources for development. The policies
were largely successful insofar as the domestic debt/GDP
ratio fell from around 21 per cent in 2004 to an
estimated 17.8 per cent in 2006. Moreover, the ratio
of domestic debt service to total revenue fell from
45.1 per cent in 2003 to 27.5 per cent in 2005 and
was estimated at 24 per cent in 2006.
In 2006, total revenues increased, due in part to a
reform of tax administration which strengthened the
revenue collection agencies, and to the introduction of
new taxes and increased grants. Since 2004 when revenue
collecting agencies were allowed to retain 3 per cent of
revenue collected to meet their administrative costs, the
agencies have continued to exceed their targets. As a
result, the domestic tax effort increased to 19.8 per cent
of GDP in 2006 from 19.4 per cent of GDP in 2005.
Also, donor grants increased to 5.6 per cent of GDP in
2006 from 5.3 per cent of GDP in 2005. Nonetheless,
given the narrow tax base, with its high dependence on
petroleum taxes, it might be difficult for the government
to increase revenue significantly in the absence of efforts
to widen the tax base. As a result, tax revenues are likely
to remain virtually flat in 2007, and subsequent
improvements in total revenue will depend largely on
increased grants. In this regard, Ghana’s fiscal situation
will benefit from a $547 million grant from the United
States Millennium Challenge Account (MCA), which
is by far the largest award so far under this programme.
The government maintained an expansionary
expenditure programme in 2006 following the
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenues
Grants
20.5
15.8
2.2
24.4
19.1
4.7
29.8
21.3
6.4
27.9
19.4
5.3
28.6
19.8
5.6
29.2
19.9
6.1
29.0
20.2
5.5
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
28.6
17.3
10.3
5.5
7.0
11.3
28.8
19.8
13.6
8.4
6.2
8.9
33.3
20.9
16.6
8.8
4.4
12.4
30.8
18.8
15.1
8.5
3.6
12.0
32.9
18.3
15.3
8.2
3.0
14.6
32.9
17.8
15.2
7.8
2.7
15.1
32.7
17.6
15.1
7.6
2.5
15.1
Primary balance
Overall balance
-1.1
-8.1
1.8
-4.4
0.8
-3.6
0.7
-3.0
-1.3
-4.3
-1.0
-3.7
-1.1
-3.6
© AfDB/OECD 2007
http://dx.doi.org/10.1787/258534361777
289
Ghana
improvement in revenues. Total expenditures increased
to 32.9 per cent of GDP in 2006 from 30.8 per cent
of GDP in 2005. The government appears to be
succeeding in controlling recurrent expenditure
following the enactment of a number of legislative
measures, including the Financial Administration Act,
the Internal Audit Act and the Procurement Law in
2004. As a result, the increase in total expenditure in
2006 was due largely to increased capital spending,
which was a welcome development, given the near
stagnation of capital spending in recent years. The
government’s resolve to continue controlling current
spending in favour of public investment will be tested
in 2007 by strong political pressures as the 2008 general
elections approach. Even so, it is anticipated that the
continuing decline in interest payments will enable
the government to maintain a stable overall fiscal deficit
in 2007 and 2008.
Monetary Policy
290
Ghana’s monetary policy remains focused on
bringing down inflation to the single-digit level and
limiting exchange-rate volatility. The inflation objective
has been pursued by controlling the amount of reserve
money, with broad money supply as the intermediate
target. In 2006, the monetary authorities lowered the
growth of reserve money to 16.4 per cent from 19.3 per
cent in 2005. However, broad money supply (M2)
increased very rapidly at 34.6 per cent, compared to
22.5 per cent in 2005. Much of the expansion in
money supply in 2006 was due to a stronger demand
for credit by the private sector, in response to increased
economic activity.
Inflation tended to trend downwards in 2006 despite
the lagged effects of increases in petroleum prices in
the latter part of 2005, which were largely offset by a
relatively stable exchange rate and improved food
supplies. The target of the single-digit inflation rate was
almost attained in 2006, as consumer price inflation
declined to 10.5 per cent at the end of October 2006
from 14.8 per cent at the end of December 2005.
Moreover, the core measures of inflation remained
between 3 and 9 per cent in 2006, indicating low
underlying inflationary pressures.
The easing of inflationary expectations in 2006
contributed to a decline in interest rates during the year.
The Bank of Ghana (BOG) policy rate – the prime rate
– which had been lowered continuously from 2003,
was maintained at 14.5 per cent in 2006. Short-term
rates in the financial system generally declined, with
the average rate on the 91-day Treasury bill shedding
3.6 percentage points to 10.3 per cent in 2006. After
declining much faster than deposit rates over the 200005 period, lending rates remained stable at 27.7 per cent
between September 2005 and September 2006.
Ghana’s managed floating exchange rate regime
appears to be working well, with fewer interventions
recently from the BOG to smooth fluctuations in the
foreign exchange market. Higher levels of remittances,
steady donor inflows and strong earnings from cocoa
continued to help offset the effects of higher oil prices,
enabling the cedi maintain its relative stability against
the major international currencies. In 2006, the cedi
recorded a slight depreciation of 0.9 per cent against
the US dollar, following the moderate depreciations of
2.1 per cent and 2.2 per cent in 2005 and 2004
respectively. These moderate movements stand in sharp
contrast to the unprecedented depreciation of 57 per
cent that was witnessed in 2000. International
recognition of the stability of the cedi was established
in October 2006 with the first offshore cedidenominated eurobond issued by the African
Development Bank.
External Position
The government is pursuing a development strategy
based on export growth and increasing inward direct
investment. With this in view, Ghana developed a
National Trade Policy in 2005, which aims to enhance
international competitiveness and secure greater market
access for Ghana’s products. In particular, the policy
seeks to promote regional integration within the
Economic Community of West African States
(ECOWAS) through the harmonisation and reduction
of tariffs and non-tariff barriers to trade. At the same
time, Ghana, together with other West African countries,
is engaged in the negotiation of the WTO-compatible
Economic Partnership Agreement (EPA) with the
© AfDB/OECD 2007
Ghana
European Union (EU) to replace the existing nonreciprocal preferential trade regime in the Cotonou
Partnership Agreement (CPA).
Ghana’s current account balance has consistently
been in deficit, and this deficit increased sharply from
7.1 per cent of GDP in 2005 to 11.7 per cent of GDP
in 2006. Developments in the current account balance
largely reflect fluctuations in merchandise trade, which
have been characterised by widening deficits in recent
years. In 2006, the trade deficit increased from 23.5 per
cent of GDP in 2005 to 25.7 per cent of GDP. One
factor behind the recent widening trade deficit has
been a higher than expected oil import bill due to the
sharp increase in the average price of crude oil. Also,
the non-oil trade deficit has widened in recent years
due to an appreciation of the real exchange rate of the
local currency, which has made export diversification
rather difficult. Ghana continues to depend largely on
a few primary commodity exports, especially cocoa
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
-11.1
28.0
39.0
-1.8
-2.0
9.9
-10.3
32.4
42.7
-4.0
-1.5
18.4
-17.1
31.4
48.5
-4.4
-1.9
20.7
-23.5
25.6
49.0
-1.3
-1.5
19.2
-25.7
25.9
51.6
-1.2
-1.3
16.4
-25.1
25.1
50.2
-2.3
-0.7
16.5
-26.0
24.5
50.4
-2.5
-0.3
15.4
-5.0
2.4
-2.7
-7.1
-11.7
-11.6
-13.4
http://dx.doi.org/10.1787/678451732837
■ Debt/GDP
——— Service/X
160
140
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/632106841355
© AfDB/OECD 2007
291
Ghana
and gold, and thus remains vulnerable to external terms
of trade shocks. As a result exports are projected to
remain flat in 2007 and 2008, with the current account
deficit remaining high.
In spite of the recent deficits on the current account,
Ghana’s overall balance of payments has been in surplus,
driven primarily by payments on the capital account.
In 2006, the surplus on the balance of payments rose
to $155 million from $110.0 million in 2005. This
significant injection to the capital account came largely
from private capital inflows. Ghana’s international
reserves position stood at $1.65 billion in October
2006, which translated into 3.3 months of import
cover for 2005.
292
Ghana’s total external debt at end-2005 stood at
$6.3 billion, representing about 59 per cent of GDP,
with a debt service ratio of 6 per cent. The composition
of debt remained largely unchanged in 2006, with
approximately 63 per cent of the debt owed to
multilateral creditors, 29 per cent owed to bilateral
creditors, and the remaining 8 per cent representing
commercial debt. The total debt was reduced by two
thirds to $2.1 billion at end-September 2006, under
the Multilateral Debt Relief Initiative (MDRI) of the
IMF, World Bank and the African Development Bank.
This debt burden fell to a low 13 per cent of GDP in
2006 with a debt service ratio of only 2 per cent.
Structural Issues
Recent Developments
Ghana’s current structural reforms put emphasis
on improving public services and promoting private
sector development. Under the GPRS II, private sector
development is a key strategy for accelerated growth,
and improving the business environment is seen as a
crucial cornerstone to this.
Ghana’s recent efforts at improving its business
environment has begun to yield positive results as the
country’s aggregate rank listed in the 2006 World Bank
Doing Business Report was 94th out of 175 countries,
compared to last year’s rank of 102nd. In addition,
Ghana was rated among the top ten reformers in
facilitating business. The government is enhancing this
progress by pursuing the development of a national
index that tracks the costs and burdens of doing business,
as well as improving the process of reform itself, by
including more stakeholders in order to obtain useful
inputs and to build consensus and ownership.
The government has also for some time now been
developing a Regulatory Impact Assessment tool to
analyse the costs and benefits of new policies and
regulations. In 2007, the Regulatory Impact Assessment
tool will be formalised and implemented.
Further to this, the implementation of the Private
Sector Development Strategy is continuing with the
establishment of Client Service Units to enhance the
delivery of public services under the Public Sector Reform
Programme. Other activities being pursued under the
strategy include the establishment of a one–stop–shop
to fast-track the registration of investments.
The government has reinvigorated its stalled
privatisation programme and is restructuring some
of the state enterprises as a first step towards
divestiture. As part of this process, relevant stateowned enterprises (SOEs) have been given full
commercial mandates and autonomy to borrow from
local and international capital markets. In 2006 the
government began a review of the mandate of the State
Enterprises Commission to realign its functions
within this new framework.
Ghana’s recent financial sector reforms have put in
place much of the necessary payments system
infrastructure for the development of efficient financial
markets. The government is pursuing structural changes
that will help to maintain the health and stability of
the financial system and improve the transmission
mechanism of monetary policy. To this effect, various
measures were submitted to Parliament in 2006. These
include the Foreign Exchange Bill, the Credit Reporting
Bill, the Central Depository System Bill, and the AntiMoney Laundering Bill. The Foreign Exchange Bill
institutionalises the current liberal external trade and
payment regime, and removes the documentation and
© AfDB/OECD 2007
Ghana
bureaucratic requirements associated with exchange
controls. The Credit Reporting Bill provides for a
registry to increase information on the creditworthiness
of potential borrowers. The Central Depository System
Bill ensures the certainty and safety of titles to equities
and government debt instruments and can thereby
help foster the development of the stock market. The
Anti-Money Laundering Bill protects the integrity of
the financial system from criminal abuse.
The government has sought to foster the
development of the local bond and stock markets.
Recent measures include the listing of medium-term
government securities, the establishment of a central
securities depository, the automation of the Ghana
Stock Exchange, and the commitment to use the
Ghana Stock Exchange as the preferred medium for
the divestiture of state-owned enterprises. While
private sector companies have increasingly been using
the capital market to fund their long-term
investments, there has been a noticeable absence of
public sector institutions. Accordingly, in 2007, the
government is putting significant resources into
preparing key public sector institutions, such as the
utilities, universities and municipal and district
assemblies, to meet their long-term funding needs
from the domestic capital market.
Ghana is fairly well-endowed with water resources.
There is more than enough surface water nationally to
meet the estimated national demand of about
321 million m3. The Volta lake system drains about
70 per cent of the total land area of Ghana, with the
Volta River flowing directly into the sea. The Volta
Lake – the largest man-made lake in the world – covers
approximately 8 482 square kilometres. The southwest
and southeast parts of the country, which fall outside
the Volta drainage basin, are drained by many large rivers
and streams that also flow directly into the sea. These
rivers are used for drinking water, fishing, agricultural
and industrial purposes. The Volta river basin is shared
with Cote d’Ivoire, Burkina Faso, Mali, Togo and
Benin, while the basins of the big rivers Bia and Tano
are shared with Cote d’Ivoire. While the Volta runs
© AfDB/OECD 2007
through several countries, there is presently no
mechanism for co-operation to jointly develop the
river. Ghana has recently made a call for a joint
commission to manage the basin for sustainable and
equitable development.
The production and delivery of water and sanitation
in Ghana has largely been the government’s
responsibility. The Ghana Water Company Limited
(GWCL) is the lead agency for developing, operating,
monitoring and regulating water and sanitation. The
private sector’s role is largely confined to the design and
construction of water supply systems. It also participates
in water vending, which involves private water tanker
operators selling water. To ensure efficiency and public
accountability in the water sector, several regulatory
institutions have also been set up. These include the
Public Utility Regulatory Commission (PURC) that
regulates tariffs and water supply operational
performance; the Water Resource Commission (WRC),
which is responsible for the regulation and management
of water resources; the Ghana Standard Board, which
is responsible for the development of drinking water
standards; the Environmental Protection Agency that
deals with environmental regulation of water supply
operations; the Ghana Water Company Limited which
has ownership of urban water supply assets, monitoring
of water supply operations and development, and
expansion of urban water supply systems; and the
Community Water and Sanitation Agency, which is
responsible for the facilitation of community water
and sanitation services through District Assemblies.
