Benin’s economy is slowly recovering after experiencing a difficult period in 2009 and 2010; growth is estimated to have reached 3.6% in 2012 and is projected to consolidate in 2013 and 2014.
To reach its growth targets, the country will have to step up reforms of the port of Cotonou as well as its efforts in the management of public finances, modernisation of the administration and improvement of the business climate to nurture development of the private sector.
Benin will also have to remove constraints weighing on the exploitation of its agricultural and mining natural resources and on its geographical location; the main target here is the country's deficiencies in the infrastructure and services needed for exploiting these resources.
Benin’s economic activity seems to have begun to recover since 2011, after having come under severe pressure in 2009 and 2010 from the combined effects of the global economic crisis and the floods that hit the country. The growth rate of the real economy increased from 2.6% in 2010 to 3.5% in 2011, then to 3.6% in 2012. The recovery in growth has been the result of combined efforts to revive agriculture and repair the infrastructure after the floods of 2010. The country has also benefited from good rainfall. These elements of positive growth were partially offset by the impact of a sharp increase in January 2012 in the price of adulterated petrol called “kpayo”. The economic outlook for 2013 and 2014 is positive and should confirm growth recovery, supported by good results from the 2012/13 cotton season and recovery in port activities.
An important growth factor will, nonetheless, be the maintenance of macroeconomic stability by sustaining progress in the country’s reform of public finances and in its administrative modernisation in 2013 and 2014. Benin is facing here a threefold objective: to further mobilise its domestic resources; to make public spending consistent with its poverty-reduction strategy; and to improve the country’s business climate in order to help develop the private sector. The government, which has stated its determination to put an end to illegal trading in petroleum products, is expected take corrective measures to offset the impact of the short-term rise in prices likely to result from this action, in particular on the most vulnerable sections of the population. On the social front, the government needs to maintain its efforts through its 2011-15 growth and poverty-reduction strategy (GPRS), as the country is suffering from persistent poverty and serious backlogs in reaching the Millennium Development Goals (MDGs) by 2015. More than 36% of the Beninese population are still living below the poverty line.
Benin has strong agricultural potential, an opening to the sea and a small amount of raw materials (limestone, sand, granite and timber). Its limited exploitation of these assets has, however, prevented the country from initiating needed structural changes in its economy. To achieve better management of its natural resources Benin still needs to overcome several structural constraints, namely poor water management, inadequate agricultural modernisation, and antiquated infrastructure and services associated with the exploitation of these resources.
For structural transformation and continued growth, Benin faces two main challenges: first, to implement its strategic plan for the revival of the agricultural sector (PSRSA), which is expected to further diversify the economy and increase processing of agricultural products; second, to transform Benin from being a transit country to becoming a logistics and export hub, in particular thanks to an integrated and efficient infrastructure and transport services system.
Figure 1: Real GDP growth 2013 (West)
Table 1: Macroeconomic indicators
|Real GDP growth||3.5||3.6||4.1||4.6|
|Real GDP per capita growth||1||1.1||1.6||2.1|
|Budget balance % GDP||-1.8||-1.5||-2.3||-2.3|
|Current account % GDP||-10||-9.5||-10.4||-10.6|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||34.9||36|
|Electricity, gas and water||1.2||1.2|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||2.1||2|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||11.9||11|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||9.4||9.4|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||18.9||18.5|
|Wholesale, retail trade and real estate ownership||-||-|
Economic growth began to recover in 2011 and 2012 after a very difficult situation in 2009 and in 2010 linked to the global economic crisis and the floods. The growth rate of the real economy increased from 2.6% in 2010 to 3.5% in 2011, then to 3.6% in 2012. Improvement in 2011 was mainly the result of efforts made to revive agriculture and rehabilitate infrastructure after the floods of 2010.
