Gambia

The Gambia is a small, open economy surrounded by Senegal and the sea. The majority of the population lives on subsistence farming. Nevertheless, a dominantly larger share of value added in the country comes from service industries such as trade, transport and tourism rather than from agriculture. With growth in the past three years averaging 6.3%, The Gambia ranks as one of the high-growth economies in western Africa.

In 2009, the economy recorded weaker growth at 4.8%, down from 6.1% in 2008, due to the global financial crisis and the subsequent global economic recession (Table 1). The main drivers of growth were good harvests and expansion of the financial sector and communication services. In particular, a rising rice-cultivation trend has contributed to improving the productivity of agriculture. Gains from these activities have more than offset the substantial setbacks in the tourism industry and in remittances, as well as sluggish domestic business activities. Economic growth is expected to bounce back to 5.4% in 2010 and 5.7% in 2011, depending on global economic recovery. To the extent that the main growth driver, agriculture, is dependent on rain-fed farming, the growth prospect is also susceptible to climate change, especially to timing of the rain.

The government of The Gambia has maintained macroeconomic stability amidst the global financial crisis with an expansionary tax policy, a flexible monetary policy, and financial and technical support from development partners. Prices have stabilised to a low level since the second half of 2008 after having undergone relatively high inflation. The main threat to price stability is the expected spending increase connected to the presidential election scheduled for 2011.

The Gambia has benefited from successful public-sector reforms including the institution of the Integrated Financial Management Information System (IFMIS) for improving the transparency of public finance, and the Gambia Revenue Authority (GRA) for improving the tax-collection system. The compliance rate of tax payers has been increasing since the introduction of the GRA. Improved effectiveness of tax collection led to a substantial increase in tax revenue, especially internationa trade tax revenue, despite decreasing domestic taxes in the wake of the global financial crisis. Besides, budget support from the World Bank and the African Development Bank (AfDB) has helped the country finance budget deficits and will be continued by the European Union (EU) in 2010. Nevertheless, because of increased spending the fiscal balance excluding grants worsened beyond the West African Monetary Zone (WAMZ) convergence criterion, which is less than 4% of gross domestic product (GDP).

The Gambia has recently run substantial trade and current-account deficits financed largely by official grants and public debts. One of the macroeconomic challenges facing the government is to contain debts to a sustainable level. In particular, managing the high-cost domestic public debts, amounting to 24.4% of GDP in 2009, will be the key to keeping debts from becoming unsustainable.

The banking sector continued to expand as a whole, driven mainly by foreign direct investments (FDI) and intensified competition amongst banks as new banks have entered the industry. Despite fully liberalised capital-account transactions, the banking sector was relatively isolated from the direct impacts of the financial crisis, chiefly because there was no stock market and the banks were highly capitalised.

Buoyed by the president’s call for ‘Back to Agriculture" agricultural development has taken a priority in the policy agenda. Given the high poverty rate and the prevalence of undernourishment in the rural areas, increasing agricultural productivity is an urgent issue to be addressed. As agriculture requires relatively smaller initial investments than services and manufacturing, increasing agricultural productivity seems feasible to some extent, provided that infrastructure, such as irrigation and roads, is provided with support from the government and donors. In fact, introduction of new-variety seeds and new ways of cultivating rice contributed to the growth of high-value-added rice production in 2009. Application of these agricultural innovations on a wider scale is expected to help the country achieve food self-sufficiency in the years to come.  

The services sector, accounting for more than 60% of GDP, grew at a 4.2% rate in 2008. The largest subsector within the service sector, distributive trade, remained sluggish and recorded weak growth at 1% despite the rebounding of re-exports, while tourist businesses, including hotels and restaurants, contracted significantly in the wake of the global economic recession. The sustained growth of the services sector was made possible by buoyant financial-service sectors as well as the transport, storage and communications sectors.

The Trade Gateway Project, aimed at establishing free zones and designed to operate within a tax and duty-free environment with fiscal and other incentives accorded to investors, helped the operations of the Gambia Investment Promotion and Free Zones Agency (GIPFZA) in setting up 59 companies and creating more than 4 600 direct jobs between 2007 and 2009. As the project ended in 2009, a Growth and Competitiveness Project, which will build on the successes of the Gateway Project, is being considered by the International Development Association (IDA) and the AfDB for joint financing.

