Benin

Benin is one of the few sub-Saharan African countries to have achieved a peaceful political transition at the beginning of the 1990s. The country adopted a new constitution in December 1990, thereby ending the Marxist-Leninist system that had prevailed since 1974 and replacing it with a democratic system. The country has experienced a relatively stable socio-political situation since then. The last presidential elections, which brought President Boni Yayi to power in April 2006, laid the foundations for an economic revival that continued into 2008. Growth slowed in 2009 as a result of the world economic crisis, however, and remained at 3% compared to the 4.5% average over the three preceding years.

Public finances were in a difficult situation in 2009 owing to the impact of the growth slowdown on fiscal revenue. The government pursued a counter cyclical policy, the implementation of which was accompanied by some lapses in budgetary procedures, mainly due to excessive usage of extraordinary expenditure procedures via payment orders. In addition, heavy social pressure drove the authorities to grant civil servants bonuses and other benefits in 2008 and the first half of 2009. The wage bill rose heavily in 2009, increasing the budget deficit. The government had to resort to various loans and other sources of finance, both internal and external, in order to cover its financial needs.

The government introduced a number of measures to limit the 2009 budget deficit starting in August 2009, pressed to do so as a condition for support it received from the International Monetary Fund (IMF). These measures, which are continued in 2010, concern both expenditure and revenue. They restrict the social benefits granted to civil servants, reduce expenditure on major public works, limit the use of payment orders to a strict minimum and accelerate the implementation of the emergency plans drawn up by the Directorate-General of Customs and the Directorate-General of Taxes to reduce fraud and tax evasion.

Encouraging results have been recorded in the social sphere with a reduction in the poverty rate from 37.4% in 2006 to 33.3% in 2008. Health and education services have improved overall, even if work still needs to be done to protect the most vulnerable against major endemic diseases such as malaria.

The medium-term economic and social outlook is relatively good as the effects of the world economic crisis are essentially only circumstantial. There will be an upturn in the situation over the next two years, although at a relatively weak level, with growth rates of 3.5% in 2010 and 3.8% in 2011. Growth should be stronger from 2012 onwards as a result of increased efforts to introduce key reforms, in particular regarding the Port of Cotonou, the business environment and the energy sector.

Benin has regained a certain economic dynamism since the political transition to a different party in 2006 when President Boni Yayi came to power. This is shown by an average growth rate of 4.5% between 2006 and 2008. The economic upturn, due in part to the restoration of confidence among economic operators, can equally be attributed to the revival of agricultural production, the implementation of major public works by the government and the improvement in trade relations with Nigeria.

There is little diversification in Benin’s economy, which essentially relies on the production and export of cotton, and activities linked to the export of goods to Nigeria and the hinterland countries. The country is therefore highly sensitive to climate conditions and external shocks. The authorities have initiated several programmes since 2006 in a bid to improve this situation. These initiatives aim to diversify the economy, particularly by strengthening agricultural productivity, improving market access and developing information and communication technologies. The results to date are rather mixed owing to slow implementation of these programmes.

The country was heavily affected by the world financial crisis in 2009. According to a survey carried out in August 2009 by the national commission for managing the impact of the international financial and economic crisis on Benin, the crisis reduced economic growth in the country by 1.8 percentage points in 2009. The crisis has led to a contraction of foreign trade, in particular re-exports to Nigeria, which provide the people and the state with sizeable income. At the end of July 2009, exports were 13% lower than in 2008. The continuous drop in cotton production aggravated the situation. The government failed to anticipate sufficiently the effect of these constraints on budget revenue and continued an expansionist budgetary policy, which put heavy pressure on the Treasury, and embarked on large-scale borrowing on the internal market. This has somewhat eroded the confidence of economic operators and slowed down the pace of activities.

The economic situation in the first half of 2009 suggests that the growth rate should be 3% in 2009 compared with 5.1% in 2008. Food-crop production and the agro-industry performed well, thereby attenuating the slowdown in growth. The inflation rate, which had reached a record level in 2008 (7.9%) as a result of the food crisis, dropped considerably (to 4.1%) thanks to good domestic food-crop harvests and the decline in international food and oil prices in 2009.

