91616 IDA at Work Benin: Stepping Up Growth and Economic Diversification I mportant economic and structural reforms, supported by the World Bank and the International Monetary Fund (IMF) helped Benin sustain growth rates averaging 4.7 percent annually during the last decade, resulting in modest increases in its per capita income (US$750) as well as improvements in human development, ranging from the construction of new classrooms to tackling malaria. Nev- ertheless, poverty remains widespread and the economy remains little diversified and vulnerable to external shocks. Challenge Benin’s economy remains heavily dependent on cotton and transit/ re-export trade, both of which suffer from serious vulnerabilities. Cotton is the primary export commodity with 25-40 percent of annual exports. Regional re-export and transit trade is the other mainstay of the economy (much of it informal), accounting for 20 percent of GDP and 25 percent of government revenues. The recent global economic crisis highlighted the vulnerability of the economy to trade policy changes in Nigeria, its neighboring and main trading partner. The global economic and financial crisis has contributed to a sig- nificant economic slowdown in Benin, and a widening of the fiscal and current account deficits. The recent deceleration of growth, from 5 percent in 2008 to 2.7 percent in 2009 and an estimated 2.5 percent in 2010, is largely the result of: weaker global demand for exports, particularly in 2009; a decrease in re-export trade, primarily to Nigeria; lower foreign direct investment; lower public investment; a domestic financial scandal; and lower cotton prices. The 2010 floods have resulted in additional strains on an already difficult fiscal position. Despite progress in improving access to basic Approach services, achieving the Millennium Develop- ment Goals (MDGs) remains a significant chal- IDA Country Assistance Strategies have sup- lenge. Benin is on track to meet the MDGs ported Benin’s efforts to implement core for access to potable water in rural areas, priorities established in Poverty Reduction hunger, and reduced HIV/AIDS prevalence. Strategy Papers (PRSPs). The first PRSP was Attaining the rest of the MDGs would be dif- adopted in September 2002 and the current ficult, however, without sharp accelerations plan (covering 2007-2009) provides the stra- of current trends. In particular, in the health tegic framework for the 2009-2012 Country sector, child and maternal mortality remain Assistance Strategy. A third PRSP for the very high despite a sharp reduction over the period 2011-15, for which a Bank/Fund JSAN last years. In education, the universal primary is planned for April 2011, aims at achieving a education goal and the completion rate goal higher sustainable rate of growth and expand- for boys are likely to be reached, but the ing employment. In line with the current 2005 goal of parity in primary and second- PRSP, the new plan is organized around five ary education has not been met and would strategic axes: (i) acceleration of economic not be reached by 2015 without reinforced growth; (ii) infrastructure development; (iii) effort. Furthermore, improving the quality human capital development and improve- of education and the management of the ment of basic services; (iv) promotion of good sector remain key challenges. Finally, while governance; and (v) promoting balanced and Benin is in a position to meet the MDG for sustainable development. Renewed focus rural water supply, reaching the sanitation would be given to decentralization and local goal would be very challenging, even with development, agriculture diversification, cli- sustained actions. mate change initiatives, promotion of female and youth employment, social protection and Benin’s location provides special opportuni- the legal rights of the poor. ties and challenges for regional integration with West Africa Economic Monetary Union The Beninese government successfully com- (WAEMU) and non-WAEMU countries. Since the pleted the implementation of the last three- bulk of its intra-regional trade is with Nigeria, year IMF-supported Poverty Reduction and Benin is well placed to benefit from renewed Growth Facility (PRGF) in August 2009. Prepa- growth in that country. Benin must compete ration of a new Fund-supported program was with neighboring Togo and other countries in temporarily suspended due to important slip- the West Africa region, such as Côte d’Ivoire pages in government expenditures, including and Ghana, to be a key port of entry for trade. large bonuses to civil servants. However, the While the Port of Cotonou could play a crucial authorities have implemented corrective role in strengthening Benin’s competitiveness measures to restore fiscal discipline and as a regional transport hub, the port suffers agreed on a revised fiscal policy for 2010. In from considerable congestion and delays due mid-June 2010, the IMF approved a three- to corruption and weak administration. year US$109 million extended credit facility for Benin. 