In 2012, the pace of economic recovery was maintained thanks to good crops and the recovery of port activities. According to initial estimates and thanks to good rainfall and to an increase in sown acreage, production of cotton, the country’s leading export product, more than doubled, reaching more than 400 000 tonnes for the first time in eight years. Although the cotton season was disrupted because the framework agreement between the government and the inter-branch cotton association (Association interprofessionnelle du coton) governing the management of the sector was abrogated, the sharp increase in cotton production was made possible by various government measures that were taken to allow the 2012/13 cotton season to perform well. These measures included: setting up an inter-ministerial commission to manage the transition of the sub-sector; involving state and local structures; and raising the purchase price paid to farmers for seed cotton. On the other hand, food crops are estimated to have declined by nearly 3% in 2012 due to insufficient inputs in a number of places and, to a lesser extent, to the year’s floods, which swept away part of the rice crop.
Activity in the tertiary sector, which generates more than 40% of gross domestic product (GDP), is estimated to have increased in 2012 thanks to recovery in port operations, supported by several measures taken by the government after traffic at the Port of Cotonou had declined by more than 2% in 2011 against a backdrop of disturbances generated by reforms. These measures helped to decongest the port and restore its competitiveness and included authorising unloading inside the Port of Cotonou and in the adjacent dry docks, removing the monopoly situation in transit to and from Niger, and establishing a one-stop shop at the Port of Cotonou.
In 2012, economic growth did, however, suffer from the effects of the increase in the price of black-market petrol, which accounts for nearly 70% of the domestic market of oil products. The increase in its price was the consequence of the Nigerian government’s decision, in January 2012, to remove subsidies to petroleum products in Nigeria, before re-establishing them, but only partially. This measure immediately resulted in a more than doubling of the price of petrol in Benin, before moving back to a 30% increase. The impact of this measure on the Beninese economy is estimated to have entailed the loss of 0.4 points in overall growth. This episode reflects Benin’s significant vulnerability to Nigeria’s economic environment due to the country’s strong dependence on cross-border trade, which is mainly informal and mainly with its Nigerian neighbour. On the demand side, growth in 2012 was mainly fuelled by final consumption, accounting for about 90% of GDP, with its contribution estimated at 2.2 percentage points. The weight of final consumption in growth was mainly due to an increase in household income resulting from higher farm incomes and an increase in the wage bill. The volume of investments increased by 5%, thanks in particular to the rehabilitation of the infrastructure damaged by the floods of 2010. The economic outlook for 2013 and 2014 is favourable and should bolster growth recovery. Projections put the growth rate at 4.1% in 2013 and at 4.6% in 2014 despite a slowdown in economic activity seen in the short term and the increase in the price of petrol expected from measures to curb trade in kpayo adulterated petrol. The primary sector is expected to remain an important driver of growth in Benin thanks to the continuation of the government’s sector-based policy, intended to modernise and diversify agriculture and to promote agricultural-product processing. To this end, two main lines of policy implementation are under way: the 2011-15 PSRSA strategy for the revival of the agricultural sector (Plan stratégique pour la relance du secteur agricole) and the PNIA-Benin national agricultural-investment programme (Programme national d’investissement agricole du Bénin). The framework policy for cotton producers, coupled with incentives to grow cotton, will be continued and this should also support growth of activity in the sector. For the next few years, the government’s major challenges will be to make the PSRSA operational and to examine, with all the stakeholders in the cotton sector, the implementation of a new management framework by the private sector, while also drawing lessons from the past. Efficient implementation of reforms in the agricultural sector should have a strong ripple effect on the secondary sector, with in particular the expected entry into production in 2013 of six new plants to process agricultural products (tomatoes, pineapples, cashew nuts, citrus fruits, mangos). The tertiary sector should benefit from the dynamism of the commercial activity driven by the increase in agricultural production, the continuation of port reforms and the commissioning of two new docks at the autonomous Port of Cotonou. Following the suspension of the contract with the service provider in charge of implementing the import-verification programme, the government should issue an invitation to tender and select a new provider. This latter’s task will be to support customs services in modernisation efforts, ensure customs-revenue security and increase the competitiveness of the port. Nonetheless, a possible decline in cotton prices, tensions that could result from the 2013 municipal elections, trade liberalisation in Nigeria and the institution of a customs union in the Economic Community of West Africa States (ECOWAS) zone could change the growth projections for 2013 and 2014. In addition, while the government measures to fight against black-market petrol are beneficial and should raise tax revenues, in the short run they could also have negative effects on inflation and consumption, hence on growth. The government will therefore need to accompany this policy with supportive measures for the most vulnerable.