The pace of growth should improve perceptibly over the next two years, resulting in growth rates of 3.5% and 3.8% respectively. This can be explained by the on-going policy of large-scale infrastructure work, increased electricity supply capacity, the revival of cotton production and the increase in exports to Nigeria.

Benin’s secondary sector remains very embryonic (accounting for 14% of GDP) and is dominated by the informal sector (at more than 60%). The country’s products remain much less competitive than foreign products. The supply of raw materials, a narrow market and a business environment that is not considered attractive are problems for the sector. Industrial production is dominated by the food industry, the textiles industry and cement works. Benin has great potential in terms of mineral resources, however, in particular gold, limestone, marble, iron and phosphates. Only gold is exploited to date, and by artisan miners. In 1999, the authorities decided to set up an industrial free-trade zone in order to expand the country’s industrial base. This free-trade zone has been operating since 2005. Its main platform is located at Sémè-Podji, to the east of Cotonou and around 20 kilometres from the port and the airport. It is served by the country’s largest motorway network. In order to qualify for the free-trade zone, businesses must commit themselves to satisfying several conditions, in particular exporting at least 65% of annual production and giving recruitment priority for permanent jobs to Beninese nationals. In order to kick-start activities, the government decided to expand the scope of the free-trade zone in 2009 to include ICT-sector companies and call centres, as well as the holdings of financial institutions and banks.

The secondary sector reported an increase in its added value of 5.4% in 2009 compared with 4.4% in 2008. Its contribution to growth is estimated at 0.5 percentage points. The acceleration of growth in this sector can be mainly attributed to good performances by the food-processing industry and the printing industry in order to satisfy local and sub-regional demand.

The tertiary sector in Benin generates almost one-half of gross domestic product (GDP). It is dominated by the cotton and cashew nut industries and by re-exports. Re-exports, which account for just over one-half of the country’s export value, are one of the main sources of income for the country’s inhabitants. The state also derives significant revenue from re-exports. The main products re-exported to Nigeria and the hinterland countries (Niger, Burkina Faso and Mali) are second-hand vehicles, fuel, food products (frozen foods, milk, rice, wheat, etc.) and textiles. There are also several bulky products that cannot be imported by air, such as hardware and construction materials (bricks, tiles, reinforcing bars, sanitary appliances, windows, etc.). Insufficient legislation and regulation and the growth in smuggling are problems for the sector. In addition, there is insufficient transport infrastructure on the road transit system. Some regions of the country are completely cut off.

The financial crisis had a significant impact on the tertiary sector in 2009. Its value added rose by just 0.9% compared with 6.9% in 2008. Its contribution to growth is only 0.4 percentage points. This slowdown is essentially due to the drop in exports, mainly to Nigeria, Benin’s main sub-regional trading partner. According to the official data, exports and re-exports from Benin to Nigeria make up 20% of total exports. This share could be re-evaluated at more than 50%, however, if informal exports and re-exports were taken into account. The impact of the financial crisis on Nigeria’s revenue and the depreciation of the naira against the euro have limited the country’s imports from Benin. Benin’s exports have dropped by 13% as a result, while port traffic has dropped by around 12.1%. The value of re-exports has fallen from CFA Franc BCEAO (XOF) 274 billion in 2008 to XOF 246.6 billion in 2009, i.e. a drop of 10%. This is reflected in the duties and taxes on foreign trade, which have fallen from 9.3% of GDP in 2008 to 8.3% of GDP in 2009.

The gloominess of commercial activities has been somewhat alleviated by the dynamism of the telecommunications and banking sectors, however. The value added of the banking and insurance sector at current prices rose 8.5% in 2008. At constant prices, the increase is 6.4%.

Demand analysis

Economic growth is driven by household consumption, which constitutes the main component of expenditures on the GDP (75.3% in 2008). Household consumption increased in volume by 5% in 2009, fed partly by the cumulative increases in the salaries of civil servants, of around 54% in 2008 and 2009.

Consumption is estimated to have added 4.7 percentage points to the growth of GDP, 3.6 percentage points of which was private consumption.