Agriculture accounts for only 22% of GDP whereas its share in employment amounts to 68% of the working population. Thanks to good rains and increased rice cultivation, agricultural output grew at the rate of 9.8% in 2009, though down from 28.4% in 2008. After three consecutive years of decline due to droughts in 2005, 2006 and 2007, crop production recovered to the level recorded in 2004. Fishing and livestock recorded robust growth.

The performance of macroeconomic management was good compared to the past and to other countries in the region. In fact, The Gambia was the best performer in terms of the WAMZ convergence criteria, failing to meet only one: the size limit on fiscal deficits. The WAMZ monetary union objective, which was supposed to be implemented in December 2009, has been rescheduled to commence on January 1, 2015.

In 2009, The Gambia’s total revenue and grants increased thanks to significantly higher grants in the form of budget support and project grants. Tax revenue remained at around 19% of GDP with international trade taxes increasing more than expected, but offset by a fall in personal and corporate income taxes and in domestic sales taxes, reflecting the contraction of domestic economic activities in the wake of the global economic crisis.

Total expenditure and net lending rose owing to increases in capital expenditures, especially on satellite television broadcasting and road construction. Current expenditure remained at around 20% of GDP, accounted for by an increase in personnel emoluments and the increase in spending on basic and secondary education, the share of which in the national budget rose from 14.4% in 2008 to 16.7% in 2009. Interest payments on debts, especially domestic debts, consumed more than 20% of the government’s current expenditure.

Owingto increased spending, fiscal balance excluding grants worsened beyond the WAMZ convergence criterion, which is less than 4% of GDP. Thanks to the increase in grants in 2009, however, especially 390 million dalasi (GMD) in budget support from the World Bank and the AfDB, the overall fiscal deficit including grants improved slightly.

The total outstanding stock of the interest-bearing debt at end-November 2009 rose to GMD 5.5 billion or by 15.3% compared to end-November 2008. Treasury bills constitute 71.9% of the domestic debt. Out of the outstanding treasury bills, 64.3% were held by commercial banks and 19.1% by public corporations at end-June 2008. According to the International Monetary Fund domestic debt is estimated to be 24.4% of GDP while external public debt is estimated to be 45.1% of GDP at the end of 2009. During 2009, interest payments on the domestic public debt amounted to 3.2% of GDP, with an implied 13.1% interest rate, while those on the external public debt amounted to 0.9% of GDP with an implied 2.0% interest rate. Though smaller in size than the external debt, the domestic debt, most of which is short-term, posed a more substantial threat to debt sustainability. The yield curve for the treasury bills was positively sloped, with 91-day, 182-day and 364-day yields at 10.78%, 12.27% and 13.99% respectively in November 2009. The 364-day yield decreased from its 14.41% value in January 2009, reflecting an increased liquidity in the banking sector.

Looking ahead, increases in spending connected to the coming elections, as well as increased capital investments, may play important roles in increasing government expenditure in 2010 and 2011. The government plans to increase its spending by 8% between 2009 and 2010. The increase in spending is expected to target capital spending and salaries to civil servants. Total revenue and grants are expected to increase in 2010, with additional funds coming from increases in tax revenue, project grants and budget support.

Failing a broadening of the tax bases, overall budget will remain in deficit in 2010. Project grants are to increase from GMD 513.1 million in 2009 to GMD 636.2 million in 2010. Budget support is also projected to increase from GMD 290 million in 2009 to GMD 424.8 million in 2010.

The inflation rate in terms of the consumer price index in 2009 remained stable at a rate of about 4.2%, well below the WAMZ 10% threshold, mainly owing to the disinflation of imported goods, including the price of oil in the wake of the global economic slowdown. Consumer prices decelerated from 7.1% in February to 2.3% in October before edging up to 2.6% in November. Both food and non-food price inflation declined to 2.7% in November 2009.