In Ghana, lack of access to clean water and
sanitation systems is a central public health concern,
contributing to 70 per cent of diseases in Ghana.
There is substantial variation in access to clean,
affordable water and sanitation, depending on income,
between rural and urban areas, and across regions in
Ghana. According to the Ghana Water Sector
Restructuring Secretariat (WSRS), in 2005 only 46 per
cent of the total population had access to piped water.
The figure falls to 22 per cent for those classified as
poor. Uninterrupted access to treated and piped water
is only significant in some urban areas. Average urban
access is 46 per cent, while in rural areas only 35 per
293
Ghana
cent of the population have access. Access to proper
sanitation is equally dismal. Again according to the
WSRS, the percentage of the population with access
to improved sanitation facilities is approximately 40 per
cent in urban areas and 35 per cent in rural areas. To
meet the Millennium Development Goals, water
supply coverage for the urban areas will have to be
increased to 88 per cent and sanitation coverage must
be increased to 80 per cent.
Households without access to clean water use a
variety of less reliable and hygienic sources, and often
pay more. Pollution is the most serious threat the
sustainability of water resources. The rising demand for
water resulting from the expansion of the chemical, oil,
mining, and other water-consuming industries, along
with urban growth and farming, threatens to outpace
the available supply.
294
The main constraint to the improvement of water
access and sanitation in Ghana is lack of financial
resources. The investments required for an adequate
water supply and sanitation infrastructure are estimated
at $1.3 billion for the rehabilitation and expansion of
urban water infrastructure alone. As a result of
inadequate funding, maintenance and expansion of
water and sanitation services has not kept pace with
population growth. Most of the existing network was
installed at the time when cities and towns were
approximately half their current population sizes.
According to GWSC estimates, almost a third of water
supply systems in the country are non-functional,
with the rest operating substantially below designed
capacity. Other constraints to improving water and
sanitation include inadequate tariffs to ensure full
cost-recovery, especially in rural areas, lack of coordination and supervision of donor and NGO
activities and lack of community participation in local
water and sanitation projects.
The government now appears to be tackling some
of the major constraints to improving the water supply
and sanitation situation. Since 2003 the government
has phased out the subsidisation of water services and
has initiated moves towards full cost-recovery. A Public
Utility Regulatory Commission (PURC) has been
established to formulate appropriate pricing
mechanisms. The government has also developed a
proposal for private sector participation (PSP) in the
production and delivery of water and sanitation. The
PSP proposal intends to lease the 74 urban water
systems across the country to two private water
companies, with an expected injection of approximately
$140 million for rehabilitation, renewal and
improvement of the water systems. The proposal has
been criticised, however, for separating water delivery
from sanitation services. Moreover, considerable public
resistance has been demonstrated against what is
considered the inappropriate privatisation of water;
consequently, the government has not been able to
make any headway with this proposal.
The government is also shifting responsibility for
maintenance and operation of both urban and rural
water supply to the respective communities. To this
end, Community Water and Sanitation Boards have
been established in towns, and Sanitation Committees
have been set up in rural areas. Under this new
arrangement, most issues that were previously
managed from centralised departments in Accra, or
through regional offices, are now being devolved to
the districts. A Community Water and Sanitation
Agency (CWSA) has also been created to assist the
communities in the development, operations and
maintenance of water systems. Under the Community
Managed Systems (CMS), towns and villages will
own and manage the water and sanitation systems,
set their own rates and maintain their water systems
with assistance from the CWSA.
In recent times, donors and non-governmental
organisations (NGOs) have also been instrumental in
financing the production and delivery of water and
sanitation services in Ghana, especially in the rural
communities. The main actors in water-financing
include the World Bank, which, over the two decades
up to 2000, invested $152.4 million in improving
Ghana’s urban water supply infrastructure. The
government must ensure that such investments yield
the desired results in raising the operational efficiency
and performance of water and sanitation delivery
systems in the country.
© AfDB/OECD 2007
Ghana
Ghana remains a rare example of a maturing
democratic culture in West Africa, where many countries
have experienced civil wars, coups or sustained incumbent
rule. The government has continued to promote
democracy and good governance. One of the major
indications of determination to pursue good governance
has been its unreserved commitment to the African Peer
Review Mechanism (APRM). Ghana reached the ultimate
milestone of her APRM aspirations when President
Kufuor became the first Head of State in Africa to be
peer-reviewed by his colleagues at the 4th Summit of the
APR Forum in Khartoum, Sudan in January, 2006.
Nonetheless, substantial governance problems
remain. Although Transparency International rates
Ghana as one of the least corrupt countries in Africa,
the corruption perception rating has slipped back to
levels last seen when the Kufuor Administration came
to office in 2000. In particular, increasing
decentralisation in service delivery has helped to create
additional opportunities for corruption. The political
pressures related to the upcoming 2008 parliamentary
and presidential elections are also giving rise to fears
that the government’s commitment to improving
governance could slip. It is becoming increasingly clear
to observers that aspirants to the Presidency are utilising
any means, including corrupt ones, to gain advantage.
The problem for the government is how to check the
many aspirants from the ruling party who wish to
succeed President Kufuor in 2008.
Ghana’s consistent growth of approximately 5 per
cent per annum over the last 15 years has resulted in
one of the fastest rates of poverty reduction in Africa.
Acute poverty – income of less than $1 a day – has fallen
from about 51 per cent in the early 1990s to 35 per
cent in 2006. Most poverty is still rural, although the
figures available indicate a slight increase in urban
areas, from 8 to 9 per cent in 2006. Relentless
urbanisation is shifting the pattern of poverty, with
youth facing the most difficulty, as Ghana struggles to
create formal sector jobs and provide services for the
growing urban population.
© AfDB/OECD 2007
An increasing rate of unemployment and
underemployment has been a feature of the labour
market in Ghana in recent times. It is essentially a
reflection of the low labour absorption capacity of the
economy and lack of relevant skills of the majority of
the workforce. The slow growth of formal sector
employment is also due to the combination of the
shrinking role of government in economic activity
along with the disappointingly slow growth of the
formal private sector. Indeed, the failure of GDP to grow
strongly enough and to be sufficiently labour-intensive
to absorb the increasing labour force, which has almost
doubled since 1984, has been the main cause of
unemployment. Overall unemployment is estimated
at 18.4 per cent as of 2006. The rate among youth is
relatively high at 20 per cent (17 per cent for males,
23 per cent for females) as is the rate in urban areas.
There has also recently been growing unemployment
among polytechnic and university graduates. The lack
of employable skills is cited as the main reason behind
the inability of graduates to secure jobs, and this is a
real tragedy given the overall scarcity of human capital
in Ghana. The rate of underemployment is equally
high at 16 per cent, with very little difference between
male and female rates. The growing incidence of
joblessness and informality in the labour market requires
a strong effort from policy-makers to promote
appropriate skills development and adopt employmentfriendly economic policies.
Government objectives on health matters under
the GPRS II continue to be the bridging of equity
gaps in access to quality healthcare and nutrition
services, ensuring sustainable financing arrangements
that protect the poor, improving health infrastructure,
and enhancing efficiency in service delivery. Government
efforts to improve healthcare delivery appear to have
improved both access to healthcare facilities and the
actual quality of care.
Malaria remains the main cause of mortality and
morbidity in Ghana, accounting for about 21 per cent
of the under-5 mortality rate and 40 per cent of
outpatient morbidity. The government appears to be
tackling this problem by making efforts to reduce the
295
Ghana
burden of malaria. It launched a new Malaria Drug
Policy in 2005 and, under its Intermittent Prevention
Treatment strategy for malaria, adopted the new
amodiaquine-artesunate drugs combination for
prevention and treatment. In 2006 the Ghana Health
Service changed the recommended dosage of this drug
for malaria, following controversy over side effects. In
2006 the government also scaled-up Insecticide Treated
Nets (ITNs) distribution across the country. Over
5 million ITNs were procured for distribution and ITN
utilisation increased by 32.7 per cent for pregnant
women and 31.0 per cent for children aged under-five.
In 2006, the government achieved its target of
reducing the prevalence rate of HIV/AIDS to 3.1 per
cent; the recorded prevalence rate was 2.7 per cent, as
more Anti-Retroviral Therapy (ART) sites became
operational. By end-2006 the government had a twoyear stock of Anti-Retroviral Drugs.
296
Nonetheless, the exodus of doctors and other health
service personnel continues to be a problem for health
service delivery. Available data indicate that between
1999 and 2005 around 50 per cent of doctors trained
in Ghana left the service. The government has used
incentives to try to stem this tide without much success.
Incentives include the distribution of saloon cars to
doctors working in deprived areas and enhanced salaries
and pensions.
The government is seeking to increase access to
education, improve the quality of education, and raise
gender parity in schools. In its Education Strategic
Plan, the government is providing free and compulsory
basic education, defined as primary school and Junior
Secondary School (JSS). The government’s objective
is to achieve Universal Primary education by 2015 and
gender parity in primary school by 2008.
The extension of the Capitation Grant Scheme in
2005, which covers fees and levies for such items as
cultural activities, sports and school development to all
basic public schools, has boosted enrolment rates. As
a result of these initiatives, enrolment at basic level
increased by 16 per cent and gross enrolment rates at
primary level grew from 87.5 per cent in 2004/05 to
92.1 per cent in 2005/06. In addition, the Gender
Parity Index, by which the government measures gender
parity in primary schools, also grew from 0.93 in
2004/05 to 0.95 in 2005/06.
In order to ensure equity in the supply of teachers,
and to improve the quality of teaching and learning at
all levels throughout the country, an effort was made
to deploy more teachers to the three regions in the
North, thereby reducing the wide regional disparities
in pupil/teacher ratios. Meanwhile the Ministry of
Education also continued to attract teachers to remote
areas by providing incentive packages including bicycles,
radios, accelerated promotion and access to training.
As an interim measure, the upgrading of untrained
teachers continued. In 2006, 5 689 untrained teachers
completed the first phase of the Untrained Teacher
Training Programme.
© AfDB/OECD 2007
Kenya
Nairobi
key figures
•
•
•
•
•
580
35 106
49.6
26.4
Kenya
ETHIOPIA
SUDAN
Da
Lokichokio
ou
Lake
Turkana
a
Mandera
Moyale
Kalekol
Lodwar
El Wak
Marsabit
UGANDA
Maralal
SOMALIA
Kitale
Kampala
Eldoret
Bungoma
Meru
Kisumu
Nakuru
Garissa
Kisii
Kericho
Migori
Embu
Thika
Narok
Machakos
Tana
Magadi
NAIROBI
Makindu
Lamu
Namanga
TANZANIA
Tsavo
Malindi
INDIAN
Voi
Arusha
OCEAN
Mombasa
500 000 - 1 000 000
< 100 000
major road
100 000 - 500 000
Lake
Victoria
Liboi
Issido
Nanyuki
main airport
secondary airport
secondary road
commercial port
railway
petroleum port
track
fishing port
0
100 km
I
2005, THE KENYAN ECONOMY, with most sectors
recording accelerated growth, sustained the momentum
that had started in 2003. Real Gross Domestic Product
(GDP) grew by 5.8 per cent in 2005 compared with
4.9 per cent in 2004, and it is estimated at 5 per cent
in 2006. This economic growth is expected to be
maintained in the medium term.
N
Despite the increase of government expenditures
and the fiscal deficit of 2005/06, the overall fiscal
situation is favourable, as the government succeeded
in improving its revenue collection and in keeping the
fiscal balance at a manageable level. The fiscal policy
for the medium term continues to seek increased
spending and revenue while containing the budget
deficit at 3.5 per cent of GDP. In addition, public
expenditures are being restructured from recurrent to
development sectors (infrastructure, education, health,
etc.) with the goal of attaining 7 to
Governance problems
9 per cent of GDP on developmentpersist but reforms are
sector expenditure in the medium term.
beginning to take hold
Controlling recurrent expenditure to
and the development
free up resources for increased
of the private sector
development expenditure should be
is on course.
achieved thanks to selected cuts, such
as in the civil-service wage bill, and better management
of public finances.
Monetary policy will continue to aim at maintaining
inflation below the official 5 per cent level and at
preserving stability in the foreign-exchange market.
The monetary authority is on track in the area of
299
■ Kenya - GDP Per Capita (PPP in US $)
■ East Africa - GDP Per Capita (PPP in US $)
——— Kenya - Real GDP Growth (%)
7
3500
6
3000
5
2500
4
2000
3
1500
2
1000
1
500
0
0
2000
2001
2002
2003
2004
2005
2006(e)
2007(p)
2008(p)
http://dx.doi.org/10.1787/355447083017
© AfDB/OECD 2007
Kenya
containing inflationary pressures, although the inflation
rate was quite high in 2006, driven basically by food
and energy prices. Inflation is expected to ease towards
the targets in 2007 and 2008. Interest rates were fairly
– and unusually – stable in 2005/2006.
300
The Kenyan government has sustained its emphasis
on development of the private sector and has taken
important measures to enhance the investment
environment for private-sector activities. These measures
include improving infrastructure – such as the road
network (which is still a key challenge), the ports, and
rail transport – providing reliable and affordable energy,
and developing information and telecommunications
infrastructure. The government has also strengthened
the financial sector, improved public expenditure and
financial management, and privatised state-owned
enterprises to enhance Kenya’s external competitiveness
and reduce pressures on the budget. In addition, it has
eased the legal, regulatory and institutional constraints
that affected the private sector adversely and delayed
the privatisation process.
