Benin: Harnessing the Power of Economic Diversification

IMF News, December 12, 2017

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Benin: Harnessing the Power of Economic Diversification

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• Authors: Christine Lagarde
• Published: December 12, 2017

I. Introduction and Theme

• Economic diversification framed as building a more complex, more resilient economic “fabric” that benefits families and communities.
• Diversification reduces vulnerability to sector-specific shocks that can cause unemployment, falling wages, lower revenue, and rising debt.
• Diversification requires:
  • Entrepreneurs launching new ventures in promising areas.
  • Workers upgrading skills for higher-productivity firms.
  • Policymakers and community leaders creating the right environment.
• IMF supports country-specific diversification efforts and identifies common policy threads that increase chances of success.

II. Boosting Economic Diversification in Sub-Saharan Africa

a) Transitions and Challenges

• Progress over the past generation due to improved policies and institutions.
• Select regional outcomes and statistics:
  • Over the past 25 years, life expectancy has increased by a fifth.
  • Infant and maternal mortality rates have halved.
  • Primary school enrolment is up to 80 percent.
  • This year, 12 of 45 countries in sub Saharan Africa—home to about 400 million people—are expected to see negative per capita income growth.
  • By 2030, half of the annual increase in the global working age population is expected to come from sub-Saharan Africa.
• Policy focus needed on job creation and skill development to capture a potential demographic dividend.

b) Diversification Is Key

• IMF analysis finding:
  • A small increase in export diversification—roughly the difference between Senegal and Thailand—can lead to a one percentage point increase in per capita GDP growth.
• Country examples of successful shifts:
  • Rwanda: shift from basic agriculture to higher-value activity, especially services.
  • Botswana: expanded along the diamond value chain into trading, cutting, polishing, and retailing.
  • Mauritius: moved from single-crop farming in the 1960s to tourism, manufacturing, and financial services.
• Common policy threads that support diversification:
  • Macroeconomic stability.
  • Access to credit and a sound business environment.
  • Quality infrastructure.
  • African Development Bank estimate: $93 billion annually over the medium term for Africa’s infrastructure financing requirements.
  • Openness and trade integration.
  • Foreign direct investment for technology transfer, skills development, and competition.
  • Lower income inequality and higher gender equality.
  • IMF staff research: increasing gender equality can lift a country from the lowest rank for export diversification closer to the median.
  • Quotation: “Our booming economies in Africa need more female engineers, teachers and doctors to prosper and sustain growth.” — Angelique Kidjo

c) IMF as Partner

• IMF engagement modalities:
  • Financial assistance.
  • Analysis and policy advice.
  • Capacity development for economic management.
• Regional emphasis:
  • Sub-Saharan Africa is the largest recipient of IMF capacity development efforts.
• Example policy linkages:
  • Strengthening revenue collection to finance infrastructure, education, training, and research and development.
  • Support for the Compact with Africa (a joint initiative between the G20 and seven African nations, including Benin) to boost private investment and create jobs.
• IMF membership scope: 189 member countries.

III. Harnessing Economic Diversification in Benin

• Benin strengths and outlook:
  • Political stability and reform orientation.
  • Growth is expected to accelerate this year to 5.5 percent, and is expected to remain strong over the medium term.
• Structural challenge:
  • Agriculture employs about 70 percent of Benin’s workforce.
• Government diversification priorities:
  • Transform agricultural sector to focus on high-value-added crops and develop food processing.
  • Unlock tourism potential as a new engine of growth and employment.
• Major policy threads recommended/underway:
  • Macroeconomic stability:
  • IMF Executive Board approved a three-year arrangement totaling $150 million under the Extended Credit Facility to reduce the fiscal deficit, strengthen revenue collection, and support diversification.
  • Capacity building focus: tax policy, revenue administration, and public financial management.
  • Boosting infrastructure investment:
  • Priorities: reliable electricity supply, upgraded road networks, a new international airport, and modernization of the Port of Cotonou.
  • Financing: higher public and private investment, including through the Compact with Africa.
  • Strengthening revenue collection to scale up public investment while maintaining sustainable debt.
  • Public investment governance: estimated potential to increase investment efficiency by 55 percent on average with the same amount of investment.
  • Improving the business environment:
  • Cut red tape and boost transparency in public administration.
  • Combat corruption to restore investor confidence; private sector responsibility emphasized as well.
  • Regulatory strengthening against money laundering and recommendation to implement an effective asset declaration regime.
  • Fighting corruption characterized as a multi-year, multi-generational struggle.
  • Promoting more inclusive growth:
  • Inequality drivers: high informality and low agricultural productivity.
  • Policy measures: strengthen land tenure, boost irrigation, foster rural food security.
  • Increase fiscal transfers to disadvantaged areas and adopt cost-effective safety nets such as e-vouchers and mobile transfers.
  • Investment in health and education to raise worker productivity.
  • Gender empowerment:
  • Benin ranks 7th out of 144 countries in a sub-ranking of female labor force participation in the World Economic Forum’s Gender Gap Index.
  • Overall WEF Gender Gap index ranking: 116 (out of 144) due to very low rankings in education, health & political empowerment.
  • Priority: close the gender gap in education so women can access secondary education and universities and move into higher-paying formal sectors.

IV. Conclusion

• Closing message: actions taken today will be “etched in history” and matter for future generations.
• Call to action: work together as partners to weave a better economic fabric that benefits all.

By Christine Lagarde, IMF Managing Director; Chamber of Commerce, Cotonou, December 12, 2017 — IMF Communications Department

References

• Christine Lagarde
• Benin and the IMF
• The IMF and Good Governance -- A Factsheet
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home