Investment represented 20.5% of GDP in 2008. Its share of GDP has continued to increase over the last three years owing to major public works initiated by the government in Cotonou and in several other of the country’s towns and cities (Abomey, Parakou, Djougou, Adjohoun, etc.). Works in Cotonou involved the construction of several highways, in particular: (i) Houéyiho-Place du Souvenir, (ii) Airport-Carrefour des trois banques and (iii) Boulevard de la CEN-SAD. In addition, several dozen buildings were constructed for the tenth summit of the Community of Sahel-Saharan States (CEN-SAD) in Cotonou. The volume of public investment rose by 10.4% in 2009, double the increase in private investment, estimated at 5%.

Faced with a general drop in exports, the external sector deteriorated considerably in 2009. The current-account deficit rose to 10% of GDP compared to only 8.3% in 2008. As mentioned above, this situation is mainly the result of the drop in demand from Nigeria, a country that was heavily affected by the financial crisis in 2009. The external sector made a negative contribution to growth in 2009 (-3.1 percentage points).

Private consumption will continue to drive growth over the next two years. In terms of investment, the continued policy of withdrawing the state from the productive sector and making increased use of public-private partnerships for carrying out major public works will increase the share of private investment in GDP.

The macroeconomic situation in Benin improved significantly in the 2005-08 period thanks to the relatively satisfactory implementation of a programme supported by the IMF Poverty Reduction and Growth Facility (PRGF). The growth rate rose from 2.9% in 2005 to 5.1% in 2008. Inflation was generally curbed at around 3%, with the exception of 2008 when the country faced a food crisis and an increase in international oil prices. The introduction of structural reform in key sectors of the economy has been mixed as a result of significant cumulative delays on the part of the authorities in implementing reforms in the cotton, energy and telecommunications sectors as well as at the Autonomous Port of Cotonou. The three-year arrangement agreed with the IMF in August 2005 ended in 2009 after a one-year extension. The final IMF review of the programme in June 2009 was satisfactory: Benin had complied with all the quantitative criteria of the programme by the end of 2008, with the exception of the one relating to internal net financing. The government had had to respond to significant financial demands in order to clear internal arrears and grant advances to the electricity company, which found itself in a difficult situation.

The macroeconomic situation deteriorated in 2009, mainly because of the slowdown in economic growth but also as a result of lapses in the management of public expenditure. In August 2009, the government started introducing a number of measures aimed at containing expenditure and limiting abusive use of extraordinary-expenditure procedures. It intends to continue implementing and reinforcing these measures in 2010 in order to reduce the budget deficit to an acceptable level. The country’s macroeconomic situation should improve in 2010 and 2011, as should the rate of GDP growth, which is expected to reach 3.5% in 2010 and 3.8% in 2011.

A process aimed at drawing up budget programmes with resources allocated on the basis of objectives of performance and results has been underway since 2000. Most of the ministries currently have budget programmes. The budget-execution rate is generally less than the initial allocations, however. Although the government adopted an expansionist budgetary policy in 2008, only 70% of the budget voted in was actually spent as a result of Treasury constraints, with only 65% for expenditure in the social sector. The government had to postpone to 2009 almost XOF 81 billion in investment expenditure scheduled for 2008. Despite this postponement, the primary balance deteriorated in 2008 to show a deficit equal to 1.4% of GDP compared with a surplus of 1.8% of GDP in 2007.

The weakening of the country’s financial situation has led to a deterioration of its position in relation to the convergence criteria set by the West African Economic and Monetary Union (WAEMU). Benin has satisfied only two of the four main criteria, namely the ratio of public debt to GDP and the non-accumulation of internal arrears. The criteria regarding the budget balance and inflation could not be met. In terms of secondary criteria, Benin was not able to meet the wage-bill and the current-account criteria. The wage bill rose to 39% of GDP in 2009 compared with the 35% ceiling fixed by the WAEMU, and the current-account deficit amounted to 10% of GDP compared to the maximum authorised limit of 5%.

Although the economic situation remains difficult, public finances should nonetheless improve appreciably in 2010 thanks to the continuation of measures introduced in the last quarter of 2009 to contain the budget deficit. Internal revenue will be enhanced by the impact of the implementation of action plans at the Directorate-General of Customs and the Directorate-General of Taxes and by one-off revenue gains from the sale of third-generation licences to mobile telephone companies. As far as expenditure is concerned, the measures taken by the government at the end of 2009 should limit expenditure in 2010 and keep it at its 2009 level of 23.5% of GDP. Overall, the primary balance deficit should be reduced to 1.3% of GDP, more or less its 2008 level. A surplus in the primary balance will not be then expected until after 2011.