Constitutional and legal reforms as well as
deepening macroeconomic and structural reforms are
considered key pillars for attaining the goals of “Kenya
Vision 2030” to transform the country into a mediumincome country within 25 years. Although the
authorities have increased the democratic space
significantly since 2002, governance issues are still
hampered by the corruption and political manipulation
allowed by inadequacies in the legal framework to
fight corruption at high levels in the system. This
continues to affect the image of the government
amongst development partners, and if it is not
contained, it could slow down the pace of economic
development that the country has recently realised.
Kenya had 5 per cent GDP growth in 2006,
compared to 5.8 per cent in 2005, continuing the
buoyant growth that had begun in 2003. The key
sectors driving this growth were agriculture, construction
and building, manufacturing, tourism, and transport
and communications. Overall, the economy withstood
the impact of higher oil prices rather well.
The economy-wide reform efforts currently
underway and the resulting stable macroeconomic
environment are expected to generate sufficient
momentum for growth to be maintained at about the
same rate in both 2007 and 2008 (estimated at 5.3 and
5.1 per cent, respectively).
The implementation of the Economic Recovery
Strategy for Wealth and Employment Creation (ERS)
will be completed by the end of 2007. In the meantime,
the government intends to finalise Kenya Vision 2030,
which will be the basis for further policy development.
It will be based on three pillars – economic, social, and
political – and its ambitious goals are: to maintain
sustained 10 per cent annual economic growth for the
next 25 years; to build a just and cohesive society
enjoying equitable social development in a clear and
secure environment; and to build an issue-based, peoplecentred, result-oriented and accountable democratic
political system.
The agricultural sector continues to play a dominant
role, contributing significantly to increasing food
security, income generation, employment creation and
industrial development within the framework of the
Investment Programme for the ERS (IP-ERS). The
sector accounted for 25 per cent of GDP in 2005 and
grew at an annual rate of less than 6 per cent in 2006
compared with 6.8 per cent in 2005. This growth was
driven by improved performance in cereals, horticulture
and dairy sub-sectors thanks to adequate rainfall in
2005 and 2006, a performance all the more impressive
ever though a drought affected the livestock sub-sector
in some parts of country in 2005.
A number of structural reforms have been
implemented since 2003, aimed at improving efficiency
and productivity in the coffee, pyrethrum and sugar,
and co-operative sub-sectors.
These sector reforms include the review and
harmonisation of the legal, institutional and regulatory
frameworks. The share of budgetary resources allocated
© AfDB/OECD 2007
Kenya
Agriculture
Other services
25.1%
27.3%
Government services
4.5%
13.5%
10.9%
Transport and communications
(percentage)
12.2%
Manufacturing
6.5%
Other industry
http://dx.doi.org/10.1787/246703247558
to the agriculture sector was projected to increase
sharply from KES (Kenyan shillings) 18.6 billion
(5.3 per cent of total resources) in 2005/06 to
KES 33.5 billion (7.3 per cent of total resources) in
2008/09. Other incentives initiated in 2006 to promote
productivity in the agricultural sector include zerorating of tractor tyres, agricultural tractors and semitrailers for agricultural tractors, as well as transport of
unprocessed agricultural and agro-forest produce. Efforts
are also being made to strengthen land management
and the land-tenure system, support fisheries, forestry
and mining, and protect the environment and natural
resources.
In 2006, the production of major crops displayed
mixed performance. Improved weather conditions in
the second half of 2006 moderated the adverse effects
of the drought experienced during the first quarter of
the year. Tea production declined in 2006 by 16 per
cent. However, average tea auction prices increased
substantially by almost 40 per cent in 2006 as a
consequence of reduced supply and improved quality.
Similarly, coffee output was almost at par with
production in 2005 while the prices increased by
11.2 per cent.
In the horticultural sector, flower production
improved by 5.7 per cent, while fruit and vegetable
production for export decreased by 2 per cent and
1.5 per cent respectively in 2006. Export earnings from
the sector registered marginal improvement. The
2006/07 budget proposed tax measures to support the
horticultural sector and make its products more
competitive by shifting the focus towards more fruit
© AfDB/OECD 2007
production. The sugarcane and milk sub-sectors also
registered an improved performance in 2006.
The government has continued to take measures
to attain food security. However, these efforts have
been undermined by frequent droughts and/or floods.
The self-sufficiency ratio (SSR) for maize ranged
between 84 per cent and 106.3 per cent between 2000
and 2005. The import-dependency ratio (IDR) for
cereals has been on the decline, ranging from 19.5 per
cent to 31.5 per cent between 2000 and 2005. The IDR
for maize has consistently stood below 20 per cent. This
means the country’s production of maize almost meets
domestic demand. Maize production has been increasing
as a result of the incentive of good prices offered to
farmers. It is estimated to have increased from 32 million
bags in 2005 to more than 33 million bags in 2006.
Most producer prices for the majority of agricultural
commodities recorded a gradual increase during the year,
supported by a revival of farmers’ institutions such
as the Kenya Co-operative Creameries or the Kenya
Meat Commission.
The manufacturing sector continued to respond
positively to the reforms identified in the 2004-05 IPERS. The reforms include trade liberalisation, financial
deepening, facilitating the use of technology by
improving licensing procedures aimed at expanding
growth and employment-generating capacity in the
sector. The key growth targets for the sector for the IPERS period include: achieving an average growth rate
of 8.6 per cent annually; increasing employment in
medium and small enterprises; and formalising the
informal micro- and small-enterprise (MSE) sector.
301
Kenya
The manufacturing sector accounted for 14 per
cent of GDP in 2005, up from 9.9 per cent in 2004.
In 2005, the sector recorded 5 per cent real growth
compared with 4.5 per cent in 2004 as a result of
increased domestic, as well as external demand. Factors
contributing to growth in the sector included tax
exemptions on some imports for intermediate
consumption in the 2006/07 budget and enforcement
of anti-dumping measures within the East African
Community (EAC) and Common Market for Eastern
and Southern Africa (COMESA) regions. In 2005,
however, output was constrained by increases in
production costs subsequent to the rise in oil prices,
appreciation of the Kenya shilling resulting in lower
export earnings and poor infrastructure.
In 2006, output from the manufacturing sector
improved thanks to increased output from key subsectors. In 2006, the production of beer and cigarettes
increased by 7.4 per cent and 21.3 per cent, respectively.
302
Consumption of electricity grew by 5.2 per cent in
2006, in line with the increased level of economic
activity. The increase in supply to meet this demand
reflected good water supply to hydroelectric dams and
increased generation from thermal sources.
The government took several measures to improve
the business environment and stimulate production
in the manufacturing sector. In the 2006/07 budget,
it enhanced the tax incentives first introduced in
2003/04, which included duty waivers on capital goods,
plants and equipment. In addition, 17 trading licenses
were removed in 2005/06, an additional 118 licenses
were marked to be eliminated in 2006/07, together with
import duties on selected intermediate inputs.
The tourism sector is a major component of the
service sector, which accounts for about 50 per cent of
GDP and has continued to exhibit rapid growth. This
is due in part to measures taken by the government:
to foster private-sector partnerships for the development
and implementation of a co-ordinated strategy; to
attract tourists from a wider range of countries; to
diversify tourist attractions; to expand the benefits to
the local population; to protect the environment; and
to improve quality and standards.
In 2006, combined tourism earnings from
international and domestic sub-sectors grew by 20 per
cent compared with 24.7 per cent in 2005. International
arrivals increased to 1.7 million, up from 1.5 million
in 2005 and 1.4 million in 2004. In 2006, tourist
arrivals from all markets recorded improvements with
significant increases from Asia, America and Europe of
7.9 per cent, 14.8 per cent and 13.7 per cent,
respectively. This growth is linked to an improved
marketing of tourism in non-traditional markets like
1998
2005
Percentage of GDP
(current prices)
Public
Private
Consumption
Public
Private
External sector
Exports
Imports
(percentage of GDP)
2006(e)
2007(p)
2008(p)
16.8
4.9
11.9
16.8
4.6
12.2
15.9
5.0
20.0
12.5
11.5
12.8
8.9
10.0
8.6
90.0
16.5
73.5
93.9
17.1
76.8
4.8
3.8
5.0
3.9
4.1
3.9
4.4
4.2
4.4
-6.8
20.5
-27.3
-10.7
26.7
-37.4
3.8
5.6
4.5
2.2
5.0
2.5
http://dx.doi.org/10.1787/005222256585
© AfDB/OECD 2007
Kenya
China, India, Japan and the local market. Diversification
away from traditional tourism products to new ones
has also helped improve performance and future
prospects in the sector.
roll-out to rural areas along with aggressive marketing.
Safaricom, a mobile provider in which the government
is a shareholder, is one of the fastest-growing enterprises
in Kenya.
The transport and communications sector
accounted for 11 per cent of GDP in 2005, recording
real growth of 8.3 per cent in the year and making it
one of the fastest-growing sectors in the economy. This
rapid expansion was maintained in 2006. In the roadtransport sub-sector, new motor-vehicle registrations
increased by 10 per cent in 2006. In the air-transport
sub-sector, a combination of factors, including positive
knock-on effects from tourism, caused the incoming
passengers through major border ports to rise by 7.5 per
cent in 2006, while outgoing passengers increased by
6.2 per cent in the same period. Cargo through the port
of Mombasa grew by 5 per cent in 2006. The
Government has prioritised expansion through the
improvement and maintenance of the road network to
support growth placed in the 2006/07 budget,
improvement of the business climate and the
competitiveness of Kenyan products.
The balance sheet of the state-owned Telkom
Kenya, the fixed-line provider, is weak. However, the
enterprise has recently put out new products and
services. Fixed-line connections increased by more
than 8 per cent in 2006 representing a 1 per cent
increase in the penetration rate for this sector. Telkom
has boosted the performance of its existing network
by revamping the data-transfer technology known as
Asymmetric Digital Subscriber Line (ADSL), as well
as by introducing three different prepaid cards with
different tariffs and download speeds. A corporate
Voice Over Internet Protocol (VoIP) tariff and an
Internet dial-up solution are also now offered amongst
other products.
Concessioning of the Kenya railways in
November 2006 is expected to improve railway
transport, which will facilitate faster movement of
cargo through the port of Mombasa. Other measures
being taken to improve port efficiency include
introducing private-sector participation in containerterminal operations, dredging the channel to
accommodate larger vessels and introducing 24hour operations. In 2006, further reforms were taken
to modernise and upgrade air transport at Jomo
Kenyatta International Airport, and other airports
and airstrips. This is expected to increase the volume
of transit passengers with direct flights from North
America and Europe, improve general air safety,
increase revenue flow and promote tourism.
The telecommunications sub-sector displayed strong
performance in 2006 with the number of mobile
subscribers estimated to have increased to more than
7 million, up from 5.6 million in 2005. The impressive
growth in airtime sales was driven by lowerdenomination prepaid cards and expanded network
© AfDB/OECD 2007
The building-and-construction sector realised real
growth of 7.2 per cent in 2005, up from 4 per cent in
2004, and continued to record rapid growth in 2006.
Cement production, for example, increased by 6.1 per
cent in 2006. This was due in part to strong demand
for residential housing in urban areas supported by
relatively low and stable interest rates and remittances
from abroad. Other factors contributing to the sector’s
improved performance are the revival of several stalled
public-sector development projects and increased
budgetary allocation for road construction and
rehabilitation activities.
In collaboration with the government, international
enterprises are undertaking oil exploration along the
coastal belt, which is divided into blocks held by several
oil enterprises. In 2006, equipment arrived in Mombasa
for prospective oil drilling off the Lamu Coast, where
an Australian drilling enterprise has estimated that
there is a 12 per cent chance of striking oil.
The economy experienced several problems in
2006. These included high oil prices, which increased
production and transport costs and led to an
acceleration of consumer-price inflation, and severe
drought that affected the livestock sub-sector adversely,
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Kenya
especially in the arid and semi-arid land (ASAL) areas
during the first quarter of the year. Also, during the
last quarter of 2006, the country experienced massive
floods that displaced both people and livestock in
areas prone to flooding, and destroyed roads and
bridges in the affected parts of the country. The ravaging
floods in the North Eastern and parts of the Coast
provinces during the fourth quarter of 2006 led to
deaths and infections associated with Rift Valley Fever,
as well as the imposition of quarantine and a ban on
the slaughtering of livestock in the affected areas. This
was followed by immunisation campaigns targeting
mainly domestic animals kept by the nomadic
communities in these areas.
There was no major regional conflict affecting the
country in 2006. The situation in Somalia, however,
continued to affect the country through an influx of
refugees, new cases of diseases such as polio, which
had been eradicated, and an increase in the prevalence
of small firearms.
304
In 2006, the government undertook the mid-term
review of the 2003-07 ERS to highlight the policy
implementations achieved from July 2003 to June
2006. The review also made recommendations on key
areas of the economy that need to be addressed in the
remaining period of ERS.
Fiscal Policy
Fiscal policy is guided by the Public Expenditure
Review (PER) and the medium-term expenditure
framework (MTEF). These establish certain ceilings,
ring fence core poverty programmes and imply a strong
revenue effort. The growth of total expenditures is to
be restrained and the composition of expenditures
changed to reduce the share of non-productive recurrent
expenditures and increase the share of operations-andmaintenance and capital expenditures. In addition, the
domestic debt is not to exceed a sustainable level. The
medium-term target for domestic debt is 20 per cent
of GDP.
The overall budget deficit in 2005/06 was
KES 55.2 billion, equivalent to 3.5 per cent of GDP
on a commitment basis compared with a surplus of
KES 1 billion equivalent to 0.1 per cent of GDP in
2004/05. This deficit mainly reflected the expansionary
fiscal policy pursued in 2005/06, which includes a
large increase in development spending. The fiscal
deficit is projected to decline to 1.4 per cent of GDP
by the end of 2007/08.