The budget policy implemented in 2011 and 2012 was overall in line with the targets adopted as part of the Extended Credit Facility (ECF) programme finalised with the International Monetary Fund (IMF) on 14 June 2010.
In 2011 revenues increased only slightly in respect of the targets, as they were affected by difficulties in implementing port and customs reforms. Regulation of expenditure, however, which is aligned with available resources, made it possible to contain the primary balance and the overall deficit within the limits imposed by the economic and financial programme. The government's measures in 2012 to decongest the port, added to the assignment of a licence for third-generation mobile telephones amounting to XOF 44 billion (CFA Franc BCEAO), made it possible to increase government revenues. Non-grant government revenues thus went from 17.6% of GDP in 2011 to an estimated 18.5% in 2012. Tax revenues are nonetheless estimated to have been stable at 15.4% of GDP in 2012, below the 17% target set by West African Economic and Monetary Union (WAEMU).
Public expenditure was stabilised at 21.9% of GDP between 2011 and 2012. Significant improvement was noted in the execution of priority social expenditure, with an execution rate higher than 100% in 2012, as against 75% in 2011, thanks to stronger measures taken by the ministry of finance to track public expenditure. The wage bill, however, remained high compared to the threshold of 35% of tax revenues set by the WAEMU, even though the country stopped recruitment into the public service and improved its monitoring of the workforce through a census of public sector employees. The overall budget deficit was slightly reduced and amounted to 1.5% of GDP in 2012, as compared to 1.8% in 2011. It was financed by domestic debt and external support of a primarily concessionary nature. The base budget balance became positive again in 2012, thus allowing the country to comply with the main budgetary criterion of the WAEMU Convergence, Stability, Growth and Solidarity Pact.
The fiscal policy proposed for 2013 is in line with the economic guidelines laid down for 2012-16, which are focused on the development of entrepreneurship and private initiative. Five priority areas are to be covered: i) building human capital; ii) developing infrastructure to support production; iii) agricultural modernisation; iv) promoting the agro-food sector; and v) strengthening local development.
Despite the generalisation of single tax account numbers and the reinstatement of a reformed import-control programme, PVI (Programme de vérification des importations), total revenues are projected to decline in 2013 to 19.6% of GDP after the exceptional 2012 revenues from the sale of the mobile-telephone licence. Public expenditure should stabilise at 21.8% of GDP, used largely, for nearly 70% of it, for current expenditure, in which the wage bill should remain equal to more than 45% of tax revenues.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||21.7||20||20.1||20.5||19.6||19.4|
|Total expenditure and net lending (a)||26||21.6||21.9||21.9||21.8||21.7|
|Wages and salaries||7.3||7.3||7.4||7.3||7.2||7.1|
As member of the WAEMU, Benin applies the monetary policy decided by the Central Bank of West African States (CBWAS), aimed explicitly at price stability in order to foster sustainable economic growth in the union. This goal was reaffirmed in the institutional reform of the CBWAS, which came into force in 2010. In 2012, the CBWAS lowered its key interest rates to help economies facing various economic shocks in their financing. Thus, the minimum bid rate of open-market operations and the marginal lending rate were lowered in June 2012 by 25 basis points to 3.0% and 4.0%, respectively.
The inflation rate is estimated to have increased in 2012 as a result on the one hand, of Nigeria’s having reduced its subsidy to fuel in January, and on the other, of the campaign against the sale of black-market petrol begun in November. Inflation was thus estimated at 6.7% in 2012, up from 2.7% in 2011, exceeding for the first time since 2008 the 3% ceiling set by the WAEMU.
Despite the accommodating monetary policy conducted regionally, growth in the money supply was sufficiently contained in Benin for it not to become an additional source of inflation. The money supply is estimated to have grown in 2012 by 2.3%, compared with an 8.1% rise in 2011. This slowdown in the growth of the money supply is due to a decline in credit to the government.