2 Benin is one of the 19 heavily indebted coun- Under a US$9-million Emergency Food Secu- tries that have graduated from the Heavily- rity Support project approved in October Indebted Poor Countries initiative, receiving 2008, some 37,543 maize and rice producers 100 percent cancellation of eligible debt obtained 9,800 tons of fertilizers (out of under the Multilateral Debt Relief Initiative. which they actually used about 9,143 tons as Debt relief helped to improve debt manage- of December 2010) leading to an expansion in ment and reduce the country’s external debt cereal production from 140,000 tons (98,897 stock from 47 percent of GDP at end-2002 to tons of maize and 41,102 tons of rice) against 19.4 percent of GDP at end-2010. Although a target 147,000 tons. Thus, the project has the impact of the financial crisis is not led to a significant increase in food crop farm- expected to jeopardize debt sustainability, ers’ access to agricultural inputs and in rice the DSA stressed that it is important to pur- and maize production. The closing date has sue a prudent fiscal and borrowing policies, been extended by six months to June 2011 to notably by sticking with highly concessional complete all project activities. funding. Through the regional Abidjan-Lagos trans- Results port and transit facilitation project approved in March 2010 (total Benin alloca- Projects supported by the International tion of US$75 million), IDA is helping address Development Association (IDA) have achieved transport and trade facilitation bottlenecks the following: identified along the corridor, which accounts for about 65 percent of trade in West and As of December 2010, the US$50-million Central Africa. The first phase of the project National Community Driven Development (including Ghana, Togo, and Benin) took off (CDD) project (which received an additional quickly and is promising. In Benin, the first US$12 million in July 2010) had reached about year of implementation under IDA funding 735,000 direct beneficiaries. To date, 1,285 has meant getting ready to start rehabilita- community sub-projects have been financed tion and expansion in April of one of the most by the project, of which 938 are completed congested road sections along the Corridor (with a target of 1,400), with another 270 (outside Cotonou between Godomey and soon to begin implementation with financing Pahou). Furthermore, the project attracted under the additional grant. The project has additional funding from the African Develop- supported the construction or rehabilitation ment Bank for another section of the Beninese of over 1,680 classrooms, 89 health centers, Corridor. Under the US-Millennium Challenge and 39 water and sanitation systems. Around Account, IDA financing and a PPP launched by 84,000 students are enrolled in schools con- the government, improvement of port opera- structed or rehabilitated under the Project. tions through the introduction of a “single The micro-finance component has been window” for trade has started. The ALTTFP successful in extending financial services to framework provides the member countries, 14,087 individuals in 512 previously unserved including Benin, to actively participate in the communities. several regional events—such as workshops 3 on the “regional single window” and the and basic services in Benin’s primary cities Authorized Economic Operator mechanisms— of Cotonou, Porto Novo, Parakou and three aimed at gradually enabling a real regional selected secondary cities (Abomey-Calavi, integration in the West Africa region. Kandi, and Lokossa). The rehabilitation (drainage and pavage) of 25.6 kilometers Since March 2007, when the US$31-million (out of 31.6 km) of dense urban roads is IDA-supported Malaria Control Booster completed, and providing to over 260,000 project was launched, about two million residents better access to the country’s long-lasting impregnated mosquito nets have economic activity centers. In addition, 12.3 been distributed throughout Benin, for the kilometers (out of 14.8 km) of primary drain- benefit of children under five and pregnant age network were constructed protecting women. A second national mass campaign is 91,000 residents from periodic flooding. scheduled to take place in April-May 2011 to Fourteen operational neighborhood develop- distribute four million mosquito nets all over ment committees have been established sur- the country with the IDA supported-project passing the end of project target of 10. The contributing for additional 1,200,000 nets. committees are supporting the entrenchment The project also provided the country’s of community decision making in the project. public health centers with new malaria medi- All participating municipalities (except one) cation, which are more effective in treating have increased their overall internally gener- malaria-affected persons. In addition, these ated funds and are consistently allocating centers received laboratory equipment that funds for urban infrastructure maintenance help with quick diagnosis of malaria cases; per project agreement and targets. they were also equipped with vehicles (cars and motorcycles) to improve the mobility of IDA Contribution health agents. Moreover, about 10,000 public health agents were