Download 2015 Quarter 1 BENINESE SNAPSHOT

BENINESE
SNAPSHOT
2015 Quarter 1
Inflation - Beninese inflation trended in negative territory throughout 2014, averaging -1.1% during this period. The expected uptick in food prices should
nudge inflation into positive territory in 2015, albeit much later than previously expected due to the much lower crude oil price.
Growth - We expect Benin to experience slower economic growth over the medium term as a result of slower international cotton demand. Moreover, an
expected slowdown in economic growth in Nigeria – Benin’s major trading partner – could potentially see activity at the port of Cotonou decline somewhat.
We expect Benin’s real GDP growth to slow somewhat to 5.1% this year from 5.3% in 2014.
National development plan - Beninese authorities will be refocusing economic policy objectives during 2015. The broad economic policy strategy for 20152017 will form part of Benin’s 2025 vision for a stable and well governed nation. This policy will still be in line with the country’s third Growth and Poverty
Reduction Strategy (GPRS3).
OPPORTUNITIES
STRENGTHS
Increased trade via the expanded port of Cotonou.
Benin’s level of import cover during 2011-13 is forecast at 5.4 months.
Benin has untapped agricultural land; the palm oil and cotton oil industries
have potential to develop.
Benin has a good relationship with the International Monetary Fund (IMF) and
in recent times the country has shown commitment to programme goals.
Strong mobile banking opportunities
Benin has relatively low levels of external debt and debt servicing costs.
Proximity to the Nigerian market.
Prudent monetary policy.
VULNERABILITIES
WHAT IS BEING DONE?
The country has a rapidly growing public sector wage bill and a narrow tax
base, with the result being a structural budget deficit and a dependence on
donor aid.
The economy is dependent on agriculture, especially the cotton industry.
Customs revenues are expected to be boosted by the one-stop window created
at the Port of Cotonou and improved monitoring of transit trade. The
authorities are also trying to improve tax collection. Labour unions continue to
have significant power, making wage cuts politically difficult.
The government is trying to support industries such as rice and cereal to
reduce the dependence on cotton.
Piracy off the Beninese coast has become a serious problem.
Foreign partners aid the Beninese Navy in patrolling the coast.
Very challenging business environment.
Reforms have assisted in improving rankings. The country is rated 151st out of
189 countries globally in the World Bank's 2015 Doing Business Index.
MEGA TRENDS
Population
10,160,556 (July 2014 est.); Age 15 - 64: 53.5%
Population growth rate (%)
2.81% (2014 est.)
Life expectancy at birth
Total population: 61.07 years; male: 59.75 years; female: 62.47 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 1.13%; People living with HIV/AIDS: 73,873 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 38.4%; male: 49.9%; female: 27.3% (2015 est.)
and write)
Urbanisation
Urban population: 43.1% of total population (2013); Urban population growth: 3.7% (2013)
Population below $1.25 (PPP) poverty line 51.6% (2012 est.)
Unemployment rate
1% (2013 est.)
Employment (% of total)
Agriculture: 42.7%; Industry: 11.1%; Services: 46.2% (2003 est.)
Labour participation rate (% of total
population ages 15+)
72.9% (2013)
Business languages
French, Fon and Yoruba
Telephone & Internet users
Main lines in use: 159,443; Mobile cellular: 9.63 million; Internet users: 497,867 (2013)
Sources: CIA World Factbook, World Bank, ITU, UNAIDS & NKC Research
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Total
Benin
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
175
80
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
144
N/a
Economic Freedom 2015 (1 most, 178 least free)
178
99
HDI Ranking 2013 (1 most, 187 least developed)
187
165
0
Source: NKC Research
189
151
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
N/R
N/R
Standard & Poor's (S&P) affirmed Benin’s “B” sovereign credit risk rating with a negative outlook on 1 November 2013, but subsequently withdrew the
rating at the issuer’s request. S&P noted that Benin’s low economic development, feeble policy effectiveness, and considerable external imbalances are creditnegative. On the other hand, the rating was supported by the West African nation’s considerable donor support network and low government debt burden,
following extensive debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) programmes.
In the aftermath of S&P’s departure, Benin’s sovereign risk is now unrated by any of the three major international rating agencies.