In 2005/06, revenue collection and receipts from
external grants amounted to KES 327.8 billion, under
the target of KES 360.7 billion. The shortfall was due
in part to problems with the implementation of a new
customs computer system, which affected the collection
of customs duties. Nevertheless, revenue collection and
receipts of external grants increased by 7.6 per cent from
2004/05 as a result of strong economic growth. Fiscal
receipts as a percentage of GDP rose from 23.8 in
2003 to 24.2 in 2005.
The public-sector wage bill as a percentage of fiscal
receipts was 58.2 per cent in 2005, down from 59.9 per
cent in 2004. Efforts are being made to lower it further
through the civil-service reform commission. Public
investment financed from domestic resources as
a percentage of fiscal receipts improved significantly in
2005, rising to 26.8 per cent from 17.3 per cent in
2004. This improvement appears to have been due to
the operation of the Constituency Development Fund
(CDF), a programme promoting grassroots development
across the board. Differences between actual and budgeted
expenditures narrowed in 2005/06 compared with
2004/05, indicating improved budgetary management.
Indirect and direct intervention measures have been
undertaken to counter the rise of oil prices. One measure
was to publish the pump prices of various oil marketers
in order to promote consumer awareness and
competition. In addition, the state oil enterprise
(National Oil Corporation) opened more retail outlets
with an aim to increase competition and thus maintain
some downward pressure on prices. However, the
government has wisely chosen to allow the increase in
international oil prices to be fully passed through to
domestic prices.
© AfDB/OECD 2007
Kenya
(percentage of GDP)
1997/98
2002/03
2003/04
2004/05
Total Revenue and grantsa
Tax revenue
Grants
21.4
18.4
0.7
20.8
18.1
1.4
22.4
19.0
1.3
22.6
19.4
1.1
23.0
19.0
2.2
22.5
18.6
2.0
22.2
18.4
1.9
Current expenditure
Excluding interest
Wages and salaries
Interest on public debt
Capital expenditure
22.5
20.7
15.7
4.2
4.9
1.7
24.3
20.9
17.6
7.8
3.3
3.2
23.3
20.0
17.6
7.9
2.5
3.2
22.5
19.1
16.9
7.8
2.3
3.3
26.5
20.9
18.5
7.3
2.4
5.5
23.7
19.3
17.0
6.9
2.3
4.4
23.6
19.0
16.6
6.5
2.3
4.5
Primary balance
Overall balance
3.8
-1.1
-0.2
-3.5
1.5
-0.9
2.4
0.1
-1.0
-3.5
1.1
-1.2
0.9
-1.4
Source: Domestic authorities' data; estimates (e) and projections (p) based on authors' calculations.
Monetary Policy
Monetary policy is under the responsibility of the
Central Bank of Kenya (CBK). It seeks to maintain a
rate of inflation that does not exceed that of its trading
partners, which was expected to be less than 5 per cent
in 2006/07. The measure of inflation, which includes
food and oil, rose from 11.9 per cent in June 2005 to
14.6 per cent in November 2006, mainly as a result of
increased prices of food and non-alcoholic drinks, and
oil. However, the measure of underlying inflation,
which excludes food and oil, declined from 8.2 per
cent in June 2005 to 4.4 per cent in November 2006.
This measure of inflation remained stable in 2006.
The Consumer Price Index (CPI) inflation rate is
estimated at 14.48 per cent in 2006 but is projected
to decline considerably in 2007 and 2008 to stabilise
at 3.64 and 3.75 per cent, respectively.
In the year to September 2006, the broad money
supply (M3) increased by 17.4 per cent compared with
11.8 per cent in September 2005. In this period,
currency outside the banking system increased by
15.8 per cent from 5 per cent in August 2005, which
was above the 12.1 per cent target. The net foreign assets
of the banking system expanded by 27.8 per cent in
the year to September 2006 compared with 34.7 per
cent in the year to September 2005, while net domestic
assets expanded by 13.1 per cent in the twelve months
to September 2006, compared with 4.6 per cent in
© AfDB/OECD 2007
2005/06 2006/07(e) 2007/08(p)
http://dx.doi.org/10.1787/028710663648
September 2005. This reflected increased credit to the
government by the banking system to finance
government deficit. Meanwhile, the growth of credit
to the private sector slowed for most of the period.
In August 2005, the government established a
Monetary Policy Advisory Committee (MPAC) with
a mandate to advise the CBK on monetary policy. The
MPAC worked with the CBK to develop a framework
for the Central Bank Rate (CBR), which replaces the
91-day Treasury Bill (TB) as benchmark rate and was
launched in May 2006. The implementation of the CBR
within the monetary programme targets the quantity
of money. The current CBR is 10 per cent, up from
the initial rate of 9.75 per cent. Interest rates remained
moderate with the 91-day TB discount rate down from
a high 8.68 per cent in April 2005 to a low 6.6 per cent
in June 2006.
The Kenya shilling exchange rates remained fairly
stable in 2006, strengthening marginally against the US
dollar at KES 72 compared to KES 76 in 2005. The
shilling is projected to depreciate in the medium term
to 74-75 against the US dollar.
The monetary policy for 2006/07 will continue to
be directed towards attaining and maintaining
underlying inflation below 5 per cent. In line with this
goal, M3 is set to grow by 10 per cent by June 2007
while reserve money is also programmed to expand by
305
Kenya
10 per cent. With the stable low interest rates, growth
of domestic credit to the private sector is set to range
between 10 per cent and 12 per cent.
External Position
The deficit on current account increased to 2.6 per
cent of GDP in 2005, compared to 2.2 per cent of GDP
in 2004, reflecting in part an increase in the oil bill and
moderate growth in non-oil imports, which together
exceeded a sizeable increase in export earnings. The
deficit is estimated at 2.8 per cent of GDP in 2006 and
projected to reach 3.4 per cent in 2007 before easing
to 2.4 per cent in 2008. Net earnings from services,
which include tourism earnings and unilateral transfers,
increased substantially in 2005 but not enough to
match the increase in the visible trade deficit.
In 2005, horticulture, tea and coffee continued to
be the leading export earners accounting for 49.8 per
cent of the total domestic export earnings. Export
earnings improved to KES 168.4 billion in January to
September 2006, following increased earnings from
tea, manufactured goods, horticulture, oil products
and coffee exports. The values of tea, coffee and tobacco
exports rose by 14.7 per cent, 1.1 per cent and 69.1 per
cent, respectively, in January to September 2006,
compared with the same period in 2005. While tea and
coffee exports fetched higher prices, export prices for
some horticulture products declined.
306
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor Income
Current transfers
-7.2
14.4
21.6
1.0
-1.2
4.1
-7.6
16.2
23.8
3.4
-0.6
5.8
-10.1
16.8
26.9
3.8
-0.8
4.9
-11.6
17.3
28.9
4.0
-0.6
5.5
-10.1
15.3
25.4
3.3
-0.5
4.5
-8.9
15.0
23.9
3.1
-0.4
2.9
-8.2
14.6
22.8
3.3
-0.4
2.9
-3.4
1.0
-2.2
-2.6
-2.8
-3.4
-2.4
Source: Domestic authorities' data; estimates (e) and projections (p) based on authors' calculations.
http://dx.doi.org/10.1787/076116124814
The import values of crude oil and oil products
increased by 12.1 per cent and 7 per cent, respectively,
and jointly accounted for 22.7 per cent of the total
import expenditure in 2005. Industrial machinery and
road motor vehicles accounted for 17 per cent of the
total import bill.
the partner states undertook to eliminate tariff and
non-tariff barriers amongst themselves, simplify and
harmonise trade formalities, produce and exchange
customs and trade statistics and information, all in
order to create the most favourable environment possible
for the development of regional trade.
The Protocol establishing the East African Customs
Union came into force on 1 January 2005. The key
objectives of the Customs Union as provided under the
Protocol is: to further liberalise intra-regional trade in
goods on the basis of mutually beneficial trade
arrangements amongst the partner states; to promote
efficiency in production within the Community; to
increase domestic, cross-border and foreign investment
in the Community; and to promote economic
development and diversification in industrialisation in
the community partner states. To achieve these objectives
In 2005, capital and financial accounts recorded
a net surplus of KES 57 862 million compared with
a net surplus of KES 18 964 million in 2004. The
increase was attributed to increased long-term loans
to the private sector, and capital transfers to the
general government.
The government’s aim is to reduce the domesticdebt stock from 22 per cent of GDP in 2003/04 to
20 per cent by 2007/08. In addition, the net present
value of external debt was to be contained at around
© AfDB/OECD 2007
Kenya
27 per cent of GDP for the medium term, thereby
leaving the total debt ratio below 50 per cent of GDP.
This implies a narrowing of the fiscal deficit (including
grants) to about 1 per cent of GDP in 2007/08 from
2.6 per cent of GDP in 2004/05.
The Government has consistently maintained a
sound and timely debt-servicing policy. Annual debt
servicing charges decreased from KES 114.9 billion in
2003/04 to KES 112.2 billion in 2004/05, while receipts
on loan repayments and interest registered a substantial
■ Debt/GDP
——— Service/X
45
40
35
30
25
20
15
307
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF.
http://dx.doi.org/10.1787/105101125116
increase from KES 719.4 million in June 2004 to
KES 1.7 billion in June 2005. External-debt-service
payments as a percentage of export of goods and services
declined to 6 per cent on 30 June 2005 compared with
7.9 per cent a year earlier. This was due to the effect
of a decline in external-debt servicing combined with
consistent growth in exports of goods and services in
the past five years.
External debt dropped from KES 443.2 billion in
June 2004 to KES 434.5 billion in June 2005. The
proportion of multilateral creditors in total external debt
declined to 59.6 per cent at the end of September
2006. Kenya has not benefited from debt cancellation
under the Heavily Indebted Poor Countries Initiative
because its level of debt is considered to be sustainable.
© AfDB/OECD 2007
Structural Issues
Recent Developments
To improve accountability and efficiency in the
management of public corporations and enhance the
role of the private sector as the engine of growth and
poverty reduction, the government has initiated a
number of reform measures. These include: drafting
the Privatisation Bill in 2003, which is currently in
parliament; introducing various reforms for
restructuring, rationalisation and good corporate
governance in public enterprises; identifying candidates
for divestiture and privatisation and preparing strategies
and programmes for this process; and implementing
reforms covering budgeting, financial management,
Kenya
internal audits and performance contracts for state
enterprises. Moreover, 16 state enterprises were put on
performance contract, effective from 1 October 2004,
and Kenya railway concessioning was completed in
December 2006. Prospective reforms include privatising
Kenya Ports Authority, including concessioning of
container terminals, bulk handling and conventional
cargo, concessioning roads and other public works,
continuing the liberalisation of the telecommunications
sector and initiating the process for the privatisation
of Telkom Kenya.
In the financial sector, the role of the state in the
economy will be reduced through privatisation and/or
restructuring public enterprises and state-owned banks.
The Microfinance Bill will be operationalised to improve
the supervision of deposit-taking institutions. In
addition, reforms in the insurance sector are to be
strengthened, and a strategy for development finance
institutions is to be developed.
308
The Governance, Justice, Law and Order Sector
reform programme, referred to as GJLOS, is now in
an accelerated phase of implementation as a four-year
medium-term Strategy ending in June 2009. GJLOS
will focus on improving the anti-corruption architecture
by enhancing the investigative and prosecutorial capacity
of the legislature, as well as by strengthening other
institutions in the criminal and civil justice systems. A
medium-term anti-corruption strategy with measurable
performance indicators is to be implemented. GJLOS
will address the systematic enhancement of publicsector integrity and accountability mechanisms in
public institutions through the enforcement of codes
of conduct and result-driven service charters.
Reforms to strengthen public-expenditure
management aim at improving service delivery in the
key priority areas of health, education, infrastructure
and agriculture. The reforms will focus on: meeting
all 16 Public Expenditure Management Assessment
and Action Plan (PEMAAP) benchmarks by 2008/09
(on 31 December 2005, only 6 out of 16 benchmarks
had been met); reducing the discrepancy between
approved budgets and budget outturns; and addressing
the main causes of budget reallocations during the
course of the year. From 2006/07 onwards, budget
reallocations are to be limited to no more than 8 per
cent and will be disallowed for new programmes. No
reallocations involving core poverty programmes will
be tolerated. In addition, a Public Procurement and
Disposal Bill has been enacted and efforts are now
geared towards operationalising the autonomous
Public Procurement Oversight Authority and making
sure that it is run efficiently.
Public-service reforms aim to re-establish control
over the wage bill, address capacity constraints in key
ministries, and promote the creation of a more efficient
public service. In this regard, the government has:
introduced new wage-setting guidelines for public
employees; announced its intention to streamline the
terms and conditions of service for top management
in the government and state enterprises; taken steps to
strengthen capacity at all levels of government,
particularly in ministries essential to the realisation of
the ERS, such as the Ministry of Finance; and
committed to restructure a number of key ministries,
including the ministries of Roads and Public Works,
Education, Health and Agriculture.
The government identified in its IP-ERS the
restoration and expansion of infrastructure (transport,
water, energy, telecommunications and information
technology) as one of the main pillars and challenges
for its economic recovery programme. In this regard,
the share of resources going to physical infrastructure
is projected to rise from 19.2 per cent in 2005/06 to
21.6 per cent in 2008/09 with priority going to:
expanding and improving maintenance of the road
network and other public works; increasing access to
water resources; and increasing the availability, reliability
and affordability of energy.
The challenges facing the sector include expanding
the road network; reducing the rehabilitation and
maintenance backlog; strengthening road safety and
controlling overloading, and expanding private-sector
management and financing.