trained on how to deal Current commitments for Benin (IDA, the with different cases of malaria. Geographi- Global Environment Fund and trust funds) cal coverage under this project has been amount to US$523 million, of which about 57 achieved. Statistical data released by the percent has been disbursed to date. IDA’s Feb- National Malaria Control Program at end ruary 2009 Benin Country Assistance Strategy December 2010 show that the project has (2009-2012) proposes a mix of complemen- already met its end-of-project target results tary instruments. Annual Poverty Reduction in terms of children under five and pregnant Strategy Credits will continue to be prepared women sleeping under impregnated mosquito in addition to specific investment lending nets, and that progress remains steady operations to support either reform activities towards reaching targets for children under (cotton, private sector, energy, telecommuni- five treated correctly with the new malaria cations, governance, and capacity building) or medication. to support basic needs and achievement of the MDGs (malaria, HIV/AIDS, community-driven The IDA-financed Second Decentralized development, drainage and water supply). City Management Project (US$75 million), launched in 2005, is progressing well and IDA analysis has served to underpin the has helped improve access to infrastructure progressive shift from a project-by-project 4 approach towards consolidated programmatic Since 2004, annual joint missions of the support and the design of the first series of main donors providing budget support have Poverty Reduction Support Credits (PRSC). taken place, and together they have begun Analysis also informed the preparation of to develop a policy matrix to monitor the the second generation of PRSPs. Substantial implementation of key structural and sec- analytical work on private sector develop- tor reforms, including aid harmonization for ment supported the development of a Private which a Memorandum of Understanding was Sector Development strategy adopted by the signed in December 2007. At the sector level, government in September 2006. joint government-donor reviews are regularly carried out in the core sectors of rural water, Since 2004, IDA has been providing direct health, education, agriculture, transport and budget support through a series of annual justice. Since 2004, the African Development single tranche PRSC operations. The first Bank (AfDB) has aligned its program loans with PRSC series, covering the 2004-2006 period, the PRSP and the PRSC. On public procure- amounted to US$85 million and contributed ment reform, the AfDB and IDA teams have to enhancing macroeconomic stability, enhanced their coordination, leading to the improving governance and public sector man- selection of joint sets of prior actions. The agement and increasing access to basic social two teams plan to continue to work closely services, in particular education, health and on public expenditure management reforms, water. The second series was launched in public procurement, internal and external 2007 and focused on reforming the regulatory controls, and capacity building. framework and policy environment for pri- vate sector development, the cotton sector, Moving Forward and strategic planning and program budgets in the water, health and education sectors. The global economic crisis continues to affect Given the progress made on the macroeco- Benin adversely. The government’s Growth nomic front, the third and final operation in and Poverty Reduction Strategy, currently the series (US$30 million) was submitted to being updated for the period 2011-2015, is to the Board and approved on April 29, 2010. make Benin an emerging economy by 2025. Preparation of a PRSC-7, the first operation The main challenge ahead is to contain the in a new series, has started. Overall, the impact of the crisis in the short run while program of reforms supported by the PRSCs increasing sustainable growth over the was implemented in a satisfactory manner medium term to make progress towards the despite economic difficulties. MDGs. The fiscal situation continues to be dif- ficult. Tax revenue collection remains weak, Partners limiting the fiscal space for priority social and investment spending, but Benin’s demon- The European Union, African Development strated commitment to reform and desire to Bank, UN agencies, bilateral donors, the absorb aid effectively offer it an opportunity World Bank, and the IMF are among Benin’s to accelerate progress. key partners. Non-traditional creditors, such as China and the Islamic Bank, are also Benin will continue to pursue regional increasingly active. economic integration, particularly in the 5 important energy, transport and telecommu- nications sectors, given the significant advan- tages of its strategic location next to Nigeria and the continued possibilities offered by cross-border trade. IDA will support Benin in pursuing stronger partnerships with the International Finance Corporation (notably in the area of infrastructure) and Multilateral Investment Guarantee Agency. Last Updated April 2011. http://www.worldbank.org/ida 6