For 2013 and 2014, projections show a sharp decline in inflation to about 3%. Price increases might, however, be observed in the first few months of 2013 as a result of government measures to combat the illicit trade in petroleum products. The government and the CBWAS should therefore keep a close watch on the evolution of prices in order to take the necessary corrective measures to soften the impact of this increase, particularly on the most vulnerable.
Economic Cooperation, Regional Integration & Trade
Benin's foreign trade suffers from a structural deficit and little diversification of its exports, reflecting the poor level of agricultural and industrial development. Exports are mainly of cotton and its derivatives to Europe and Asia, re-exports of petroleum products to the landlocked countries of the sub-region, and rice, meat, edible offal and worn clothing to Nigeria.
The foreign-trade situation improved in 2012, and the current-account deficit declined accordingly, from 10.0% of GDP in 2011 to 9.5% in 2012, thanks to an increase in cotton exports, which benefited from good crop yields in 2011/12. The increase in current transfers, including budgetary support, also helped to reduce the external current-account deficit.
The current-account deficit was financed by net inflows of public and private capital for about 40% and 60%, respectively, in 2010 and 2012. Foreign direct investment (FDI), which is mainly from Europe, is still relatively low, accounting for less than 3% of GDP, compared to an average of 4% across the continent. It has been concentrated on port infrastructure, trade and telecommunications.
The current-account deficit should increase in 2013 and 2014 to 10.4% and 10.6% of GDP, respectively. Foreign trade should benefit from a continued rise in exports thanks to sustained efforts in support to the cotton sector and to diversification of the agricultural sector through the PSRSA strategy.
In terms of regional integration, Benin plays an important role in sub-regional trade. Thanks in particular to the Port of Cotonou, Benin is a transit country for the transport of goods to and from Niger, Burkina Faso, Mali, Chad and Nigeria. In 2011, 51% of the goods received at the Port of Cotonou were thus intended for transit, and more than half of those to Niger.
As a member of WAEMU and ECOWAS, the country applies the WAEMU Common External Tariff (CET), which has four bands between 0% and 20%. Discussions are continuing at ECOWAS for the establishment of a CET expanded to five bands. Entry into force of the CET at the ECOWAS level, however, could considerably slow down re-export trading from Benin to Nigeria, which accounts for nearly half of Benin’s external sales. In this regard, the government needs to accelerate the diversification process of the production and export base, in particular by developing agricultural sub-sectors that have been identified as promising: rice, maize, market gardening and pineapples.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||8.5||11.2||13.8||9.1||9.1||8.9||8.6|
|Imports of goods (f.o.b.)||19.5||22.5||23.3||21.2||21.2||21.2||21.3|
|Current account balance||-7.2||-8.9||-7.3||-10||-9.5||-10.4||-10.6|
The updated 2012 analysis of debt sustainability indicates that Benin has a low risk of over-indebtedness thanks to its debt strategy, which sets the terms and conditions for new loans (concessional borrowing to finance the deficit) and is supervised by the country’s technical and financial partners. In addition, the criteria for the performance of non-concessional loans and for non-accumulation of arrears, as defined under the programme supported by the ECF, have been complied with since 2011.
The stock of total external debt amounts to 17.0% of GDP, well below the 70% threshold set for all the WAEMU countries and is made up, in respect of nearly 70%, of multilateral debt and, in respect of more than 90%, of concessional loans. The ratio of debt service to exports of goods and services was estimated at 5.7% for 2012, up from 5.0% in 2011. The stock of domestic debt fell from 8.2% of GDP in 2011 to 6.7% of GDP in 2012 owing to the reimbursement of a portion of the Caisse autonome d’amortissement debenture bonds and of securitised wage arrears.