For roads, activities include: formulation of a longterm road-sector strategy and a multi-agency model for
© AfDB/OECD 2007
Kenya
managing responsibilities and financing for all types of
roads; rationalisation of the number of agents responsible
for rehabilitation, construction and development of
urban roads under the Kenya Roads Board Act;
completion of a road inventory and condition survey
study; reducing the audit backlog for the road-levy
fund and improving public information on the use of
the fund; establishing a new road-safety authority;
enforcing axle load control limits; and launching a
national road-safety campaign. Selected targets for the
IP-ERS period include rehabilitation of 2 815 kilometres
under the Roads 2000 Programme, reconstruction of
150 kilometres of trunk roads per annum and the
concessioning of up to 1 208 kilometres of trunk road
during 2004-07.
to boost growth in the sector. To improve service delivery
and efficiency in the public sector, the government has
established
operational
information
and
communications technology units in ministries, installed
local area networks in Government buildings and
implemented rural telecommunications projects by
the Ministry of Information and Communications.
To ensure efficient and secure air transport, security
measures at airports are being improved, the
construction of a perimeter fence and the installation
of an intrusion-detection system are ongoing, while
the refurbishment of the airport and civil-aviation
facilities has commenced.
The authorities have redefined the role of the state
from producer to facilitator in order to make the private
sector the engine of growth through preparation of a
private sector development strategy (PSDS) paper
spelling out the reforms needed to enhance efficiency
and international competitiveness. The PSDS paper was
launched in January 2007. An action plan detailing
short-and medium-term measures to improve the
investment climate has been finalised, as well as a
national export strategy action plan in five key sectors
for implementation starting in 2005/06.
In the telecommunications sub-sector, the
government is to make a public offering in 2007 for
Safaricom shares, to be traded at the Nairobi Stock
Exchange. In addition, Telkom Kenya is also undergoing
a major reorganisation aimed at strengthening its
balance sheet, by purging it of bad debts amongst other
actions. The process of selling two of its loss-making
subsidiaries, namely Gilgil Technical Institute and the
Kenya College of Communications Technology, was
initiated in 2006.
The awarding of a license to an additional operator
to operate in both fixed-line and mobile-telephony
networks is expected to lower prices and boost
competition against the state-owned operator Telkom
Kenya, as well as mobile-service providers Safaricom
and Celtel. The government also allowed all enterprises
in the sector to offer the entire range of
telecommunications services.
Further liberalisation, significant investment in an
e-government initiative and zero rating of VAT on
computer equipment, parts and accessories are expected
© AfDB/OECD 2007
To maintain the competitive edge of the port of
Mombasa, its operations are to be privatised while the
port itself will remain the property of the state, which
began operating 24 hours per day in February 2007.
Equipment is to be modernised and a Maritime Sector
Policy paper finalised. In addition, two new ferries will
be purchased to increase safety.
A number of measures to strengthen the financial
system and create a predictable environment for privatesector development are being implemented. These
reforms include: setting up the Bank Restructuring and
Privatisation Unit in the Ministry of Finance to develop
and implement restructuring reforms for state-owned
banks; enacting the Micro Finance and Savings and
Credit Co-operatives Bills by parliament; capacity
building to fight money laundering and for Combating
the Financing of Terrorism (CFT). These latter include:
gazetting the National Task Force on Anti-Money
Laundering (AML) and CFT in 2003; drafting the
AML and Proceeds of Crimes Bill; drafting the
Suppression of Terrorism Bill (2003) to criminalise the
financing of terrorism; and modernising the financial
system with, amongst others, the drafting of a specific
bill on Electronic Money Transfer, the amendment of
the Banking Act and Central Bank Act to transfer all
309
Kenya
regulatory and supervisory roles from the Ministry of
Finance to the CBK, and the introduction of a new
regulation tightening loan provisioning and classification.
310
Reforms in the agricultural sector aim to promote
productivity growth and lower the costs of agricultural
inputs, particularly amongst smallholders and
subsistence farmers, who account for an estimated
70 per cent of marketed agricultural production. The
reforms include: restructuring and rationalising the
network of agricultural-research institutes by
consolidating operations into the Kenya Agricultural
Research Institute; strengthening the link between
farmers’ demands, extension provision and the direction
of research, and increasing the productivity of public
investment; deepening agricultural financial services to
ensure that poor farmers have access to credit and
insurance; putting in place reforms to improve
competition in input distribution and marketing, and
enforcing the law against fraudulent practices of input
supplies and marketing agents; reducing transport costs
through improved rural roads and reduced fuel taxes
and electricity costs; improving access to information
through strengthened communications; giving support
to co-operatives, private investors and other institutions
to undertake necessary investments in marketing and
value addition; formulating a national land policy to
address land use and administration, land tenure, and
land delivery systems; reviewing the law of succession
to address gender imbalances in land; reassessing foodsecurity policies and introducing pro-poor reforms;
amending the Coffee Act to allow growers to sell coffee
outside the auction and establishing an agency to
operate processing, marketing and input distribution;
and supporting plans for the rehabilitation and
development of irrigation systems to support the
revitalisation of the cotton and rice sectors.
Kenya is not well-endowed with water resources. Its
annual surface-water and ground-water potential is
19.6 million m3 and 0.6 million m3 per year, respectively.
This is less than 600 m3 per capita and well below the
norm of 1000 m3 per capita, which describes a situation
of water scarcity. Factors threatening these water sources
include: frequent droughts and floods, which reduce
water catchment; rapid population growth, which leads
to the destruction of water-catchment areas through
land conversion and fragmentation; pollution from
chemical pesticides and fertilizers on agricultural land,
as well as industrial wastes and raw sewage leaching
into surface and ground water.
The government of Kenya created the Ministry of
Water and Irrigation (MWI) in 2002 to consolidate the
responsibility for the management and development of
water resources. Its mandate is to protect, harness and
develop the country’s water resources to ensure the
availability of high-quality water to all.
The main institutions for the water and sanitation
services (WSS) sectors are the MWI, the Water Services
and Regulation Board (WRSB), the Water Resources
Management Authority (WRMA) and the Water
Services Trust Fund (WSTF). Other institutions include
the water-services boards, water-services providers and
the Water Appeals Board (WAB). These institutions are
co-ordinated by the MWI, which has the leadership role
for the WSS sector. Water operators are
private/commercial enterprises. The role of small and
medium-sized organisations for water services in small
towns and peri-urban areas is to provide water and
sewerage services to users. They connect water users to
the trunk lines of the main water system provided by
the water-services provider and sell the water to
households and other users. The water and sewerage
departments within the municipality or local authority
have been licensed to operate commercially as waterservices providers and as water and sanitation enterprises.
The different institutions and operators are regulated
under the Water Act of 2002.
In order to address the challenge of managing its
water resources to satisfy sectoral demands, Kenya
adopted its first National Water Resources
Management Strategy (NWRMS) in 2003. The
NWRMS provides a clear, accountable and transparent
roadmap for assessing, maintaining, enhancing,
developing and managing fresh-water resources, using
an integrated approach and on a sustainable basis.
Extensive investment is needed to remedy the low
© AfDB/OECD 2007
Kenya
level of development of water resources. In addition,
it is necessary to reverse catchment degradation and
control pollution.
There is no data on the average cost of access to water
and sanitation services. However, this information is
expected to be provided by the Kenya Integrated
Household Budget Survey which was undertaken in
2005/6, the data of which is now being analysed.
At present, the proportion of the population with
access to improved drinking-water coverage in Kenya
is about 50.9 per cent and the sanitation coverage is
81 per cent. The current water-supply coverage in
urban and rural areas is 75.5 per cent and 39.3 per cent,
respectively, while sanitation coverage is 94.8 per cent
and 76.6 per cent in urban and rural areas, respectively.
The government’s targets to meet the Millennium
Development Goals (MDGs) by 2015 as indicated in
the ERS are 80 per cent and 96 per cent for nationwide
coverage of safe water supply and improved sanitation,
respectively. For the urban and rural areas, the watersupply targets are 96 per cent and 66 per cent,
respectively, while for sanitation they are 96 per cent
and 89 per cent, respectively.
The targets for WSS MDGs were planned and set
for each sector by the Ministry of Planning and National
Development, which is co-ordinating the monitoring
of the MDGs together with a roadmap for their
achievement. Depending on the availability of funds
for investment in water projects, the planned targets
are likely to be achieved. The progress rate in relation
to the goals for access to drinking water and sanitation
(WSS) is higher compared to other MDGs thanks to
the early establishment of an integrated approach to
water issues. Moreover, the ongoing rehabilitation of
water systems throughout the country has improved
the access to water.
The main obstacles and challenges to WSS are
inadequate finance and lack of institutional capacity.
Problems include: inadequate plants and equipment for
borehole drilling and dam construction; ageing WSS
schemes of 20-40 years ago that need a complete
© AfDB/OECD 2007
overhaul; need for more efficiency in the delivery of
water services and improvement of revenue collection;
difficulties in mobilising resources for the WSTF to
implement community schemes; inadequate resources
to rehabilitate and expand WSS infrastructure, leading
to poor maintenance of these systems; and the demand
for services exceeding their design capacity. Most of the
water is not accounted for, due to the obsolete and
dilapidated state of water infrastructure and to the
increasing incidence of illegal abstractions. Resources
for the rehabilitation and expansion of water and
sewerage infrastructure have been inadequate, and
some water mains have been damaged by careless
construction practices. Customers have resisted paying
for water because of the general lack of accountability
in the water sector. This is now beginning to change
as the water-services providers continue raising public
awareness of the importance of paying for water, and
revenue collected by the water-providing enterprises has
been increasing.
Reforms are driven by the National Policy on Water
Resources Management and Development (1999), the
NWRMS of 2003 and the National Water Services
Strategy and Investment Plan (2003). The Water Act
of 2002 created the legal framework for the
implementation of these policies. The key principles
of the reform are articulated around the separation of
regulatory functions from services delivery, separation
of ownership of assets from responsibility for operation
and maintenance, the introduction of performance
targets and commercial principles, the ring fencing of
water-services revenues to allow the collected revenue
to be ploughed back and the redeployment of existing
staff to the new institutions.
Furthermore, it is government policy to devolve
policy implementation to communities, the private
sector and sector stakeholders. This approach is detailed
in the Strategy for Performance Improvement in the
Public Service and in the policy on the reforms and
privatisation of public enterprises. In this arrangement,
the role of the ministry will be directed at policy
formulation, implementation, co-ordination, support
in resource mobilisation and regulation. This new
thrust is reflected in the Water Sector Strategic Plan.
311
Kenya
Currently, MWI gives higher priority to water
supply than to sanitation services. The MWI deals
with sewerage, bearing in mind that other sanitation
issues are being handled by the Ministry of Health. The
fear is that if most of the resources are directed towards
the provision of water supply while neglecting sanitation
services, the environmental-sustainability MDG might
not be achieved. Synergies do exist, however, as
sanitation services are also provided by other
stakeholders, such as the Ministry of Health.
312
A study is expected to be commenced soon to
determine the total amount of investment required for
an efficient WSS infrastructure. The major actors in
financing the water sector are the government and
donors/development partners, mainly through revenues
generated from water charges, government budgetary
allocations, loans and grants. Multilateral financial
institutions give loans and grants to water projects, while
the New Partnership for Africa’s Development (NEPAD)
water and sanitation programme provides technical
advice. Multi-stakeholder participation in the WSS
sectors is ensured through the Sector Wide Approach to
Planning (SWAP). Donor funds increased significantly
in 2006 to KES 16.5 billion. The main donors were the
Swedish International Development Agency, the Danish
International Development Agency, the African
Development Bank, the World Bank, the French
Development Agency, the Arab Bank for Development
in Africa, Japan International Cooperation Agency, and
the UN Human Settlement Programme UN-HABITAT.
A number of projects are currently planned,
including the Nile River Basin project for Efficient
Water Use for Agricultural Production, the ongoing
restructuring of the MWI headquarters, and the
rehabilitation of water and sewerage in Nairobi,
supported in large part by the Africa Water Facility. The
government budget for the MWI increased from
KES 3 billion in 2001/02 to KES 11 billion in 2006/07,
with development expenditure for the water sector
increasing from KES 3.2 billion in 2004/05 to
KES 6 billion in 2005/06.
Further institutional changes are also needed. A
policy on the management of transboundary water
resources is wanting but currently being developed in
the context of new projects in the planning and of the
Nile Basin Initiative. A national WSS monitoring and
evaluation mechanism is also lacking. WSS issues are
monitored and evaluated by the implementing
institutions – the MWI or the Ministry of Health, for
instance. Reports are provided regularly and published
periodically. There is nonetheless transparency in the
award of contracts, with no known political interference
in water management.
One of the major indications of the determination
to pursue good governance has been Kenya’s
commitment to the African Peer Review Mechanism.
Kenya completed the peer review process at the 5th
Summit of the APR Forum in Banjul, the Gambia in
June, 2006.
The National Rainbow Coalition (NARC)
government promised to deliver the new constitution
within 100 days of its taking office, but failed to do
so. The draft supported by the government was defeated
by the supporters of the opposition party in the
21 November 2005 national referendum, and it appears
likely that constitutional reform will not materialise
before the next general election.
There was some realignment amongst the political
parties after the reconstitution of the cabinet soon after
the government lost the constitutional-referendum
vote in November 2005. The formation of a
Government of National Unity involved part of the
original NARC, as well as some members of parliament
(MPs) from the opposition parties. MPs from the
NARC rebel wing of the Liberal Democratic Party
(LDP) were left out of the new governing coalition.
NARC-Kenya (NARC-K) was launched on 3 June
2006 with a huge show of power featuring the Vice
President and half of the cabinet in attendance. In July
2006, by-elections were occasioned by the death of
five MPs in a plane crash. NARC-K won three of the
five vacant seats, beating LDP and Kenya African
© AfDB/OECD 2007
Kenya
National Union (KANU) rivals in an election that
some considered a sign of the direction the next general
election will take. NARC-K is closely associated with
the government, although the president has never
declared direct support for the party.