The exchange rate of the dalasi has been liberalised since 1986, when the capital account was also fully liberalised. The open position of the foreign exchange of commercial banks is limited to not more than 25% of capital on the grounds of a prudential regulation. The dalasi was on an appreciating trend after 2004 when the authorities implemented a policy of tight money supply. As a consequence of the global financial crisis, however, the volume of transactions in the foreign-exchange market contracted to 1.4 billion US dollars (USD) by end-November 2009 from USD 1.6 billion a year earlier. The dalasi started to depreciate in the second half of 2008. In 2009, the dalasi depreciated by 9.4% in terms of trade-weighted nominal effective exchange rate. The dalasi fell only by 2.5% vis-à-vis the US dollar while it declined by 20.6% vis-à-vis the euro. As The Gambia has no stock market, the foreign-exchange market was relatively insulated from the impacts of the global financial crisis despite the relatively high dollarisation of the financial sector. The dollarisation measured by the ratio of deposits denominated in foreign currency amounted to 15.5% of bank deposits at the end of September 2009.

Under the monetary policy framework of monetary targeting using broad money as the intermediate target and reserve money as the operating target, the Central Bank of The Gambia (CBG) focused in 2009 on containing the growth of reserve money and of the money supply at 8.6% and 10.9%, respectively. The CBG implemented monetary target flexibly while targeting elements of inflation at less than 6.0%. In December 2009, the CBG reduced the rediscount rate to 14% from the 16% level it had maintained since December 2008.

Imports accounted for about 40% of GDP in 2009, mainly driven by the surge in telecommunications-related imports and commodity prices. Imports for re-export remained important contributors with their share in total exports at 61.5% in the third quarter of 2009.

Exports increased from 11.8% of GDP in 2008 to 13.0% of GDP in 2009, partly owing to increases in re-export trade, which rose from 9% of GDP in 2008 to 10% of GDP in 2009. The increase in domestic exports originated mainly from fish and fish products, groundnuts, food items and scrap metal.

In order to increase trade in the Economic Community of West African States (ECOWAS) region, The Gambia complies with the ECOWAS Trade Liberalisation Scheme (ETLS), which provides various benefits including corporate-tax rebate and a bonded warehouse facility to qualified exporters. Although a total of 12 Gambian companies with a total of 23 products had been certified to operate under the ETLS since 2006, only 4 companies exported to the regional market, mainly because of weak border enforcements.

The Gambia’s trade with the EU involves a significant share of agricultural products. Likewise, the EU is the primary source of imports, accounting for 34.2% in the first half of 2009. A large proportion of imports originating from the EU – about 32.9% of them – were comprised of food materials and vegetables. Considering the cost of transport, substantial imports of food materials and vegetables from the high-cost EU may reflect a suboptimal development of The Gambia’s agricultural growth potential, possibly calling for a policy fostering high-value-added edges of agriculture as infant industries.

Because of reduced activities in air freight and passengers and the high domestic-energy cost compared to neighbouring countries, jet fuel and catering services procured in pairorts by carriers declined substantially. There was a 6% fall in arrivals of air-charter tourists in 2008, after a 17% increase per year between 2005 and 2007.

The services balance as a percentage of GDP in 2009 declined owing to reduced tourist arrivals in the wake of the global economic recession. Remittances, however, fell from 6.5% of GDP in 2008 to 5.1% of GDP in 2009 because of the economic slowdown in Europe and in other developed countries. On the other hand, official transfers increased from 1.1% of GDP in 2008 to 4.7% of GDP in 2009 owing to receipts of grants for projects and budget support from the AfDB and the World Bank, as well as from the EU.

The current-account deficit amounted to 13.6% of GDP, down from 18.0% of GDP in 2008. This improvement is largely due to the increase in official grants.

Foreign direct investment (FDI) increased slightly, from 8.5% of GDP in 2008 to 8.9% of GDP in 2009. Net FDI inflows in 2008 were concentrated on the financial sector and on the transport-and-communications sector. By region of origin, FDI investors residing in Europe and the Middle East and North Africa each held about 40% of the stock by the end of 2007. By sector, the largest shares went to real estate, followed by hotels and financial sectors.

The IMF completed the fourth and fifth reviews of The Gambia’s economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement on 16 February 2009 and 7 August 2009, respectively. The completion of the reviews enabled The Gambia immediately to draw an amount of 6.22 million special drawing rights (SDR) (20% of the quota) and SDR 5.11 million, respectively, from the IMF, bringing total disbursements to SDR 18.22 million (about USD 28.6 million).

Gross official reserves, including SDR allocation from the IMF, stood at end-September 2009 at USD 141.3 million, equivalent to the amount sufficient to cover six months of imports.