Benin is a member of the WAEMU, which means that its monetary policy is conducted by the union’s central bank, namely the Central Bank of West African States (CBWAS). The main goal of CBWAS monetary policy is to maintain satisfactory cover rates and promote economic growth within the union with no inflationary pressure.

Benin’s monetary situation in 2008 was characterised by a reinforcement of foreign assets and large-scale expansion of internal credit, in particular the state’s net credit. It resulted in a 29.3% increase in the money supply. The state in fact relied heavily on the banking system to finance its vast investment programme by issuing XOF 70.1 billion worth of public shares. The state also carried out a debt securitisation process in order to settle the wage debt by issuing special state credit certificates that government employees handed in to banks. The amount outstanding on the credit certificates held by banks totalled XOF 20.7 billion at the end of December 2008.

The monetary policy conducted by the CBWAS in 2009 aimed to boost growth within the WAEMU in order to counter the effects of the international financial crisis. Capitalising on the downward trend of inflation within the region, the CBWAS increased its injections of money and reduced its key interest rates on 9 June 2009. The new rate is 4.25% compared with a previous rate of 4.75%. It also decided to reduce the reserve-requirement coefficient. For Benin, which has the highest rate in the WAEMU, the rate dropped from 15% to 9%.

Benin’s massive use of the banking system in 2008 continued in 2009. Inflation was curbed, however, thanks to a good market supply of food products, as well as to the fall in world oil prices. According to the data available at the end of July 2009, net credit to the state by the banking system rose by XOF 78.5 billion, relating to the issuing of treasury bonds. At the end of 2009, the credit to the economy was expected to have reached XOF 687.2 billion against projections of XOF 591 billion. The money supply, estimated at XOF 1 199.3 billion, is also expected to have increased by XOF 92.8 billion compared with December 2008. This would result in an increase in net foreign assets of XOF 10 billion when compared with December 2008. The growth in monetary aggregates, of foreign assets in particular, at a time when exports are falling can be explained on the one hand by the state’s massive use of the banking system to finance the budget deficit but also by inflows of official development assistance (ODA) and foreign direct investment (FDI). In total, ODA and FDI yielded XOF 90.7 billion and XOF 79.5 billion respectively in 2009.

Benin’s monetary policy in 2010 will continue to aim at stabilising prices and maintaining official foreign-exchange reserves at an acceptable level. Taking the macroeconomic developments anticipated in 2010 into account, the money supply should reach XOF 1 264 billion at the end of December 2010, an increase of 5.4% on the estimates for 2009. Net foreign assets should increase by XOF 5 million. The inflation rate is expected to be 3.3%.

The current account shows that Benin’s external position has not improved over the last three years. The current-account deficit remained structural owing to weak exports and the country’s heavy dependence on the outside world, notably for oil and electricity supply.

The current-account deficit rose to 10% of GDP in 2009, compared with 8.3% in 2008, mainly because of a fall in cotton exports (after a drop in production in the 2008/09 season) and a slowdown in transit trade, in particular with Nigeria. The impact of the financial crisis on current transfers in Benin is fairly weak at the moment. These transfers bring in around XOF 100 billion, i.e. 3% of GDP. According to estimates by the World Bank, remittances by the Beninese diaspora should only have dropped by 1% in 2009.

Exports on an f.o.b. (free on board) basis are estimated at XOF 474.9 billion in 2009 compared with XOF 515 billion in 2008. Re-exports are estimated at XOF 246.6 billion in 2009 compared with XOF 274 billion the previous year, i.e. a 10% drop. Imports are estimated at XOF 815.5 billion, a slight increase on 2008 (XOF 794.3 billion).