Projections put the debt stock at 17.3% and 17.7% of GDP in 2013 and 2014, respectively, and resistance tests for 2031 indicate that debt will continue to be sustainable but will require a prudent debt policy to be maintained, in particular in the regional financial market.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
The Beninese economy enjoys relative political stability but suffers from a gloomy business climate, which is adversely affected by excessive bureaucracy. Benin’s overall ranking in the World Bank report Doing Business 2013 is 175th out of 185 countries, up one position from the previous year. The country is lagging significantly behind, particularly in the categories of starting a business, protecting investors, paying taxes and in the time needed for enforcing contracts. It takes an average number of 42 procedures to execute a contract and an average of 795 days, against 39 procedures and 654.8 days on average, respectively, in sub-Saharan Africa. This is the longest time observed in the WAEMU and ECOWAS countries.
The justice sector is still hampered by many constraints, including insufficient human and material resources. The legal framework is also still impaired by its texts, some of which are obsolete when brought to court, while others are inconsistent with the country's constitution.
There is still poor flexibility in the labour market, which also suffers from a mismatch between training and the needs of enterprises. The private sector is dominated by individual enterprises engaged in informal activities. The informal sector also accounts for 94% of the working population, and involves more than nine out of ten businesses. Easier access to land titles is still a challenge in Benin. The number of procedures for registering property has remained stable, at four (or four steps), but Benin’s ranking in this area has gone down from 129th to 133rd in the 2013 Doing Business report.
In 2012, the government continued its efforts to improve the business climate and boost the private sector. Amongst these efforts, an on-line one-stop shop for enterprises to deal with formalities was launched in March 2012, which should reduce the time needed for starting a business from 29 days to one day for individual businesses and to three days for limited liability companies, thanks to a separation of the formalities for starting a business from the requirements for business activity. Also in 2012, the government put in place a one-stop shop for port activities (SEGUB) which has helped to reduce the time needed for goods to leave the port, notably thanks to a single invoice document.
The government also wishes to encourage greater involvement of the private sector in implementation of the 2011-15 SCRP strategy. It has thus made it a priority to promote public-private partnerships (PPPs) to finance development programmes, as well as to step up discussions with the private sector. In this regard, the government is getting support from the African Development Bank (AfDB) in setting up a framework for the development of PPPs.
As in all WAEMU countries, Benin’s financial sector remains relatively stable as it is governed by community regulations and supervision. The capital adequacy ratio stood overall above the 8% threshold in 2011. Net outstanding claims stood at around 6% in 2011, two points better than in 2009.
The financial sector is, however, poorly developed, consisting of 13 banks mainly geared to financing trade-related activities. Banking activities are strongly concentrated in three main banks, which in 2011 had 60% of the market share and 70% of the total balance of all banks.
Access to finance remains a major concern for the private sector. The stock of credit to the economy amounts to about 20% of GDP, well below the 40% average in sub-Saharan Africa, and the interest rates proposed by the Beninese banks on loans granted to businesses and households are still amongst the highest of the WAEMU countries. These interest rates averaged 11.1% over 2010-12, against an 8.3% average in the WAEMU countries.
The difficulties encountered by banks in terms of risk management and collateral, difficulties that are related to the inadequacy of the legal environment and of the land-management framework, affect access to credit adversely. It is therefore important for efforts to be made to remove these constraints in order to reduce the cost of credit and to promote better access by businesses and households to financial services and resources in the long term.
The financial sector is marked by a strong presence of microfinance institutions, which are facing significant challenges in terms of governance, internal control and information systems. The microfinance sector, which is predominantly patronised by women, is characterised by a high proportion (80%) of institutions operating without official approval. It would therefore need to be put on a proper footing and professionalised in order to strengthen its relationship to the banking sector, always from the perspective of facilitating SME access to credit. In this regard, the government adopted in January 2012 a law laying down the principles for the regulation of decentralised financial systems. In particular the law places under the supervision of the CBWAS all decentralised financial systems that take deposits or have a loan portfolio amounting to more than XOF 2 billion.