The Gambia received debt relief from the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) in 2007 because of large debt stocks. As a result of HIPC Initiative and MDRI debt relief amounting to GMD 8.5 billion, outstanding external public debts fell to 46% of GDP in 2007 and further to 44.9% of GDP in 2009, from 133% of GDP in 2006.

The agricultural sector is the major private sector in The Gambia. Recently, the sector has been undergoing a structural change. On the one hand, the groundnut, which is the dominant cash crop, declined steeply. Its shares in crop-production volume and in export value decreased from 58.8% and 68.2% respectively in 2000, to 29.0% and 40% respectively in 2009. On the other hand, the importance of rice in crop production is rising. The land areas planted with rice rose from 5.6% in 2007 to 14.8% in 2009, while those planted with groundnut decreased from 38.8% to 34.3% during the same period.

The decline of groundnut and the rise of rice in crop production reflect in part the farmers’ responses to changes in the relative price of the two crops. The price of groundnut per tonne increased from GMD 2 700 in 2001 to GMD 8 200 in 2008 in absolute value, but changed from a level higher than that of rice (GMD 1 750) in 2000 to a level lower than that of rice (GMD 18 230) in 2008. In terms of value, the productivity of groundnuts rose at a rate of only 34.2% while that of rice grew at a rate of 162.1% between 2007 and 2008.

This move away from groundnut to rice is likely to improve food self-sufficiency in the country. According to the Food and Agriculture Oranization (FAO), in 2005 The Gambia produced 12 000 tonnes of rice and imported 113 000 tonnes of rice, while it produced 75 000 tonnes of groundnuts and exported about 60 000 tonnes of raw or processed groundnuts.

The banking sector continued to register significant growth, with the number of banks increasing by 2 per year starting in 2006 to reach 13 in 2009. The financial sector also comprised 11 insurance companies, 46 foreign-exchange bureaus, 5 microfinance institutions, 57 village savings-and-credit associations and 1 post-office savings institution. The lending and investment activities of banks, however, were largely connected to activities of the formal sector, especially to financing government deficits. The share of domestic credits of banks to the public sector at the end of November 2009 was 51.3%, and to the private sector 48.7%. Deposit money banks held the bulk (69.1%) of the treasury and other public bills. The ratio of the liquid assets of banks to deposit, i.e. the liquidity ratio, amounted to 77%, well above the international standard of 30%, implying that the role of banks in supporting private-sector investments through long-term loans was very limited. The deficiency of bank activity for the informal sector reflects the high risks involved in lending to private sectors, as well as high operating costs relative to the potential for attracting savings from the informal sector.

Despite the fully liberalised capital account, the banking sector has been insulated from direct impacts of the global financial crisis. This has been due both to the absence of a stock market and to the soundness of the banking system. Although non-performing loans remained relatively high, at 7.2% of total loans at end-September 2009, the industry-wide risk-weighted capital adequacy ratio (CAR) stood at 33.9% in the first half of 2009. This was made possible by increases in paid-up capital. Net foreign assets of the deposit money banks rose by 43.6% while domestic credit increased by 13.1% year-on-year at end-November 2009. On the other hand, reflecting the impact of the global financial crisis, loans to the tourism sector and the agricultural sector decreased by 15% and 38% respectively in the second half of 2009 compared to the first half of the year, while total bank loans increased by 9%. Shares of bank loans to agriculture, fishing, construction, transportation, distributive trade and tourism at end-November were 5.3%, 0.5%, 11.4%, 8.0%, 24.0% and 5.6% respectively.

The expansion of the banking sector has been driven by FDI. According to a recent survey on FDI in The Gambia, FDI to banks by Canada, Lebanon, Libya, Malaysia and Nigeria increased by USD 12.5 million in 2008. As a result of intensified competition amongst banks, bank profits decreased on average. In the banking sector, the average rate of return on assets (ROA) was 9.6% during 2000-03, and decreased to 3.2% during 2004-07 and to less than 2% during 2008-09. Nevertheless, the large interest rate spread between the deposit and the lending rate persisted, reflecting high credit risks as well as the reluctance of banks to adjust interest rates. In 2009, while the one-year lending rate was 22.5% on average, the one-year time deposit rate was 10.8% on average. Given the yield rate of one-year treasury bills at 13.99%, the credit-risk premium was estimated to be more than 8 percentage points.