KANU, together with the LDP, had campaigned
against the proposed constitution and both have now
formed a coalition party, the Orange Democratic
Movement Kenya (ODMK), to challenge the current
government. Currently, the Political Parties Bill 2006
is awaiting debate in parliament. The bill, if passed, will
pave way for political parties to receive funding from
the treasury.
In an effort to improve governance and reduce the
perception of being a corrupt regime, measures are being
taken to strengthen key institutions – including the Office
of the Attorney General (AG), The Director of Public
Prosecutions, the Judiciary and the Kenya Anti-Corruption
Commission (KACC) – that are on the front line of the
war on corruption.These measures include: hiring lawyers
and special prosecutors from the private sector; reviewing
terms and working conditions of the legal staff in the AG’s
chamber; increasing the number of judges and anticorruption courts; and implementing various governance
and anti-corruption strategies.
Efforts to improve the quality of free primary
education are continuing. These include: financial
management and accountability in schools; rationalising
the deployment of teachers; targeting tuition
scholarships to poor and orphaned children; expanding
and improving educational facilities countrywide; and
providing adequate teaching and learning materials in
schools. These measures have resulted in a significant
improvement in a number of indicators.
The percentage of primary-school graduates
enrolling in secondary school increased from 47 per cent
in 2002 to 57 per cent in 2006, and a target of 70 per
cent has been set for 2007. The number of students
enrolled in universities increased from 71 349 in
2001/02 to 89 979 in the 2005/06 academic year.
However, notable problems subside, including the
misappropriation of funds by headteachers, inadequate
physical infrastructure, a low teacher-pupil ratio and
the sustainability of the school feeding programme,
especially in ASAL areas.
313
In addition, the national security loan contracts
awarded by the Department of Defence have been
audited and investigated and the reports tabled by the
Controller and Auditor General as well as the Public
Accounts Committee. These contracts are also under
investigation by the KACC.
The authorities continued reorienting policy towards
preventive healthcare provision, while ensuring efficiency
and effectiveness in healthcare service delivery
countrywide. Reforms implemented in 2006/07
include: improving healthcare procurement procedures
and accountability systems, as well as strengthening
supervision capacity of medical supplies in rural heath
facilities in order to improve access to drugs and medical
supplies. The allocation of resources to the health sector
was increased from 8.6 per cent of total government
expenditures in 2005/06 to 9.4 per cent in 2006/2007
to promote the achievement of the MDGs.
The Government continued to improve the delivery
of services at the local level as a way of alleviating
poverty mainly through the increase of devolved funds.
This included the Constituencies Development Fund
(CDF), the Local Authorities Transfer Fund (LATF)
and the Road Maintenance Fund (RMF), amongst
others. In 2006/07, the CDF was increased by almost
40 per cent from the statutory requirement of 2.5 per
cent of ordinary revenues to about 3 per cent. Similarly,
the LATF and RMF were increased by a comparable
34 per cent and more than 50 per cent, respectively.
These resources were used to fund, amongst others,
HIV/AIDS interventions, healthcare infrastructure
and affordable drugs. The government, in collaboration
with non-governmental organisations, set up mobile
medical programmes targeting vulnerable groups such
as those with disabilities and people living a nomadic
life. The government supplements the health budget
for anti-retroviral drugs using money provided through
the treasury from the Global Fund while the Ministry
of Health is responsible for its distribution. The
enactment of the Sexual Offences Bill in July 2006
© AfDB/OECD 2007
Kenya
will also help to support the fight against the spread of
HIV/AIDS. The HIV and AIDS Protection and
Control Act, 2006, was enacted in December 2006.
The Act provides for the protection and promotion of
public health and for the appropriate treatment,
counselling, support and care for persons infected or
at risk of HIV and AIDS infection.
314
The infant-mortality and the under-five-mortality
rate are estimated at 77 and 115 per 1 000 live births,
respectively. The Kenya Demographic and Health
Survey 1998 indicates a wide disparity of under-five
mortality across regions, with low mortality in the
central part of the country while the rest recorded high
mortality rates. Efforts to reduce child mortality have
been hampered by a number of factors, including: a
decline in levels of immunisation coverage against the
six childhood diseases; recurring incidence of hunger
and the resultant protein-energy malnutrition amongst
children; widespread incidences of malaria, diarrhoea
and acute respiratory infections, which mainly have an
impact on children; the HIV/AIDS epidemic and
related opportunistic infections; low literacy levels and
low mothers’ education levels in many parts of the
country; inadequate access to sustainable clean-water
sources and sanitation facilities; lack of access to health
services in many parts of the country; and insufficient
resources, including trained health workers, equipment,
drugs, etc.
There were a few incidents of polio outbreaks, a
disease that was last detected in Kenya more than
22 years ago. This was suspected to be caused by the
influx of refugees from the neighbouring countries.
The target of creating at least 500 000 jobs annually
has continued to remain a challenge to the government.
The economy has been generating an average of 471 000
jobs annually, most of which were in the informal
sector. In 2004 and 2005, employment creation was
short of targets by 16.6 and 41.1 thousand jobs,
respectively. This situation may improve somewhat,
following the establishment of a Youth Enterprise Fund
established to provide young people with access to
credit for starting or up-scaling small or medium-sized
enterprises, developing their entrepreneurial skills
and/or creating job opportunities.
© AfDB/OECD 2007
Madagascar
Antananarivo
key figures
•
•
•
•
•
587
19 105
920
56
29.3
Madagascar
M
ADAGASCAR’S ECONOMY FELL INTO A DEEP recession
after the 2001 political crisis and shrank by 12.7 per
cent in 2002. It soon bounced back, however, with
growth of 9.8 per cent in 2003 and further expansion
in 2004 (5.3 per cent), 2005 (4.6 per cent) and 2006
(4.8 per cent). The recovery was fuelled by the strong
performance of the primary and secondary sectors and
further reforms to bolster the opening up of the
economy, improve macroeconomic stability and
governance, and combat poverty more effectively.
Macroeconomic policy since 2002 has been based
on maintaining stability to encourage growth and
reduce poverty. The government has focused on reform
of the budget and public procurement, more effective
monitoring of public finances and continued efforts to
reduce the share of customs duties in budget revenue.
Elections for president in
Economic recovery is expected
December 2006 and for
to be sustained based on the
parliament in 2007 should
performance of the secondary
encourage the government
and tertiary sectors which
to stick to this course.
benefited from fiscal and
Adoption of programme
macroeconomic reforms.
budgets and a serious war
on corruption should greatly improve management of
public finances.
317
http://dx.doi.org/10.1787/638420028046
© AfDB/OECD 2007
Madagascar
318
Despite good performances in 2005 by agriculture,
tourism, construction and, to a lesser extent, exports,
real GDP grew only 4.6 per cent, down from 5.3 per
cent in 2004 and well below the 2005 budget’s forecast
of about 7 per cent. This outcome was mainly due to
higher world oil prices, expensive electricity and frequent
blackouts caused by the financial crisis at the national
power and water company Jirama, which hurt the
productive sectors, especially industry. Although growth
was up slightly in 2006, it is further threatened by
persistent structural problems linked to public finance
management, slow reform of the public sector,
governance issues and a poor business climate that
discourages private investment. The expiry of the
African Growth and Opportunity Act (AGOA)
preferences for Madagascan exports to the United States
will not help matters. The government wants to use all
the opportunities provided by its membership of the
Common Market for Eastern and Southern Africa
(Comesa) and the Southern African Development
Community (SADC).
The tertiary sector, which accounts for more than
half of GDP, was the star performer in 2005 with
6.2 per cent growth, mostly due to booming transport,
telecommunications, banks, insurance and services.
Extension and modernisation of the country’s roads
opened up isolated productive regions and linked them
to markets for agricultural and industrial items. Despite
the threat posed by chikungunya fever, the tourism
sector still managed to contribute to growth, and
energetic promotion of Madagascar as a tourist
destination led to the opening of eight new hotels in
the first quarter of 2006. The government is encouraging
the sector with a tourism master plan (TMP) and
giving higher status to the national tourism office.
The primary sector, which accounts for about a
third of GDP, grew a modest 3.3 per cent in 2005 (up
from 3.1 per cent in 2004). Its best performer was
agriculture, where rice production increased thanks to
good weather and the improvement in growers’ access
to microfinance and inputs, especially fertiliser. Great
efforts were also made to upgrade agricultural
infrastructure such as dams and irrigation channels,
expand crop areas and teach growers about new
production methods. Sector growth is expected to slow
to 2.1 per cent in 2006 because of poor rainfall and
costlier energy.
The secondary sector (a bare 16 per cent of GDP)
performed least well in 2005, growing only 3 per cent
(less than half the 6.6 per cent recorded in 2004). It
grew 4.7 per cent in 2006 but was hit by the end of
the Multifibre Arrangement (MFA) at the beginning
of the year, higher oil prices, frequent power cuts and
sluggish industrial output, especially in the free zones.
Industrial activity outside the free zones grew nearly
12 per cent in 2005 due to good results in construction
materials (up 13.5 per cent), construction (+18.8 per
cent) and electrical appliances (+25 per cent). The
government wants to revive and diversify the sector by
quickening the pace of Madagascar’s integration in the
SADC and encouraging the sugar industry.
(percentage)
http://dx.doi.org/10.1787/381578235225
© AfDB/OECD 2007
Madagascar
Pending the development of a mining sector, which
could be based on oil and diamonds, the economy
continues to rely heavily on traditional products.
World prices for coffee soared in 2005 to $0.56 a bag
(up from $0.37 in 2004), boosting the value of the
country’s coffee exports by 62.5 per cent. In contrast,
vanilla prices slumped 84 per cent in 2005, cutting
export earnings by three-quarters, despite a 50 per
cent rise in the volume exported. The export price of
cloves improved by 20 per cent, but earnings fell
sharply as volume exports were more than 45 per cent
lower. Madagascans still depend on rice, and efforts
to increase food security were expected to boost output
of paddy rice by 15 per cent in 2006 (to 3.93 million
tonnes). The 3.42 million tonnes produced in 2005
were not enough to meet local demand, and the
government had to import rice during the dry season
at a subsidised price. Consumer prices for rice in rural
markets fell in early 2005 despite more expensive
energy and averaged about 900 ariary per kilogram at
the end of the year. The food security policy is also
reflected in fish-farming, which grew 2.8 per cent in
2005 due to restocking, production of alevin and the
introduction of forgery-proof fishing permits to protect
fish stocks and regulate the industry better. Efforts to
improve livestock quality included importing
9 000 doses of selected animal semen, local production
of 7 055 doses and vaccinating 77 per cent of cattle.
Consumption of oil products fell slightly (0.6 per
cent) in 2005, but that of electricity grew 3 per cent.
Mining advanced in 2006 with a 9 per cent increase
in chromite production and planned investment by
Qit Madagascar Minerals to extract ilmenite (titanium
ore) in the Tolagnara (formerly Fort Dauphin) region.
Other investment is being negotiated with the
Dynatec/Sumitomo consortium to mine nickel and
cobalt at Ambatovy. Madagascar also earned about
6 billion ariary in 2005 from exports of precious stones.
In all, mining yielded 339 million ariary in royalties
for the government, as against 212 million in 2004.
Oil exploration in the Mozambique Channel by
Madagascar Oil may boost revenue from 2009.
Tourism continued to expand in 2005, and eight
new hotels opened in the first quarter of 2006. Visitors
© AfDB/OECD 2007
were up more than 21 per cent on 2004, generating
19 per cent more revenue (367.7 billion ariary, compared
with 308.3 billion in 2004). Major investments are
planned to convert sites in the south to up-market
tourist destinations. Rail transport of goods grew
strongly (about 30 per cent), contrasting with the poor
performance of road transport, held back by higher oil
prices and a sluggish industrial sector, and the even
weaker performance of sea transport, which declined
more than 11 per cent year-on-year, mainly due to
lower imports of capital goods. Banking and insurance
continued to grow, thanks largely to greater public
access to microfinance, whose use increased from 4 per
cent of households in 2000 to 7.6 per cent in 2005.
New technology also prospered, especially in fixed and
mobile telephony, which gained 50 per cent more
subscribers in 2005 year-on-year. Banking should grow
by 6.9 per cent in 2006 (+6.6 per cent in 2005), and
microfinance providers are expected to serve an
increasing percentage of potential customers (15 per
cent in 2005) and also improve the loan satisfaction
rate (50 per cent in 2005). The goal in
telecommunications is to expand national phone
coverage, which was still only 3.2 per cent in 2005.
Overall economic activity in 2006 was helped by
a 14.8 per cent rise in gross investment. Public
investment was fairly in tune with the priorities of the
poverty reduction strategy paper (PRSP), despite the
fall in its GDP share to 9.3 per cent in 2005 (10 per
cent in 2004) and changes in execution procedure for
government spending. Public investment should rise
(to 10.8 per cent of GDP) in 2006 to support
infrastructure and the social sector, followed by a
renewed fall in the medium term. Private investment
has steadily risen, to 16.7 per cent of GDP in 2005
(14 per cent in 2004), and should reach 18.2 per cent
in 2006. It is expected to increase further in the medium
term if the business climate improves and
macroeconomic policy is stabilised. Public consumption,
despite a smaller share of GDP in 2006 (8.6 per cent,
down from 9 per cent in 2005), should increase in
2006 due to the rise in capital expenditure. Private
consumption has also risen, and the gradual fall in
inflation (to an expected 5 per cent in 2009) should
boost household purchasing power.