Public Sector Management, Institutions & Reform
Despite progress made in recent years, the country’s economic and financial governance indicators are mixed. The government wishes to spread a culture of evaluation and results in public administration and to do so has adopted a strategic framework to generalise results-based management (RBM) since 2011. In addition, the authorities have committed themselves to fighting corruption, in particular by adopting in August 2011 a new draft law on corruption and a decree for the institution of a national authority to combat corruption specifying its powers, organisation and operation. The level of perceived corruption is still high, however, with the country placed 94th out of 176 countries in Transparency International’s 2012 ranking.
To promote local development, the government adopted a national decentralisation and devolution policy in 2009, which serves to channel all efforts and actions. More than 87% of the performance targets set out in the 2011-15 SCRP strategy were reached in 2011. In particular, expenditure by local authorities rose from 5.9% of the total national budget in 2010 to 6.3% in 2011, above the 5.5% target. The level of transfers to local government in the national budget increased to 3.9% in 2011, up from to 3.2% in 2010. Successful implementation of the decentralisation process, however, still hinges on the lifting of two major constraints: the different ministries have not truly embraced the issues involved in decentralisation; and the resources of local communities, despite the progress in transfers, are still not enough to meet the investment requirements needed to achieve the Millennium Development Goals (MDGs).
For its part, the programme set up to build up efficiency in public enterprises through increased participation of the private sector did not make significant progress in 2012. The invitation to tender for the privatisation of the national telecommunications enterprise, Bénin Télécoms, for example, was unsuccessful. Nor has there been any progress in the rehabilitation of railways through private partnership with the Benin-Niger Railway and Transport Organisation. This pending project continues to be a major constraint to consolidating Benin’s position as a trade corridor and transit area in the sub-region.
Natural Resource Management & Environment
Benin suffers from deterioration of its natural environment with rampant deforestation, soil degradation and rapid erosion of the coastal zone of the Gulf of Guinea. The country's main environmental problems are related to rapid population growth and an exploitation of natural resources outstripping their renewability possibilities.
Benin has, however, initiated a variety of policies, in particular to improve energy efficiency and the sustainable management of forest resources, which has also helped to reduce greenhouse-gas emissions. The country finalised its forestry policy in 2011 and was able to extend waste pre-collection services to 33.7% of the population in 2011, up from 32.0% in 2010, though still under the initial 35% target.
Progress in access to drinking water has been confirmed by growth in the coverage rate, from 57.2% in 2010 to 61.0% in 2011 in rural areas and from 58.5% to 62.1% in urban areas, the target being 67.3% by 2015.
Improvement in access to basic sanitation facilities, on the other hand, remains a major challenge. The share of households with latrines stood at 46.5% in 2011 and at less than 24% in rural areas, to be compared to the 2015 target of 80.5%.
The framework of support for environmental issues suffers singularly from the poor consideration paid among all sectors to climate issues and their impact on development.
Benin has been politically stable for more than 20 years. Following the March and April 2011 elections, the re-elected president, Yayi Boni, has the majority he needs to carry out the scheduled reforms. The country has also been able to maintain security at the national scale. According to the 2012 Mo Ibrahim Index, Benin ranked 10th out of 52 countries in Africa in the Safety & Rule of Law category.
There was, however, some social tension in 2012, including a long teachers’ strike for higher wages. Economic activity also suffered from tensions in 2012 between the president’s office and an important economic operator who virtually controlled the two key sectors of the economy, namely cotton and port activities, which ended in the private sector’s breaching of PVI agreements on management of the cotton chain, something that temporarily clouded relations between the government and private operators. Discussions resumed, however, following a round table in October 2012 on talks between the public sector and the private sector to revive the economy in Benin.
Municipal and local elections in the first quarter of 2013 are expected to mobilise a good part of the country’s political leaders and population.
Thematic analysis: Structural transformation and natural resources
The structure of the Beninese economy, which is poorly diversified and mainly agricultural, has not changed significantly over the past 20 years. It is dominated by agricultural production starting with cotton, its main export crop. But cotton production, which had yielded more than 400 000 tonnes a year in the early 2000s, fell to about 200 000 tonnes for the 2011/12 crop. There are three main reasons for this sharp decline in production: i) bad governance of the cotton chain compounded by falling cotton prices; ii) the pre-eminence of informal activities, which are 68% of the GDP and in which the majority of jobs are concentrated; and iii) the country’s heavy dependence on re-export trade to its neighbouring countries (50% of total exports), especially Nigeria, which weakens the Beninese economy.