Infrastructure
Diversity of
the Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Limited but
improving
Dominated by
agriculture
Underdeveloped
Stable
Average
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Fiscal and current
account deficits
Weak
Low
High
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading
Volume
Regional Stock
Exchange - BRVM
1 Beninese firm - BOA
Benin; 38 others
Limited
$11.3bn
Communications: Sonatel
has 38% of total market
cap
N/a
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Underdeveloped
Low
7 days to 7 years
No
No
Macro-economic overview
The Beninese economy is heavily dependent on the agricultural sector, which contributed about 33% of GDP in 2014 and is a major source of employment in
the West African nation. A significant portion of the labour force is active in the cotton sector, which is Benin’s premier export crop. The 2014/15 cotton
harvest is estimated to yield about 350,000 tonnes of cotton, up from 306,000 tonnes in the 2013/2014 season. This will be a healthy 13.3% y-o-y increase,
which falls just short of the 19% y-o-y uptick expected in the international cotton harvest. Since cotton comprises such a major component of Benin’s
economy, the country is vulnerable to demand shocks stemming from its major trading partners. Benin’s export revenues have been hit hard by the global
slowdown in economic activities of its major trading partners such as China and India. We predict that China will experience an economic growth rate of
around 6.96% in 2015 and 6.72% in 2016, which is much lower than that of prior years. Furthermore, we predict that cotton prices will on average decline by
17.72% and 8.75% during 2015 and 2016, respectively, placing downward pressure on Benin’s economic growth prospects.
As Benin forms part of the West African Economic and Monetary Union (WAEMU), monetary policy is administered by the regional central bank, the
Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO). The BCEAO follows a prudent approach to monetary policy, which has helped to keep Benin’s
consumer price inflation low, with the exception of 2012 when inflation spiked as a result of an external fuel price shock. In addition to policy guidance from
the WAEMU, Beninese authorities work closely with the World Bank and specifically the International Monetary Fund (IMF). Another positive for Benin is
the West African nation’s relatively healthy external position. The country has a fairly manageable external debt stock which stood at an estimated 17.04% of
GDP in 2014, thanks to extensive debt relief, and a relatively respectable stockpile of foreign reserves. Regardless of the country’s relatively solid external
position, monetary stability and the comparatively robust economic growth prospects, Beninese economic development is constrained by the cumbersome
business environment, infrastructure deficiencies and high incidence of corruption.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
33.4%
Service/GDP
54.6%
Industry/GDP
12.0%
Benin’s economy is highly dependent on the cotton sector, as well as on trade with its large neighbour, Nigeria. Save for cotton processing, Benin has no
major industry. Agriculture forms the backbone of the Beninese economy, accounting for 33.4% of GDP. Industry, still hampered by a cumbersome business
environment and high levels of perceived corruption, contributed around 12% to GDP in 2014. In turn, the services sector’s contribution to GDP is estimated
at 54.6%. The re-export sector remains of major importance to Benin owing to its strategically valuable geographic location; however, if corruption at the port
of Cotonou and poor infrastructure are not addressed further, re-export benefits will not be reaped.
Real GDP Growth & Net FDI/GDP
3.5
6.0
Source: NKC Research
5.0
3.0
4.0
2.5
3.0
2.0
2.0
1.5
1.0
1.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
With relatively little to offer in terms of traditional African FDI attractions like mineral resources or large oil fields, the West African nation receives
comparatively low levels of FDI. Furthermore, the business environment is quite cumbersome, with a severe lack of transport- and especially electricity
generation infrastructure. In fact, Benin ranks a lowly 151st out of 189 countries in the World Bank’s 2015 Doing Business index. On the other hand, the past
three years have seen the cotton-dependent West African nation’s economy grow in excess of 5% p.a. and the implementation of substantial reforms in pursuit
of improvement of the cumbersome business environment. Benin improved by 16 places on the World Bank’s 2015 Doing Business index. The economic
growth spurt was supported by strong harvests and increased activity at the port of Cotonou. Nevertheless, we expect Benin to experience slower economic
growth over the medium term as a result of softer international cotton demand. Moreover, an expected slowdown in Nigerian economic growth could
potentially see activity at the port of Cotonou decline somewhat. We expect Benin’s real GDP growth to decrease to 5.1% this year from 5.3% in 2014.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
Main Imports: % share of total
2016F
Mineral fuels, oils, distillation products
Cereals
Meat & edible meat offal
2014E 2015F
2016F
Mineral fuels, oils, distillation products
22.53
21.91
22.28
Cereals
16.52
14.19
13.57
Meat & edible meat offal
12.85
13.31
12.62
Vehicles other than railway, tramway
8.74
8.79
8.18
Vehicles other than railway, tramway
Main Exports: % share of total
Re-exports
Cotton
Edible fruit, nuts, peel of citrus fruit,
melons
Cereals
Source: NKC Research
0.0
0.2
0.4
0.6
0.8
2014E 2015F
2016F
Re-exports
69.28
60.95
58.59
Cotton
27.76
21.32
20.29
Edible fruit, nuts, peel of citrus fruit,
melons
8.54
7.31
6.85
Cereals
1.69
1.48
1.42
Benin’s major imports are food and fuel. Given the West African nation’s strategic location, it acts as a transport hub for its landlocked neighbours Burkina
Faso and Niger. Consequently, re-exports form a significant proportion of Benin’s trade flows. The Beninese economy is also closely linked to that of its oil
producing neighbour, Nigeria. A considerable proportion of Benin’s trade flows are with Nigeria, much of it illegally so. Nigerian importers bypass the
nation’s port customs by slipping tonnes of goods through Benin. As such, it is expected that the current slowdown in Nigerian economic growth will have a
dampening effect on Beninese trade.