319
Madagascar
After the expiry of the MFA and the drop in raw
material prices, goods exports fell 11.2 per cent in
2005, to 1 675.7 billion ariary (from 1 864.5 billion
in 2004). Imports rose about 5 per cent, to
2 817.6 billion ariary (2 684.3 billion in 2004),
mainly because of greater imports of subsidised rice.
Abolition of customs duty exemption for imported
capital goods in the last quarter of 2005 cut the
inflow of such goods in 2006 to 464 billion ariary
(from 736 billion in 2005) and caused a drop in
public and private investment in productive activity.
Customs duties and import taxes are to be combined
in a single tax category. The expiry of the MFA in
2005 and of the third-party provision of AGOA (the
last stage of the preferences process for Madagascan
exports to the United States) in 2007 will hurt the
Madagascan economy. To soften the blow, the
government is finalising the 2007-11 Madagascar
Action Plan (MAP) to replace the PRSP and setting
clear quantitative targets based on the national
development vision “Madagascar, Naturally” and the
Millennium Development Goals (MDGs). The MAP
will spell out the government’s development aims,
enable it to respond to opportunities arising from
globalisation and make the country’s forecasting and
planning more effective.
1998
2005
2006(e)
Percentage of GDP
(current prices)
320
(percentage of GDP)
2007(p)
2008(p)
Public
Private
14.4
7.5
6.9
26.0
9.3
16.7
14.8
20.0
12.0
8.5
6.0
10.0
7.4
3.0
10.0
Consumption
Public
Private
93.8
8.0
85.9
91.4
9.0
82.4
3.3
1.4
3.5
4.3
8.8
3.9
5.0
5.0
4.9
-8.2
21.4
-29.7
-17.3
28.2
-45.5
5.6
8.1
3.7
4.4
4.1
4.8
External sector
Exports
Imports
Source: National Statistics Institute data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/610120035362
Fiscal Policy
Government revenue increased due to streamlining
of the tax system, better tax and customs collection,
and, in part, the abolition in September 2005 of customs
exemptions for imported capital goods. This income
was not enough to cover expenditure, however, owing
to the reductions in duty on emergency rice imports.
Total revenue (excluding grants) in 2005 was
1 102.8 billion ariary (10.9 per cent of GDP), up from
982.4 billion in 2004 (12 per cent of GDP), with an
expected further increase to 1 340 billion ariary (11.3 per
cent of GDP) in 2006.
Public spending was held to 21.3 per cent of GDP
in 2005 and was geared mostly towards investment in
infrastructure, health and education. It rose to an
estimated 21.7 per cent of GDP in 2006. Capital
expenditure also rose, by about a quarter over 2005,
to more than 1 290.4 billion ariary (11 per cent of
GDP), 1 004 billion of it funded by debt relief under
the Heavily Indebted Poor Countries (HIPC) Initiative.
To avoid the spending overruns, particularly in
budgetary spending, that occurred in 2005 after pay
rises for civil servants, the government has adopted
programme budgets and set up budgetary and financial
discipline councils. Systematic analytical audits of
spending will be conducted, and ministries will have
to submit monthly spending plans so that the treasury
© AfDB/OECD 2007
Madagascar
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Tax revenue
Grants
14.1
9.8
3.5
15.4
10.0
5.1
20.3
10.9
8.2
16.7
10.4
5.7
17.0
10.6
5.8
16.1
10.4
5.1
15.1
10.4
4.1
Current expenditure
Excluding interest
Wages and salaries
Interest
Capital expenditure
19.9
10.6
7.8
4.1
2.7
8.2
19.6
10.1
7.9
5.4
2.2
7.8
25.2
12.6
9.7
4.9
2.9
12.5
21.3
11.0
8.3
4.5
2.6
10.3
21.7
10.4
8.3
4.3
2.2
11.2
21.0
9.7
8.1
4.1
1.6
11.3
20.2
9.3
7.8
4.0
1.4
10.9
Primary balance
Overall balance
-3.1
-5.8
-2.0
-4.2
-2.0
-4.9
-2.0
-4.7
-2.6
-4.7
-3.2
-4.8
-3.6
-5.1
Source: Ministry of Finance and Economy data; estimates (e) and projections (p) based on authors’ calculations.
http://dx.doi.org/10.1787/800857142766
can match them to expected revenue and financial
flows. A new information system for monitoring
expenditure will be introduced in 2007 along with
new public procurement rules. Money freed up under
the Multilateral Debt Relief Initiative (MDRI) will go
exclusively to poverty reduction and will be monitored
accordingly.
Despite problems in cutting expenditure, the
government hopes to end the 2006 budget period with
a deficit (including grants) equal to 4.7 per cent of
GDP. To reduce it further, administrative and tax
measures are planned to increase the tax burden to
10.7 per cent in 2006 (10.1 per cent in 2005). This
rate is far too low, and the country will have to increase
it gradually in order to offset (with more stable budget
revenue) the abolition of customs duties scheduled as
part of Madagascar’s membership of SADC and
Comesa. The tax on oil products was raised in January
2006, by 66 per cent on petrol and 178 per cent on
diesel. Steps are also planned to improve management
and collection of VAT, after cutting the average rate from
20 to 18 per cent and unifying it into a single rate. The
tax administration and its data and assessment system
will be made more efficient.
declined to 11.4 per cent in 2006 (from 18.4 per cent
in 2005) due to a sizeable fall in the price of consumer
staples, while the prices of other goods remained tied
to higher world oil prices and electricity rates and to
depreciation of the ariary.
To limit the excesses caused by the supply-side
shocks, the BCM kept in place in 2005 the restrictions
it introduced in 2004 to curb growth of the money
supply. This more cautious monetary policy, controlling
the sources of money creation, involved keeping the
BCM’s intervention rate at 16 per cent and the reserve
requirement at 15 per cent. Since banks found
themselves in a situation of excess liquidity early in
the year, these measures were reinforced in April by
exclusion of banks’ cash in hand from the calculation
of the reserve requirement.
Monetary Policy
Loan policy in 2005 was to encourage primary
banks to finance the private sector, and loans to business,
especially to importers of oil products, rose 22 per cent
during the year. Financial markets did well in the first
half of 2006 with renewed auctioning of treasury bonds,
which allowed non-bank financial institutions to buy
them as well and enabled the government to finance
the deficit in a more sound manner while tapping at
source into some of the excess bank liquidity.
Like other central banks, Banque centrale de
Madagascar (BCM) has the job of ensuring stability of
prices, the currency and the exchange rate. Inflation
The government hopes to bring inflation down to
5 per cent in the medium term, but the double-digit
rates of the past five years (except in 2003) could
© AfDB/OECD 2007
321
Madagascar
persist for the next few years, especially if drought
exerts inflationary pressure by reducing hydroelectric
energy output and future harvests. The inflationary
trend may also last because of rising water and electricity
prices. To curb money creation, the government also
hopes to use liquidity controls such as tenders and
repurchasing. Treasury repayments will also reduce
the government’s debt. The nominal effective exchange
rate fell by 9 per cent between April 2005 and April
2006, which allowed the real rate to sink below the
level it reached before the 2004 devaluation. The
government wants to keep the floating rate, limiting
BCM intervention to smoothing out large rate
fluctuations and meeting targets for foreign exchange
reserves (the target for 2006 was the equivalent of
2.9 months of imports).
322
goods imports fell somewhat from the 2004 figure
because of the abolition of customs exemptions, while
the terms of trade deteriorated as world oil prices rose.
Reduced foreign grants and loans in 2005 helped keep
the balance-of-payments deficit at about the same level.
External Position
The government streamlined customs duties by
combining them in three tariff bands (of 5, 10 and
20 per cent). In addition, Madagascar recently joined
the SADC and wants to use all the opportunities it
provides for agriculture and tourism. The country also
belongs to Comesa, whose members are considering a
common external tariff. Madagascar will have to phase
out its customs duties, which will be abolished under
these regional agreements, and find more reliable sources
of revenue. As well as using current foreign aid, the
government plans to call on the European Union for
substantial help in funding the MAP.
The current account deficit was 10.1 per cent of
GDP in 2005, with the sharp drop in vanilla prices, a
fall in shrimp exports because of overfishing and the
end of the MFA all substantially reducing export
earnings. The deficit is expected to reach 16.8 per cent
in 2006 because of a big rise in total imports (to
5 167 billion ariary, from 4 598 billion in 2005). Goods
exports fell in 2005 (to 1 798 billion ariary from
1 853 billion in 2004) but are expected to rise to
1 986.4 billion in 2006, while goods imports, which
rose slightly in 2005, should reach 3 159.6 billion.
The trade deficit is thus set to increase to 13.3 per cent
of GDP in 2006 (from 9.5 per cent in 2005). Capital
The total external debt was 69.7 per cent of GDP
($3.5 billion) in 2005, 80 per cent of it bilateral and
multilateral. The debt situation in 2006 seems
sustainable due to cancellation of nearly $2.4 billion
in debt under the HIPC Initiative and the MDRI.
Analysis of its viability shows that the main debt
indicators, which were already satisfactory in 2005,
would fall substantially in 2006, and that the country’s
stock of debt would be cut by some 70 per cent by the
end of the year. The government’s strategy for controlling
future debt involves the use of soft loans and curbing
domestic debt by gradual withdrawal from the banking
sector and repayment of its commercial debt.
(percentage of GDP)
1998
2003
2004
2005
2006(e)
2007(p)
2008(p)
Trade balance
Services
Factor income
Current transfers
-4.0
14.0
18.0
-3.8
-2.0
2.3
-4.0
14.4
18.4
-5.4
-1.5
5.5
-10.0
22.7
32.7
-6.3
-1.5
7.5
-9.5
17.8
27.4
-3.5
-1.6
4.5
-13.3
16.3
29.6
-6.0
-1.3
3.9
-12.8
16.0
28.8
-5.9
-1.2
3.8
-12.9
15.6
28.5
-5.8
-0.9
3.5
-7.5
-5.4
-10.3
-10.1
-16.8
-16.1
-16.2
http://dx.doi.org/10.1787/024776006677
© AfDB/OECD 2007
Madagascar
Source: IMF.
323
http://dx.doi.org/10.1787/322880454002
Structural Issues
Recent Developments
Madagascar is one of the world’s poorest countries
(ranked 146th out of 177 in the UN Development
Programme’s 2006 Human Development Report),
and its economic development is held back by lack of
local savings, outdated economic and social
infrastructure, very unequal and arbitrary application
of rules nationwide and, in recent years, frequent and
extensive power cuts by the state water and electricity
monopoly Jirama, which is in acute financial and
structural crisis. The country’s weak structures are illequipped to manage public finances and withstand
external shocks, including wildly fluctuating prices
for products such as oil and vanilla.
The government has asked the International
Monetary Fund (IMF) to help, through a new poverty
reduction and growth facility (PRGF) agreed on in July
2006 to support its 2006-08 programme for economic
growth, budget consolidation, and reduction of poverty
© AfDB/OECD 2007
and vulnerability to external shocks. The authorities
have also asked the IMF to apply its Trade Integration
Mechanism (TIM) to help them cope with the expiry
of the MFA and AGOA. Madagascar has received IMF
technical assistance since 2005 to help with
management of tax revenue and public finances and
with a financial sector assessment programme (FSAP).
It has also had help in recent years with tax and customs
policy and administration. Other major steps to clean
up public finances have included computerising
procedures under an integrated system of managing
public finances and combating corruption through a
national anti-corruption council and an independent
anti-corruption office. Reform of procurement
procedures resulted in new regulations in 2006. Most
prices have been liberalised, and the bold introduction
of 99-year leases aims to reassure foreign investors
about access to industrial and agricultural land.
Thirty-five of the 47 state firms due to be privatised
were turned over the private sector in 2005 and 2006,
including the phone company Telma and the northern
railway company RNCFM. Divestment of Air
Madagascar
Madagascar was suspended, however, and that of
Aéroports de Madagascar (Adema) is not complete.
Others due to be privatised are either being reorganised
(such as the sugar company Sirama) or being turned
into shareholding firms so some of their assets can be
sold off. In 2007, the government plans to prepare for
privatising the southern railway and the port of Mana
Kara by getting the World Bank to pay for upgrading
infrastructure to ensure the line is financially viable, and
to franchise out the 12 airports run by Adema.
324
The government is paying special attention to
Jirama because of its huge effect on the entire economy.
A variety of measures have been taken to deal with its
structural and financial problems, including franchising
it and revising its rates. A private management contract
to have the firm operated under a lease arrangement
has been drafted with World Bank help. Electricity
prices rose 93 per cent in 2006 and a thorough
restructuring plan has been submitted to the funding
agencies. The government is also pulling out of watersupply operations. The government wants to complete
the entire privatisation programme in 2007 and 2008
but is meeting strong resistance from trade unions and
from squatters blocking settlement of land issues and
delaying the divestment process.
Good transport infrastructure encourages
agriculture and fisheries by linking these sectors to
markets and helping to reduce poverty, especially in
the rural south, where 39.7 per cent of the country’s
poor live. One of the pillars of the infrastructure
development strategy is thus to improve transport in
the countryside, where it is very important. The
government is speeding up a road project in Toliara
province (upgrading highway RN 1 bis), repairing
infrastructure damaged by cyclones and, with the
help of the African Development Bank (AfDB),
completing the surveying of RN 9, which will allow
the country to present its development partners in
2008 with an integrated road project. RN9 will be
crucial to success of the PRSP, since it will be a major
link between the fisheries project area and the outskirts
of Bas-Mangoky and Manombo with the port of
Tuléar. Achievements in 2006 included a maintenance
plan for 4 500 kilometres of metalled roads and 3 700
of unsurfaced roads, expansion of meteorological
infrastructure and assistance, and upgrading sections
of railway (70 kilometres in the north and 40 in the
south). Two agencies, one for roads and the other for
road transport, have been set up to regulate transport
and encourage competition between hauliers.