Although the country has enormous potential, especially in the agricultural sector, only 17% of the usable agricultural areas is exploited annually. Similarly, out of more than 205 000 hectares of available lowlands and 117 000 hectares of available flood plains, only 7 000 hectares are exploited. Regarding water resources, Benin has a large water network consisting of 2 000 hectares of rivers, 1 900 hectares of lakes and a lagoon system covering more than 2 800 hectares. Of the surrounding areas of this water system, 1 500 hectares have been developed for partial exploitation and there are 20 000 hectares of river banks that can still be used.
The main agricultural products are cotton, cashews, pineapples and lumber. Cotton, however, is currently the only truly organised sector, generating about 8% of the GDP. Cashew nuts and timber, mainly exported to China and India, account for about 3% and 1% of exports respectively. Production of these two products went into accelerated development in the early 2000s thanks to foreign private investments that allowed small processing units to be introduced, and thanks to strong demand from India and China.
In addition to the agricultural sector, Benin has mining resources including limestone, sand, granite and gravel. These resources are exploited primarily for the local market. Limestone, sand and granite are raw materials for cement factories and for enterprises producing building materials. Exploitation of lagoon sand was developed after the marine-sand quarries were closed in 2007, and this helped to attract some investment to the sector. Nonetheless, the contribution of mining to government revenues is low at approximately XOF 1 billion per year, i.e. 0.1% of government revenues.
Benin is still at the exploration stage for fossil fuels, both oil and gas. Five companies have signed agreements with the government for more intensive exploration. The terms of these exploration contracts provide for revenue sharing as follows: for 100 barrels of oil, the government is to collect 10%, 70% to 75% are to be allocated to the repayment of exploration-related loans and 15-20% are to be shared between the company and the state. Once the bank loans are reimbursed, new terms for sharing are to be defined between the government and each company. The various oil-exploration operations have led to the identification of sites that could hold enormous potential for hydrocarbons, both onshore and offshore. These discoveries are all the more important that Benin exported crude oil until 1995, with production at 653.6 million barrels per year, before stopping its oil production in 1999 because the oil fields were exhausted. According to the Beninese hydrocarbons bureau, exploitation of these new sources could begin in 2013, with oil reserves currently estimated at around 5 billion barrels.
The poor exploitation of Benin’s agricultural potential and natural resources has made it impossible to undertake a structural change in the economy. The country is facing significant obstacles to developing the exploitation of its natural resources: i) dependence of the agricultural sector on the vagaries of the weather and non-management of water; ii) poor organisation of the supply chain for agricultural inputs, and little use of specific inputs and of adequate mechanised agricultural equipment; iii) absence of public funding to carry out further exploration of existing and new resources; iv) the advanced age of the infrastructure and services required for the exploitation of resources; v) low competitiveness of local firms, especially in the field of mining; vi) absence of a framework favourable to policy making; and vii) insufficiency of basic skills and lack of innovation in local industries.
Seeking to remedy the weak exploitation and processing of natural resources, the Government of Benin has built its structural-transformation policy around a key strategy: modernising and diversifying agriculture, coupled with establishing value chains in agriculture and mining. To this end, several goals have been set to help these activity sectors: i) improvement of the business climate to attract investments; ii) establishment of an institutional and legal framework to facilitate PPPs for building and running major infrastructure projects; and iii) provision of appropriate services such as direct financing for physical infrastructure, support in finding refinancing, tax incentives, or consulting services on access to domestic, regional and international markets, to technology and to training of human resources.
The government would also like to take advantage of the country's geographical position, in particular its access to the sea, to accelerate its strategic transformation. The medium-term objective is to turn Benin into a regional hub for trading and services with a high added value, complete with an upgraded and extended port infrastructure, a rehabilitated and lengthened railway system, newly built dry ports and a second deep-water port at Sèmè.