There have been a number of important developments in the financial system. In 2009, the Credit Reference Bureau (CRB) in the CBG commenced operations. Commercial banks started to submit credit reports to the CRB as well as to use the information it provided. In addition, the payments-system project funded by the AfDB has progressed smoothly. The project is expected to be completed by the end of 2011. The minimum capital for banks has been increased from GMD 60 million to GMD 150 million, effective from December 2010, and to GMD 200 million by December 2012. Furthermore, the bank supervisory process has been changed: it puts more emphasis on on-site examination than on off-site supervision, based on the Banking Act 2009.

Microfinance institutions, including the Village Savings and Credit Associations (VISACAs), expanded rapidly amongst the population. Clients of microfinance institutions increased from 42% of households in The Gambia in 2003 to 82% in 2008. Total deposits increased by 45.9% per annum from GMD 15.9 million in 2001 to GMD 224.1 million in 2008. The outstanding loans of the microfinance institutions, however, were less than 6.7% of those of banks.

Looking ahead, even with improved infrastructure and increased competition within the banking industry, it is unlikely that banks will aggressively take risks to provide credits to the private sector or the agricultural sector. This is partly because a majority of banks are owned largely by foreigners lacking in knowledge of the local context, and partly because the institutional framework for enforcing loan contracts is weak, which makes it costly and highly risky for banks to grant loans to individuals in the private sector. Moreover, collateral for loans is hardly available owing to a lack of private property in land, especially in the rural areas. Even when such property exists, the corresponding rights are usually not registered because of a complex and costly registration process.

The major structural challenge stems from poor institutions and lack of institutional capabilities to respond to economic opportunities. The 2010 Doing Business World Bank report ranks The Gambia 140 out of 183 countries, down 5 positions from last year. This lower ranking reflects deterioration in the "Ease of Starting a Business", "Employing Workers" and "Getting Credits" categories. In absolute terms, however, the cost of starting a business decreased in the last year from 255% to 215% of per capita income.

Public-sector reforms have been promoted as a part of the government’s second Poverty Reduction Strategy Paper (PRSP) for the 2007-11 period. Reforms include developing the IFMIS, reducing the backlog in preparing and auditing government accounts, strengthening the GRA and reducing the discretionary approval of duty exemptions, improving official statistics through continued reforms of the Gambia Bureau of Statistics (GBOS) and implementing a civil service programme.

A significant development is expected in the privatisation of the Gambia Groundnut Company (GGC), which is one of the HIPC completion point triggers. The divesture process is expected to be finalised by mid-2010. It aims at improving productivity at all levels of the value chain through market liberalisation and open competition. The Gambia’s experience with privatisation has not been too favourable. The country’s main telecommunications company, GAMTEL, 50% of the share of which was sold to a Lebanese company in 2007, went bankrupt in 2008 because of unpaid bills owed by government institutions and other private clients.

The Ministry of Finance and Economic Affairs (MOFEA) moved in December 2009 for the repeal of the Gambia Divestiture Agency (GDA) Act 2001 on the grounds that the agency lacked the capacity to implement the programme and funding because of the closing of the Capacity Building for Economic Management Project funded by the World Bank. The role of the GDA will be assumed by the MOFEA.

Investments in infrastructure increased in 2009. The networks of mobile-telephone services provided by four companies are available across the country. The number of mobile phone users amounted to 1.17 million, or 70% of the population, while the number of fixed-phone and Internet users was no more than 6.8% of the population in 2008. Mobile-phone users increased rapidly compared with Internet users. In 2008, mobile-phone use grew at 45.7% while Internet use grew at 13.9%. Several road-network projects are in progress. The Amdallai-Barra transit highway, construction of which began in 2007, was completed by the end of 2009. Part of the Rural Electrification Project, funded by the AfDB and the World Bank, has been completed. This has contributed to a quasi-stable supply of power in the country, but at a higher cost of consumption compared with neighbouring countries, where power supply is less stable.

The Ministry of Petroleum reported that about 80% of the country’s energy needs were met from wood fuel, which is already having devastating consequences on forest cover and contributing to deforestation, and loss of biodiversity and soil fertility. The second most widely used energy source was constituted by petroleum products, accounting for 16% of the total energy consumption. To a limited extent, renewable sources of energy, such as solar energy for water pumps, lighting in rural homes, schools and health facilities, are being promoted by the government.

