Studi Economici
Benin

Benin

Population 12.1 million
GDP 1,291 US$
B
Country risk assessment
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (f)
GDP growth (%) 3.8 5.5 5.5 5.5
Inflation (yearly average, %) 3.0 1.7 3.0 3.0
Budget balance (% GDP) -4.7 -5.7 -5.5 -4.3
Current account balance (% GDP) -1.7 -4.4 -6.2 -5.7
Public debt (% GDP) 46.1 49.9 51.6 52.0

(e): Estimate (f): Forecast

STRENGTHS

  • High growth potential, based on tourism, transit trade and improved agricultural yields
  • Strategic position (access to the sea for hinterland countries)
  • Effective structural reforms: investment and fiscal consolidation

WEAKNESSES

  • Poorly diversified economy (exports based on cotton, cashew nuts and re-exports)
  • Governance deficiencies: corruption, bureaucracy, political and judicial arbitrariness
  • Insecurity in the North due to Islamists

Risk assessment

Strengthening specialisation in cotton and re-exports

Buoyed by a twofold increase in cotton production between 2014 and 2020, Benin has experienced strong growth over the period, and maintained solid growth in 2020 despite the pandemic. Specialisation in this commodity and re-exporting generates uncertainties, evidenced by a recent plateau in yields and the closure of borders by Nigeria in 2019 (as in 1984). Agriculture (30% of GDP and 40% of employment in 2021) remains predominant, although the emergence of an industrial base in building materials, textiles and agribusiness is encouraged. A de facto monopoly of white gold, i.e. the purchase and ginning of cotton, continues to structure the sector and textile factories opened in the autumn of 2022 in the Glo Djigbé industrial zone. The export of raw cashew nuts will be banned in 2024 to promote local processing.

Since the pandemic and the Ukraine crisis, public investments, particularly in the electricity grid (thanks to U.S. cooperation) and freight transport, have driven growth based on a crossroads position. The port of Cotonou has been working on its competitiveness since 2017, supported by the expertise of the port of Antwerp. Eiffage won a EUR 160 million contract in August 2022 to extend and renovate the port by 2027. The improvement in Panamax volume capacity, logistics handling and administrative efficiency is designed to meet regional competition by reducing costs and waiting times. Also in a trade context, the China National Petroleum Corporation will commission the pipeline between Agadem (Niger) and Port Sémé in 2023. With works launched in October 2021, the African Development Bank is financing the development of the "cotton road" in the north between Djougou and Banikoara to the tune of USD 237 million, with completion expected in 2024.

Although relatively unaffected by imported inflation (rice prices will remain stable in 2022), households have benefited from subsidies on agricultural inputs and fuels, as well as from tariff reductions. Having risen sharply in 2020, from 15% to 19% of GDP, public spending should experience a hysteresis effect due to a high level of investment. Private investment (20% of GDP) is expected to remain stable, while public investment is expected to decline slightly (from 7% in 2020 to 5.5% in 2023), without falling back to its initial pre-pandemic level. Total investment has risen sharply, from 20% of GDP in 2016 to 27% in 2020, with household consumption’s share in GDP falling in the same proportions.

The post-pandemic reduction in shortages, combined with food and energy inflation, aggravated by the depreciation of the CFA franc against the dollar, has led to a severe deterioration in net imports in 2022. In a global recession scenario, the fall in commodity prices should lead to a recovery of this item in the medium-term and improve the contribution of trade to growth.

 

Recent progress in macroeconomic management

The government's Action Plan since 2018, consisting of better macroeconomic management and budget transparency, has enabled the country to obtain financing on the markets in 2019 and 2021. Cotonou also benefited in July 2022 from a USD 638 million 42-month IMF Extended Credit Facility to support anti-inflationary stabilisation, the continuation of the Development Plan, and security spending. It should be noted, however, that the institution's loans represent only a small part of the country's debt, as the country benefits mainly from project loans from the World Bank. Public debt is divided equally between multilateral loans, external obligations and domestic obligations. Its stock should stabilise thanks to continued fiscal consolidation and growth.

Resulting entirely from the imbalance in the balance of goods and services, the current account deficit will be financed by FDI, direct capital grants, project loans and IMF disbursements. The financing requirement is not expected to change significantly in the medium-term due to a decline in cotton prices.

 

Security reinforcement to counter the threat in the North

With all the seats in parliament since the 2019 legislative elections and re-elected in 2021 for five years, President Patrice Talon aims to marginalise the political opposition by preventing elections and using the judiciary. The government is also trying to sweep the jihadist incursions in the north under the carpet. Coming regularly from neighbouring Niger and Burkina, the terrorists have been carrying out attacks of increasing intensity since 2019, justifying calls for reinforced military support, notably during President Macron's visit in July 2022. In addition to the traditional alliance with France, Cotonou is seeking to find complementary links with China and potential investment providers from the Gulf States, as well as Rwanda through the conclusion of a security agreement on police and anti-terrorist training in September 2022.

The social context remains fragile in a country, though it is now middle-income, marked by inequalities within the population (in 2020, the Gini coefficient was 0.47 and 49.6% of citizens lived on less than USD 1.9/day), and between the North and the South (literacy and access to health). With no oil or mineral resources, the country is capitalising on its history to develop tourism. In 2022, the restitution of works of art looted during the colonial period, as well as the success of the "Amazons of Abomey" abroad, put Benin in a positive spotlight.

 

Last updated: November 2022

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