The trade balance deficit increased from XOF 286.4 billion in 2008 to XOF 340.6 billion in 2009, i.e. a deterioration of XOF 54.2 billion, as a result of the decline in exports. In addition to the deteriorating trade balance, services also performed below par. The net services deficit rose from XOF 95.7 billion in 2008 to XOF 116.5 billion in 2009 owing to increased deficits in the transport sector. The overall result of the balance of payments was positive, however, thanks to the influx of foreign aid and FDI. The current-account situation is not expected to improve significantly over the next two years. When exports to Nigeria gradually recover, the current account deficit should drop from 10% to 9.5% of GDP in 2010 and stand at 9.6% in 2011.

Benin has reached the completion point of the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative in 2003. It has also benefited from a reduction in its external debt under the Multilateral Debt Relief Initiative (MDRI) in 2006. Its debt level has become manageable again since then, its stock of external debt having been reduced to 14.6% of GDP in 2008 compared with 47.7% of GDP in 2002. Debt service has also dropped considerably and stood at 0.6% of GDP in 2008. An IMF and World Bank analysis performed in 2009 confirmed that the risk of over-indebtedness in Benin remained moderate, based on the indicators at end-2008. All the external-debt indicators are below the key threshold targets. The authorities have adopted a prudent external-debt policy by resorting only to concessional loans. To cover the country’s financial needs, they generally resort to the sub-regional financial market. An amount of XOF 32.5 billion was raised this way in 2009 via debenture loans on the WAEMU market.

In order for the debt to be manageable over the long term, the country will have to continue its prudent debt policy and seek out higher growth levels by diversifying its sources of growth.

The private sector in Benin enjoys a stable political situation and a streamlined macroeconomic environment thanks to measures taken by the government during the last three years to improve the management of public finances. Benin’s credentials as an emerging development hub can be seen in its membership of several regional trade, co-development and solidarity organisations such as the Economic Community of West African States (ECOWAS), WAEMU and CEN-SAD. The government’s main objective is for Benin to become an emerging economy by 2025, tripling per capita income, estimated at USD 610 in 2008. Such a goal entails transformation of the country’s economic structure. The authorities have to promote greater industrialisation and reposition the state’s role as the provider of quality public services to encourage private enterprise. The private sector is still operating in a difficult business environment, however, making it difficult to generate wealth and jobs. Companies complain mainly about the tax burden, complex business start-up procedures and insufficient investor-protection provisions. Benin is listed 172^nd out of 183 countries in the World Bank’s Doing Business 2010 report, the same ranking as in the previous year.

In order to increase the attractiveness of Benin for the private sector, both national and international, the government has committed itself to carrying out reform with the support of the International Finance Corporation (IFC).

The measures introduced over the last two years are mainly related to enhancing dialogue with the private sector, reducing corporate tax, restructuring and strengthening of the arbitration, mediation and conciliation centre and finally supporting small and medium enterprises (SMEs) via national funds to promote enterprise and employment programmes for young people.

Benin's banking sector comprised 13 banks and a financial institution in 2009. The sector was highly concentrated with the country’s five leading banks holding 84.3% of the combined total assets of all the banks. Benin is the fourth largest banking centre in the WAEMU with 12% of all bank balance sheets. The rate of penetration of banking services (9.6% in 2007) is weak despite being above the WAEMU average (6.1%). The same is true for bank credit to the economy, estimated at just 19.7% of GDP in 2009. The weakness of Benin’s banking system over the last few years has led the CBWAS to keep the country at relatively high discount and contingency reserve rates. Benin’s banks in fact made a cumulative loss of XOF 4.7 billion in 2005 and 2006 in conjunction with net operating ratios that were higher than the WAEMU average. There were some improvements in 2008 and 2009 when Benin’s banks made great efforts to boost their own funds. The central bank decided to reduce the contingency reserve rate to 9% in June 2009, down from the 15% rate in force since August 2008. The discount rate also came down to 4.75% from the previous rate of 6.75%.

Benin’s microfinance sub-sector has grown significantly in the last five years with the number of customers served by microfinance institutions (MFIs) doubling from 366 678 in 2003 to 754 652 in 2007. Despite this considerable increase in its client base, there has been a slowdown in deposit activity, a considerable drop in credit outstanding and an increase in overdue debts. Credit outstanding has in fact been falling since 2004, from XOF 75 billion in 2004 to XOF 52 billion in 2007. Overdue debts have increased both in volume and as a share of credit outstanding. The volume of overdue debts increased from XOF 3 billion in 2003 (i.e. 4.8% of credit outstanding) to XOF 5 billion in 2007 (9.7% of credit outstanding). The reasons for this include difficulties in foreign trade with Nigeria, the poor performance of the cotton sector and management problems in the MFIs (in particular the lack of a reliable information and management system as well as weak internal control systems).