Import growth of capital goods related to oil exploration should slow over the medium term, as our forecast for oil to move to a structurally lower level in the
next few years will mean that some oil exploration activities might not continue. The IMF predicts that the oil sector will offer export potential over the
medium term, although it is too soon to estimate the likely output volumes due to uncertainty surrounding the valuation of the oil fields in the West African
nation. In the meantime, cotton remains Benin’s premier export crop, placing the relatively undiversified West African nation’s economy at the mercy of
external shocks. On the upside, the 2014/15 crop is expected to come in at 350,000 tonnes, somewhat short of the initial target of 400,000 tonnes, but 13.3%
higher than the previous season. Looking forward, the government expects production to rise to 500,000 tonnes in the following season. On the downside, the
Chinese abandonment of cotton stockpiling and the global increase in cotton supply should keep the cotton price depressed throughout 2015.
3
Current Account & Budget Balance
(% of GDP)
0.0
0.0
-5.0
-2.0
-10.0
-4.0
Source: NKC Research
-6.0
-15.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
Benin maintains quite large twin fiscal and current account deficits due to its weak tax administration, its vulnerability as a net importer of food and fuel, poor
fiscal management and a narrow export base. The significant spike in the current account deficit for 2013 emanated from a sharp rise in capital imports related
to oil exploration activities in the West African nation. We anticipate that Benin’s total exports will rise to $1.1bn this year, from $0.92bn in 2014, and
continue higher to $1.19bn in 2016. Furthermore, we expect the import bill to rise to $2.05bn this year, from $2bn in 2014, and continue to increase to $2.29bn
in 2016. The net effect is expected to be a marginally widening trade deficit. Benin’s wide structural trade deficit is partly offset by substantial current
transfers. We expect the current account deficit to narrow to 8.5% of GDP this year, from 9.2% of GDP in 2014, thereafter narrowing further to 7.8% of GDP
in 2016. On a separate note, we expect Benin’s budget deficit including grants to narrow marginally to 1.3% of GDP this year, from 1.4% of GDP in 2014, and
continue to narrow over the medium term.
Average CPI (% change, y-o-y)
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Source: NKC Research
2009
2010
2011
2012
2013 2014E 2015F 2016F
The Institut National de la Statistique et de l’Analyse Economique (INSAE) released its December 2014 consumer price index (CPI) report in February 2015.
The headline figure increased by 0.3% m-o-m in December 2014 spurred on by increased readings for the food and non-alcoholic beverages (1.4% m-o-m);
alcoholic beverages and tobacco (0.9% m-o-m); and clothing and footwear (0.5% m-o-m) indices. The increases in the aforementioned indices were partly
offset by the decline in the transport (-1.5% m-o-m) index, brought on by the sharp decline in oil prices in recent months. Moreover, the global crude oil price
decline has tamed inflationary pressures somewhat as the prices of petroleum products such as fuels and lubricants fell by 3.7% m-o-m in December. On an
annual basis, the headline figure declined by 0.7% y-o-y in December. The increase in food prices (on a m-o-m basis) comes as a result of higher prices of
cereals and fresh fish.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Toussaint Olatoundé de Souza – designation is Partner
Tel + 228 221 87 69
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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