Opening up the economy, political stability and
streamlining visa and work-permit formalities have
improved the business climate. A commercial
arbitration law was passed in 2005, along with a code
of conduct for judges encouraging them to open
private practices. These reforms, as well as better
performance by the banking sector and privatisation
of two banks, have helped boost private investment.
The government and the World Bank have nearly
completed an investment climate assessment (ICA)
and are hoping for good results from current
decentralisation and devolution of procedures and
practices in the country’s 22 regions. However, the
private sector is still hampered by poor basic
infrastructure, overly expensive factors of production,
lack of long-term financing and structural flaws in the
banking system. Arbitration procedures are still drawnout and inadequate, and the poor qualifications, pay
and working conditions of judges are still causing
problems. Madagascar dropped one place (from 148th
to 149th) between 2005 and 2006 in the World Bank’s
2006 Doing Business Index, which measures the
business climate. It jumped an impressive 28 places
in the ranking for business creation, but dropped 36
places in the labour law facilities category. The
government’s opening of a one-stop shop has reduced
bottlenecks and costs due to bureaucratic delays. The
authorities also intend to continue modernising
business laws (already well under way through a
business law commission) and build a suitable legal
and institutional framework to promote public-private
partnerships. The government will have to sort out
the land issue (a major obstacle in the key agriculture
and tourism sectors) if more foreign direct investment
(FDI) is to be attracted. About 90 per cent of farmers
own their land, but only 8 per cent have proper deeds
to it. This hampers partnership with foreigners and
reduces the property market, along with access to
loans, for which land is often used as security.
© AfDB/OECD 2007
Madagascar
The financial system comprises the BCM, seven
commercial banks, various microfinance institutions,
insurance companies, and pension and retirement
funds. Reforms have begun in this sector as well, to
liberalise it and make it more efficient. Special attention
has been given to making the BCM more independent
from the government. The banking system remained
profitable and well-funded in 2005 and should grow
6.9 per cent in 2006 (+ 6.6 per cent in 2005).
Government debt to the banks fell by 27.5 per cent in
2005 (to 294.1 billion ariary from 405.8 billion in
2004) and should drop by another 73 billion ariary in
2006. Solvency and liquidity indicators improved, and
banks had far fewer non-performing loans. Two laws
were passed to monitor and regulate credit institutions
and mutual finance bodies. A banking and financial
supervision commission was set up and prudential
management standards introduced. Steps were also
taken towards privatising state banks and boosting the
interbank exchange market. Despite these reforms,
much remains to be done in financial intermediation,
diversifying financial products and broadening access
to financial services. With World Bank and IMF help,
the government completed a review of the financial
sector in 2005 that identified its weaknesses and
provided the basis for a programme to build capacity
and boost technical assistance.
To encourage savings, which are expected to increase
15 per cent in 2006, the government, with support from
the Millennium Challenge Corporation, is encouraging
savings banks and facilities to expand in rural areas
and wants to strengthen the payment system to cut
delays, set up a nationwide clearing-house for credit
institutions and draw more of them into the formal
banking system. Steps have also been taken to expand
and decentralise the financial market so that large towns
and cities can issue bonds, especially for small investors.
Despite its huge potential, agriculture is struggling
to expand in the face of obstacles such as bad agricultural
infrastructure and transport, which prevents the
emergence of serious commercial farming. The low
technical capacity of farmers, lack of access to credit,
poor training and the poor organisation of the sector
also hold it back. Agriculture has a key part to play in
© AfDB/OECD 2007
the fight against poverty, so the government, as part of
its “Madagascar, Naturally” development vision, wants
to double agricultural output between 2004 and 2009.
Urgent measures were taken in 2005 to combat forest
fires, reduce by a quarter the area burned and replant
50 000 hectares a year with mostly high-quality species
which could earn foreign exchange.
Prevention of forest fires, reforestation and
improved weather forecasting are crucial aspects of
the management and preservation of the country’s
natural resources. The same is true of improving
rural living conditions, which can be done by
supplying primary healthcare, education and better
access to drinking water and sanitation. A policy of
sustainable management and use of fish stocks has
been started, with the introduction of forgery-proof
inland and marine fishing permits and the restocking
of water courses. Sustainable management of forests
and protection of wetlands and marine and coastal
eco-systems is being pushed thanks to Madagascar’s
signing of the Ramsar Convention on Wetlands and
the Nairobi regional convention. A network of
protected areas (Système d’aires protégées de
Madagascar – SAPM) was set up in 2005 to protect
plant and animal life and develop eco-tourism. Better
regulation of the gem and gem-cutting sub-sectors
has been introduced. These measures have been
completed by a new mining code and a law governing
major mining investments as part of a project on
governance of mineral resources (Projet de
gouvernance des ressources minérales – PGRM) and
Madagascan membership of the Extractive Industries
Transparency Initiative (EITI).
The country’s water resources are shrinking due to
climate change, uncontrolled use and alarming damage
to the environment through organic pollution and
forest fires. The sector also suffers from non-integrated
water management, lack of well-structured coordination,
a large number of operators and institutions whose
activities overlap and cause wastage, government
domination and a low rate of satisfaction of water and
sanitation needs.
325
Madagascar
326
The PAEPAR drinking water and rural sanitation
project (Projet d’alimentation en eau potable et
assainissement rural) aimed to build the capacity of the
government, private sector and local communities to
supply water and sanitation sustainably and effectively.
The $17.3 million project, funded by development
partners and the World Bank, covered the 1998-2005
period. The government has switched from a pilot
approach for the sector to a programme budget
approach. PAEPAR also facilitated $100 million of
new rural projects funded by the AfDB. They included
installing 627 wells with hand pumps and 320 gravity
systems, with local communities helping to pay for
them in cash and in kind. About 300 gravity systems
and 350 equipped wells can be installed in the country
each year. Average distances from water sources have
been reduced from three kilometres to 500 metres and
water-drawing time by 40 minutes per journey, which
has increased consumption and noticeably reduced
water-borne diseases in the project areas. The project
also encouraged use of family latrines and introduction
of the Diorano-WASH public-private partnership
programme to get people to wash their hands with
soap. These results have been welcomed by the partners,
as diarrhoeal illnesses are the second biggest cause of
morbidity in Madagascar, affecting 51 per cent of all
children under five. About 2.5 million Madagascans
are infected with bilharzia, and 60 per cent of children’s
deaths are due to polluted water and bad sanitation.
Under the integrated water resource management
strategy (Gestion intégrée des ressources en eau –
GIRE), a national water and sanitation authority was
established (Autorité nationale de l’eau et de
l’assainissement – ANDEA), which since 2003 has
monitored drinking water quality. Since there are no
facilities yet to treat sewage and industrial effluent,
ANDEA monitors the environment and compliance
with environmental standards. The institutional reforms
in the sector also include, for reasons of efficiency and
recovering costs, the establishment of regional and
local water and sanitation departments to ensure good
management of existing infrastructure and reduce
unaccounted-for water to a minimum. Customers will
have to pay part of the cost – an annual per capita $70
for water and $10 for sanitation. Over the 2005-09
period, development partners will also be working on
capacity building and the development of rural water
supply and sanitation infrastructure.
In 2005, 29.88 per cent of Madagascans had access
to drinking water (66.53 per cent in urban areas and
15.63 per cent in the countryside). Sanitation access
was 52 per cent (73.3 per cent urban and 44.2 per
cent rural). The south of the country was worst off. In
2006, these figures are expected to be 36 per cent for
drinking water at national level (67.16 per cent urban
and 19.13 per cent rural) and 58.10 per cent for
sanitation (76.36 per cent urban and 58.10 per cent
rural). About 400 delivery systems were planned, but
only 106 were built in the first half of the year (an
execution rate of 27 per cent). Some 4 000 new latrines
were to be installed, and 3 000 are already in place.
With the lessons it learned from PAEPAR, the
government adopted a national water and sanitation
access programme (Programme national d’accès à l’eau
potable et à l’assainissement – PNAEPA) in 2005 to
move towards achieving the MDGs. The government
has promised access to improved water for 72 per cent
of the population by 2015 and better sanitation for more
than 50 per cent.
PNAEPA funding rose from $10.6 million in 2004
to $14.6 million in 2005, 40 per cent of it from local
sources. Clean water was supplied to about
148 000 people in 2004 and 222 000 in 2005,
compared with only 50 000 in 2001. A national
sanitation policy and strategy (Politique nationale et
stratégie pour l’assainissement – PNSA) was drawn up
in 2006 and will be presented to the government for
approval. An action plan for the entire water and
sanitation sector has also been drafted and put in place.
The overall programme for 2005-15 will be
implemented through sub-programmes. The energy
and mines ministry has drafted a nationwide mediumterm expenditure framework (MTEF) for 2006-08. A
first sub-programme, presented to aid donors in
February 2005, covers seven of the country’s 22 regions
and will be jointly funded by the government, local
people and the African Development Fund.
© AfDB/OECD 2007
Madagascar
Madagascar has emerged from a long period of
state control of economic and political affairs that led
in 1996 to the introduction of reforms to open up the
economy and reverse rapidly declining per capita
income. A transition crisis delayed them, but after the
election of President Marc Ravalomanana in 2002,
stabilisation efforts resumed with support of
development partners. The country reached the decision
point under the Enhanced HIPC Initiative and then
completion point in 2004.
Ravalomanana was re-elected in December 2006,
and parliamentary elections are due in 2007. Fourteen
opposition parties fielded presidential candidates and
called on the international community to ensure the
honesty of the poll and the vote-counting. The media,
which is genuinely free, provided full coverage of the
elections, including clashes during the campaign.
The government intends to step up the fight against
corruption, reform the civil service, promote the use
of democracy and the rule of law, and start
administrative reforms to increase access to public
services through greater decentralisation and devolution.
The Millennium Challenge Account ranks the country
as its main beneficiary because of its good performance
in governance.
Madagascar scores high among African countries
in respect for women’s rights. The population is
practically at gender parity in terms of completion of
primary education (42.4 per cent for men and 41.5 for
women), but more women are unemployed than men,
and women earn lower wages when they have equal
qualifications.
The main goals of education policy are ensuring
basic education for all and good quality teaching at all
levels, but results are far short of this. Net enrolment
of children aged 6 rose from 67 per cent in 2000 to
96.5 per cent in 2006, but the dropout rate is still very
high. Gross enrolment of children aged 11-14 was only
27 per cent in 2005 and of those aged 15-18 only 7 per
© AfDB/OECD 2007
cent. These are some of the lowest rates in the world,
beneath the sub-Saharan average of 30 per cent for the
11-14 age group and 13 per cent for those aged 1518. The pupil/teacher ratio in primary schools improved
from 59 per teacher in 2005 to 52 in 2006. Only 309
of every 100 000 inhabitants were in higher education
in 2006, compared with an average of 300 in lowincome countries and 1 400 in neighbouring Mauritius.
The number is expected to rise to 358 in 2007 and 407
in 2008. The share of the education budget in the
national budget has been falling since 2004 (when it
was 20.2 per cent), to 19 per cent in 2005 and 16.5 per
cent in 2006. Universities have suffered most from
these budget cuts because their investment spending
has dropped sharply, from 12.4 per cent of education’s
total investment spending in 2005 to 5.6 per cent in
2006. Basic education’s share of the sector budget fell
from 82.8 per cent in 2005 to 78.9 per cent in 2006.
The predominant diseases in Madagascar are still
malaria, diarrhoeal illness, acute respiratory infections,
bilharzia and sexually-transmitted diseases (STD).
Government health priorities for 2006 focused on
improving access to neighbourhood healthcare,
promoting mother/child health and stepping up the
fight against infectious diseases and HIV/AIDS.
Maternal mortality is still high, at 469 for every
100 000 live births, but child mortality below the age
of five fell from 94 per thousand in 2004 to 88 in
2006. A total of 63 basic healthcare centres were built
and equipped in 2005, adding to 197 existing ones,
and 511 doctors, 43 dentists and 669 paramedics were
hired. The battle against infectious diseases targeted
leprosy and malaria. HIV/AIDS incidence is only 1 per
cent among the general population but still more than
5 per cent among those engaged in high-risk behaviour.
The government and its partners have drafted a national
HIV/AIDS action plan because of this danger of greater
infection. An epidemic of chikungunya fever in 2006
affected tourism as well as the general population.
Based on growth projections of 4.8 per cent in
GDP and 2.8 per cent in population in 2006, poverty
was estimated at 67.5 per cent (72.3 per cent in the
countryside and 50.3 in urban areas). These are poor
figures compared with other African countries, but
327
Madagascar
328
showed improvement over the 2005 poverty rate of
68.7 per cent (73.5 per cent rural and 52 per cent
urban). This improvement is probably due to better
public access to basic social services and to infrastructure.
The June 2006 PRSP implementation report noted a
major impact of economic growth on poverty reduction.
The strong 5 per cent average annual growth between
1997 and 2001 brought poverty down to below 70 per
cent, though the gap between rich and poor continued
to widen. Poverty is still mainly rural. The “Madagascar,
Naturally,” target for 2020 puts the rural economy at
the centre of poverty reduction efforts and aims to
double agricultural production and exports over five
years, boost textile exports by half in five years and
200 per cent over 10 years, raise agro-food production
by half in five years and 150 in 10 years, and increase
tourist arrivals from 160 000 in 2003 to 400 000 in
2008 and 800 000 in 2013. These efforts will succeed
only if agricultural and fishing production and
productivity increase significantly, especially in the
south, to improve food security and income, which are
the only ways to

debut fr 07 - African Economic Outlook

Transcription

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