The government is using microfinance as one of its key weapons in the fight against poverty and has introduced measures to strengthen control and monitoring of the sector. The Cellule de Surveillance des Structures Financières Décentralisées (CSSFD), the unit that monitors decentralised financial structures, has therefore been enhanced with quality staff and greater means. The government launched a Microcredit for the Poorest Programme (MCPP) in February 2007 in order to grant access to finance to a larger share of the population. The programme mainly offers non-financial products (training) and two financial products (savings and microcredits) by way of partners of the MFI programme. The credits offered vary from XOF 30 000 to XOF 50 000. Two years after its launch, more than half a million microcredits had been granted totalling around XOF 17 billion. These credits have mainly been used to finance shopkeeping businesses. The impact of microcredits on poverty reduction has not yet been measured.

For several years, the Beninese government has been introducing reforms in a bid to improve management of public finances and revive the economy. Progress has been noted in the management of public finances, but the results of structural reform have been mixed. Several measures were implemented in relation to public-finance management in 2008 and 2009, in particular an audit of computerised public-expenditure management, the adoption of a medium-term strategy to improve public-expenditure management and a strategy to improve the financial position of the national pension fund (FNRB).

As far as measures aimed at economic revival are concerned, the government has started drawing up a reform strategy for the entire cotton sector in conjunction with the industry's decision makers as well as with development partners. The government continued the cotton-sector reform process by transferring all of the industrial tools of the state-owned cotton firm to the new mixed-ownership company Sodeco, set up in September 2008. The reform is intended to maintain an efficient supply of agricultural inputs. Along the same lines, the government also established the Centrale d’Achat des Intrants Agricoles (CAI), a central purchasing agency for agricultural inputs, in December 2008. Moreover, the state has withdrawn from the Continental Bank Benin. The government announced in September 2008 that the United Bank for Africa (UBA) PLC in Nigeria had become the successful bidder.

The government has been slow in implementing changes to improve facilities at the Port of Cotonou, thereby enhancing its competitiveness. Among other things, there have been delays in the construction of two new container terminals and the signing of a concession agreement with a strategic partner to operate these facilities was long to come. The concession agreement was signed with the Bolloré Group in September 2009 with the IFC acting as consultant. This represents a major step forward in the construction of works funded by the Millennium Challenge Account (MCA).

The government has decided to open up capital in Benin Telecoms to the private sector as part of its policy to liberalise the telecommunications sector. The call for interest was issued in November 2009, supported by the World Bank via the Competitiveness and Integrated Growth Opportunity Project (CIGOP).

There have also been efforts to implement large-scale reform in the energy sector in order to ensure an energy supply that meets the needs of the country. The government has started looking for a consultant to help it reform both the sector and Benin's electricty company, SBEE. The plan is to divide the SBEE into two separate entities, one being a national asset-holding public company, in charge of electricity generation and transmission infrastructure, the other a mixed-ownership company for its distribution.

Tax revenue has risen gradually from 11.8% of GDP in 1996 to 17.2% of GDP in 2008. This is due to a step-up in the fight against tax fraud and boosting the capacities of revenue-collecting agencies. Non-tax revenue has been erratic in the period 1996-2008 owing to fluctuations in grants. Excluding grants, non-tax income has been relatively stable and has averaged 2% of GDP. Tax revenue averaged 70% of the public resources raised.

Benin’s tax environment is mainly governed by legal provisions: the general tax law and the customs law, both amended and extended by regulatory provisions, finance laws in particular. Tax revenue is made up of import duties for 52%, direct taxes for 27% and domestic indirect taxes for 21%. Export duties are almost nil. Import duties represent 9.4% of GDP, direct taxes 4.2% and domestic indirect taxes 3.6%.