Agricultural reform has been strongly supported since President Yahya Jammeh called for "Back to Agriculture" in 2007. Agricultural development based on a broad participation of the majority of the population is expected to enhance people’s livelihood, improve the health and education of the next generation and strengthen the linkage of the sector with other sectors such as agro-industries and agro-finance.

A structural change to crops with higher productivity has been observed. The government is proactive in promoting the dissemination of a new variety of rice, the New Rice for Africa (NERICA), and the AfDB is supporting this initiative. The government has tested a new rice cultivation method suitable for small farmers, the so-called System of Rice Intensification (SRI), which has proved to be very helpful for The Gambia’s rice growers. The system makes it possible to grow rice without flooding paddy fields throughout the growing period except for a short time before harvest. The new variety of seeds and new method of cultivation may contribute to increases in agricultural productivity. To the extent that agricultural economic surpluses depend more on import-substitution of rice than on export-promotion of groundnuts, the increase of the tariff rate on rice from 0% to 5% currently being considered by the government will help not only rice growers, but also service and input providers to them.

Positive developments in the crop sector notwithstanding, major challenges remain. The productivity of rain-fed subsistence farming remains low, with 68% of the workforce producing only 25.3% of the country’s value added. With a low level of productivity, the sector has few linkages with other sectors in the economy. Farmers have insufficient access to agricultural inputs (e.g. seeds and fertilisers), poor access to product markets and inadequate agricultural infrastructures, such as irrigation and roads.

In agricultural development, the role of the government is crucial, especially in providing agricultural infrastructure such as irrigation and roads, while it is better to let agricultural co‑operatives perform the role of procuring and distributing fertiliser. It is likely that the government will face difficulties in collecting payments as farmers will be unlikely to repay the fertiliser costs coming out of aid. On the other hand, agricultural co-operatives, in which farmers are taking part, will have a better handle on this business as profits will be distributed to the members of the co‑operatives. These co-operatives will have to be multi-functional units operating businesses related to the provision of agricultural credits, irrigation, mechanisation, fertiliser procurement and marketing services. The experience of Japan, Chinese Taipei, South Korea and, recently, Vietnam shows that agricultural co‑operatives can work effectively when they are allowed to operate mutual credit unions. Since farmers know the risks involved in farming better than banks, channelling the savings of farm households to farmers can be performed better by agricultural co‑operatives than by commercial banks. A network of such agricultural co‑operatives will be needed to pool larger amount of savings and realise economy of scale in operations. A related issue is to reform the institutions related to land use and ownership. Currently, the dominant form of land ownership in rural areas is communal ownership of land, which is not conducive to stimulating long-term investment in land. Therefore, a "land-to-tiller" reform with a view to establishing private ownership of land by individual farmers seems warranted, as private properties provide the strongest incentives to farmers to make long-term investments in land and agriculture.

Tax revenues are increasing along with the growth of economic activities in recent years. Compared with 2000-03 period, the 2004-09 period recorded faster growth in tax revenues as the ratio of tax revenues to GDP increased from 14.3% in the earlier period to 18.2% in the latter period. This was mainly due to a tax base broadened by the new Income and Sales Tax Act of 2004 and improved effectiveness in tax collection by the GRA established in 2007. The tax revenue in 2009 consisted of 28.1% in direct taxes, 18.3% in domestic indirect taxes and 53.4% in import taxes.

Non-tax revenues also increased in line with the GDP. The ratio of non-tax revenues to GDP rose from 3.8% on average during the 2005-08 period to 5.3% in 2009, mainly due to increases in grants, especially budget supports. The Gambia reached the completion point under the Enhanced HIPC Initiative in December 2007, which triggered budget support and enabled the IMF to return after its suspension of grants in 2003.

The major source of direct taxes includes personal income taxes (11.2% of total tax revenues) with a tax rate varying between 0% and 35% depending on the income-tax bracket, and corporate income taxes (13.7% of the total tax revenue) with a tax rate of 35% and a minimum tax of 2% on turnover  of audited accounts or 3% of unaudited accounts payable quarterly. This high tax rate for corporate income and the subsequent difficulties in paying taxes explain The Gambia’s ranking at 176 out of 183 countries in the World Bank 2010 Doing Business report for the "Paying Taxes" category. Preferential treatment is provided, however, by the Investment Promotion Act of 2001 for priority sectors such as agriculture, fisheries, tourism, manufacturing, energy, skills development, mineral exploration and exploitation, and communications. In addition, the Free Zone Act 2001 exempts zone investors from all taxes.