Import duties are made up of customs duties and value-added tax (VAT). Under the Common External Tariff (CET) of the WAEMU, the customs duty level varies from 0% to 20%. VAT is fixed at a single 18% rate. Some products and activity sectors are exempt from import duties, in particular the agricultural sector, computer hardware, buses, service-station equipment and of course those companies in the industrial free-trade zone.

Industrial and Commercial Profit (ICP) tax is fixed at 25%. Agricultural enterprises, mutual-benefit societies, investment companies, for the portion of their profits derived from the net proceeds of their portfolio, are exempt from ICP. Wage taxes comprise the graduated tax on salaries and wages, paid by the employee, and an employer's tax on wages (VPS), currently at a rate of 4%.

Finally, domestic indirect taxes include, in addition to VAT, taxes on services (insurance contracts, financial activities and games and attractions), excise duties on oil products, alcohol, tobacco and cigarettes, wheat flour, edible oils and fats, and perfumes and cosmetics, for which the tax rates vary between 1% and 30%.

Several tax-policy measures were implemented in 2009, including reducing ICP from 38% to 25%, exempting new business start-ups from ICP in their first year of activity and reducing the VPS rate from 8% to 4%.

Defining tax policy has been based on a participatory process since 2007. The process brings tax administration, central administration and the private sector together. Several reforms have been introduced as a result of this process, including the institution of a tax centre for Dantokpa and other markets, the institution of the directorate of tax centres for medium-sized enterprises, the reduction of the portfolio of the directorate of large enterprises and the introduction of a one-stop shop.

The revenue-collection budget in 2008 represented 0.6% of public expenditure and 0.1% of GDP. Wages constituted 46.1% of this amount, investment expenditure 30.2% and the remaining 23.7% was used for the purchase of goods and services and for transfers. Overall, the staff is not large enough, in particular for tax inspection. The workforce needs a capacity building programme. Efforts are also being made to computerise tax administration, but it has not yet been possible to experiment the online filing system.

The main problems in improving public-resource mobilisation remain an insufficient tax coverage of the country owing to insufficient human and material resources, as well as to an embryonic, fragmented and non-integrated computer system. There is also no real tax-inspection strategy. Tax compliance remains relatively weak owing to the size of the informal economy, 68% of GDP, which characterises sole-proprietor businesses. Taxpayers complain of a complex, inefficient and inconsistent tax system with crippling tax rates, an erratic application of some of the provisions of the general tax law, tax harassment of businesses in the formal sector and corruption. Aware of these weaknesses in the tax system, the government revised it in 2009, and this resulted in some relief. The government intends to continue reform on the basis of deliberations aimed at setting up a tax system that is geared towards development. The president has set up an ad hoc group to work on this, and its first conclusions will be published in 2010.

The tax base has expanded gradually over the last few years as a result of the increase in the number of new businesses and of the measures introduced to strengthen public-spiritedness in the area of taxes. There were 36 660 registered taxpayers in 2009. The expansion of the tax base is however restricted by the growth of the informal sector, owing to the complexity of tax procedures and to ongoing corruption. The government has responded to this situation by introducing mechanisms for deduction at source (a flat-rate payment on account and a 10% deduction on the provision of services) and by setting up a consultation framework to define tax policy. It has also created a certified management centre to facilitate transition from the informal to the formal sector and stepped up taxpayer education.

Tax losses have a sizeable effect on public revenue, even though it remains difficult to assess the extent of their impact. In an attempt to reduce these losses, the government is planning to strengthen co-operation among tax-administration bodies in order to facilitate the search for information and punish breaches of ethics. A tax and customs task force will be set up as part of the government’s efforts in this area and there will be an increase in the number of tax inspectors.

Tax revenue, which makes up 70% of public resources, has increased continuously over the last ten years to reach 17.2% of GDP in 2008. Non-tax revenue has remained relatively stable. The taxing system is one of the weak links in the business climate because it is considered too complex, inefficient and sometimes inconsistent. The budget allocated to tax collection represents 0.6% of public expenditure. The reforms underway therefore aim to strengthen human and material resources and the participatory process for defining tax policy, and to reduce the size of the informal economy.

The social and political context in Benin in 2009 was dominated by preparations for the next presidential elections, due to be held in April 2011.