Domestic indirect taxes include a sales tax, which accounts for 10.9% of the total tax revenue in 2009, and an excise tax representing 3.8%. The sales tax is imposed on imported goods, domestic manufactured goods and some specified services at the standard 15% tax rate. Though the tax rate for petroleum-based fuel is 10%, the effective tax rate is manipulated to obtain a constant effective tax rate of GMD 4 per litre by assessing the imports at a constant value – including cost, insurance and freight (c.i.f.) – of GMD 11.75 per litre. If the market price exceeds this value, the government subsidises the petroleum sellers. The excise tax is one of the most important selective indirect taxes. It covers not only the traditional excise-tax commodities such as alcoholic beverages, but also daily necessities such as onions, the importing of which is monopolised by one company.

Discussions are ongoing on the possibility of replacing the current Sales Tax Act of 2004 with a value added tax (VAT), probably by 2013. The government is concerned, however, about the loss of tax revenue from imports for re-exports. One-fourth of imports in 2008 were for re-export and therefore if traders in this business were eligible to zero-rate the re-exports, tax revenue could fall significantly.

In order to improve tax collection, the GRA was created by an Act of parliament in 2004 as a corporate body for the assessment and collection of revenue. It then evolved by merging the Customs and Excise Department and the Domestic Taxes Department in 2007. The GRA has five operating departments and two functional departments, the Domestic Taxes department and the Customs and Excise department. The former sub-institution is adopting a new procedure of taxpayer identification number (TIN), and has branch offices in the large urban centres of the country. Theses offices are responsible for controlling and collecting the entry and exit of commodities through the border. With this reorganisation, a revenue officer who used to collect all types of taxes ends up specialising in collecting only one type of tax. In addition, the GRA adopted a bonus system to motivate its staff in executing their revenue-collection responsibilities. Relatively higher compensation for tax collection to officers is intended to reduce corruption. A large taxpayers unit has been set up.

To strengthen tax administration and improve voluntary compliance, the GRA continues to introduce modern informatiion and communication technology (ICT) tools for efficient customs clearance and domestic tax collection. Introduction of interests on delayed payment has contributed to increasing the compliance rate. Regarding efforts to alleviate corruption, there are still gaps to fill in the areas of audit and investigation capacities. 

To cover its expenditure for tax collection, the GRA spent 4.6% of the government’s total current expenditure (1.2% of GDP) in 2008. This includes staff expenditures for a technical and administrative staff of about 413 within the GRA.

Looking forward, reforms of the tax system in The Gambia are underway. These reforms should affect indirect and corporate taxes while income taxes remain subject to the 2004 tax law. The indirect-tax law will be updated by introducing a new Excise Tax Act, which will register new commodities to broaden the tax base. Also, the Gambian authority is drafting a new Investment Promotion and Free Zones Act of 2009. As mentioned previously, replacing the current sales tax with a VAT is being discussed, but it is feared that if traders of re-exports were eligible to zero-rate their goods, revenues would fall.

The challenge that the tax authorities face with the informal sector is to enforce the presumptive method (Income and Sales Act 2004) based on estimated profits in terms of turnover. Tax collection for the informal sector suffers from a multiplicity of procedures. Streamlining the rates and also taking a more business-friendly approach to tax collection can be expected to increase revenues from the informal sector.

The Gambia’s political situation remained relatively stable in 2009, at least on the surface. There were no reports of demonstrations within Gambian territory, strikes, riots, nor any episodes of violence on civilians inflicted by the police. The Political Stability category in the World Bank’s Worldwide Governance Indicator 2009 ranks The Gambia in the 50th+ percentile of the 210 countries, the highest among West African countries.

President Jammeh has been re-elected in the three consecutive presidential elections of 1996, 2001 and 2006, with 56%, 53% and 67% of the votes cast respectively, after he came to power in 1994 through a bloodless military coup. As the president’s party, the Alliance for Patriotic Reorientation and Construction (APRC), took most of the seats in the National Assembly, legislative opposition to the executive office is weak. His policy of constantly reshuffling his aides and the cabinet seems to have prevented any rival from accumulating power. The June 2009 reshuffle was another example of this, removing several civil-service chiefs and the finance minister. Moreover, opposition party and media are weak in The Gambia’s political system. Analysts such as the Economist Intelligence Unit predict an easy win by Mr. Jammeh of the September 2011 presidential election. Steps have been taken to end the tensions between The Gambia and Ghana that flared when six Ghanaians were found dead in The Gambia in 2005.