The president launched a national electoral census , Rena (Recensement électoral national approfondi), on 23 November 2009, on which basis a permanent computerised electoral roll (Lepi, Liste électorale permanente informatisée) will be drawn up. This list has been the focus of all social classes and the entire political class. Although the legislation for it has been in place since 1998, it has never been drawn up for lack of political consensus. Compiling the list will serve to consolidate democracy in Benin by introducing a more credible and transparent electoral system. The country has in fact been committed to democracy since 1991 and has experienced a stable electoral cycle with four presidential elections (1991, 1996, 2001 and 2006) and five parliamentary elections (1991, 1995, 1999, 2003 and 2007). Absence of the Lepi weakens the electoral process, however, despite the regularity of the electoral cycle, and in the medium term, this could constitute a risk to this young democracy. Several partners have committed to helping Benin to produce this democracy-enhancement tool.

As far as the social context is concerned, disagreements between the government and the main unions over bonuses and other benefits resulted in the paralysis of several ministries through strike action by salaried staff. The government granted incentive bonuses to certain segments of the civil service in 2008 and 2009 in an attempt to alleviate social pressure. It had to freeze them later because of the pressure they exerted on the wage bill and the enormous disparities in them, leading to an unfair situation amongst employees. The government established a committee to examine the situation and harmonise these bonuses. The fear is that the upcoming elections will encourage the unions to take a harder line, however.

The development of human resources and the strengthening of human capital represent one of the key pillars in the country’s strategy for growth to reduce poverty. The government is aware of the fact that poverty is not only the result of weak incomes but is also caused by a lack of access to certain basic services. It is therefore committed to promoting an educational system that supports development; professional training that meets the needs of the economy; and a quality health system. Monetary poverty declined somewhat between 2006 and 2008, from 37.4% to 33.3% of the population. Basic social services have also improved noticeably, even if a great deal remains to be done to guarantee that every inhabitant has access to quality health services and to ensure that training responds to market needs.

The government has increased funding for primary education to respond to the increase in demand for free primary school education. Schools received more than 500 new classrooms in 2008 and around 1 300 teachers were recruited and trained. Action has also been taken in secondary and higher education, increasing capacity and enhancing teacher training in particular. The gross enrolment rate rose from 92.9% in 2006 to 104% in 2008 with the gross enrolment rate for girls at 99%. These results were achieved thanks mainly to the involvement of communities (mothers’ associations), non-government organisations (NGOs) and other foreign partners. If these efforts continue, Benin could reduce gender disparities in primary education in the medium term. Efforts also need to be maintained in terms of the availability and qualification of teachers.

In terms of health, the government has continued to implement the national health-development plan adopted in 2007. The aim is to reach the Millennium Development Goals (MDGs). The government has introduced measures to promote the health of mothers and reduce infant mortality. It is also considering free health care for children under five. The infant mortality rate dropped from 91 deaths per thousand live births in 2004 to 84 per thousand live births in 2008. Other measures aimed to improve the supply of pharmaceutical products, the prevention of HIV/AIDS and the fight against malaria and endemic diseases. Free caesarean sections were introduced in 2009. As far as malaria is concerned, the government has continued the activities of the Booster programme and former US President George W. Bush’s malaria initiative. Overall, the health indicators show progress over the past three years. The attendance rate at health centres rose from 44% in 2006 to 45.6% in 2008, while vaccine coverage rose from 92% in 2006 to 94.2% in 2008. Otherwise, the prevalence rate of HIV/AIDS has dropped among pregnant women. Efforts still need to be made in relation to endemic and epidemic diseases, in particular malaria, which is the cause for 40.5% of consultations at the country’s health centres.

The government has also looked at water and sanitation. A review of the national water and sanitation programme in May 2008 found that Benin was on target to reach by 2015 the MDG on access to drinking water in rural areas. The supply rate rose from 46.5% in 2007 to 49.9% in 2008. In terms of urban areas, Soneb, the public water utility, has undertaken several projects in secondary towns, with in particular three new wells drilled and the expansion of the drinking-water distribution system. The sector has also been decentralised. Since January 2008 it has been the job of local authorities to plan future works and mobilise the population with funds made available by the government and several of the country’s development partners.