However, the African Economic Outlook (AEO) Hardening of the Regime indicator for Gambia worsened from 1.14 in 2008 to 1.62 in 2009. This reflects the partly suppressed freedom of the press. Seven journalists were sentenced to two years’ imprisonment in August but subsequently released under an executive pardon from the president.

The Gambia has made significant progress towards the achievement of the United Nations Millennium Development Goals (MDGs), but much more remains to be done. The country is not on track to meeting the targets on poverty and hunger reduction, maternal mortality reduction, and infant and child mortality. Nevertheless, the country has met targets on education, gender parity, immunisation, improving drinking water and partnership for development.  

Poverty is a severe problem in The Gambia. According to the Integrated Household Survey 2003/04 (2007), the percentage of population below the (upper) poverty lines – i.e. GMD 6 388 in Banjul and Kaninfing, GMD 6 771 in other urban areas and GMD 7 009 in rural areas – was 57.9% in The Gambia. It was higher in rural areas (67.7%) than in urban areas (39.6%) especially in Banjul (6.6%). Larger households have a higher poverty incidence, from 13.3% for households with 3 or less members up to 71.1% for households with 10 or more members. Poverty is much higher amongst groundnut producers (76.6%) than other households (46.2%). It is difficult, however, to judge whether poverty has been improved because a direct comparison of estimates for 1993 (33%) and for 1998 (68%) does not make much sense for methodological reasons. Prevalence of undernourishment (27% of the population in 2003) also attests to the severity of poverty.

Health care has become increasingly accessible thanks to the rapid expansion of health services to the communities as well as the staffing of village clinics in hard-to-reach rural areas. Antenatal care coverage is almost universal with more than 96% of Gambian women making at least one antenatal-care visit during pregnancy. The Gambia attained higher than 90% immunisation coverage for all antigens for children under one year of age. Malaria remains a public-health challenge. Access to effective anti-malarial drugs by the general population has increased to 63%. In 2009, insecticide treated nets coverage for children under five years of age and pregnant women stood at 54% and 63% respectively. The uptake of sulphadoxine-pyrimethamine for intermittent preventive treatment in pregnancy increased from 33% in 2008 to 47% in 2009. Routine tuberculosis (TB) data show that at least 70% of the estimated TB cases in The Gambia have been detected. The case detection rate has risen from 64% in 2006 to 78% in 2008, the cure rate rose from 67% in 2003 to 78% in 2008, while the treatment success rate rose to 84% in 2008. The share of population aged 15 to 49 living with HIV/AIDS remained relatively low at 0.9% in 2007.

One of the main challenges that the government faces in the health sector is the difficulty of keeping health workers within the public sector. The government lost up to half of its trained health workers per year in recent years to the private sector or to jobs abroad because of low salaries, a lack of career-development opportunities, difficult working conditions and lack of equipment.

The Gambia is on track to achieving the education-related MDGs. The school enrolment rate is improving. In the 2008/09 academic year, the overall gross enrolment rate (GER) at the Lower Basic level stood at 92% with significant progress recorded for girls’ enrolment. The Gambia is also on track to achieve its target, 70%, of completion rate to Grade 6 by 2011, with current rates of 65% for boys and 72% for girls. The GER at the Upper Basic level has reached 62% for boys and 58% for girls. Nonetheless, construction of additional classrooms at the rate 150 per annum since 2007 fell short of the annual target of 250 classrooms.

The main challenge in the transition to higher levels of education comes from a mismatch between the skills and technology demanded by agricultural and industrial activities and those supplied by schools, which focus on language, literature, mathematics and the social sciences. Owing to problems of quality and relevance, most young people, although literate, are not able to secure gainful employment.

The most recent population census data in 2003 indicate the mismatch between demand and supply in education: even though the country’s unemployment is not very high, at 6%, the unemployment rate amongst the more educated was higher. The highest unemployment rate was found among those with secondary education, at 15%.